Softpanorama

May the source be with you, but remember the KISS principle ;-)
Home Switchboard Unix Administration Red Hat TCP/IP Networks Neoliberalism Toxic Managers
(slightly skeptical) Educational society promoting "Back to basics" movement against IT overcomplexity and  bastardization of classic Unix

Casino Capitalism Bulletin, 2015

Casino Capitalism

News Regulatory Capture Bulletin, 2014 Regulatory Capture Bulletin, 2013 Regulatory Capture Bulletin, 2012 Regulatory Capture Bulletin, 2011 Regulatory Capture Bulletin, 2010 Regulatory Capture Bulletin, 2009
Casino Capitalism Bulletin, 2015 Casino Capitalism Bulletin, 2014 Casino Capitalism Bulletin, 2013 Casino Capitalism Bulletin, 2012 Casino Capitalism Bulletin, 2011 Casino Capitalism Bulletin, 2010 Casino Capitalism Bulletin, 2009 Casino Capitalism Bulletin, 2008

Top Visited
Switchboard
Latest
Past week
Past month

NEWS CONTENTS

Old News ;-)

[Feb 02, 2019] In Fiery Speeches, Francis Excoriates Global Capitalism

The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies, a direct challenge to the conventional view that economic inequalities shrink over time. The controversial implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy.
Notable quotes:
"... His speeches can blend biblical fury with apocalyptic doom. Pope Francis does not just criticize the excesses of global capitalism. He compares them to the "dung of the devil." He does not simply argue that systemic "greed for money" is a bad thing. He calls it a "subtle dictatorship" that "condemns and enslaves men and women." ..."
"... The Argentine pope seemed to be asking for a social revolution. "This is not theology as usual; this is him shouting from the mountaintop," said Stephen F. Schneck, the director of the Institute for Policy Research and Catholic studies at Catholic University of America in Washington. ..."
"... Left-wing populism is surging in countries immersed in economic turmoil, such as Spain, and, most notably, Greece . But even in the United States, where the economy has rebounded, widespread concern about inequality and corporate power are propelling the rise of liberals like Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts, who, in turn, have pushed the Democratic Party presidential front-runner, Hillary Rodham Clinton, to the left. ..."
"... Even some free-market champions are now reassessing the shortcomings of unfettered capitalism. George Soros, who made billions in the markets, and then spent a good part of it promoting the spread of free markets in Eastern Europe, now argues that the pendulum has swung too far the other way. ..."
"... Many Catholic scholars would argue that Francis is merely continuing a line of Catholic social teaching that has existed for more than a century and was embraced even by his two conservative predecessors, John Paul II and Benedict XVI. Pope Leo XIII first called for economic justice on behalf of workers in 1891, with his encyclical "Rerum Novarum" - or, "On Condition of Labor." ..."
"... Francis has such a strong sense of urgency "because he has been on the front lines with real people, not just numbers and abstract ideas," Mr. Schneck said. "That real-life experience of working with the most marginalized in Argentina has been the source of his inspiration as pontiff." ..."
"... In Bolivia, Francis praised cooperatives and other localized organizations that he said provide productive economies for the poor. "How different this is than the situation that results when those left behind by the formal market are exploited like slaves!" he said on Wednesday night. ..."
"... It is this Old Testament-like rhetoric that some finding jarring, perhaps especially so in the United States, where Francis will visit in September. His environmental encyclical, "Laudato Si'," released last month, drew loud criticism from some American conservatives and from others who found his language deeply pessimistic. His right-leaning critics also argued that he was overreaching and straying dangerously beyond religion - while condemning capitalism with too broad a brush. ..."
"... The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies, a direct challenge to the conventional view that economic inequalities shrink over time. The controversial implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy. ..."
"... "Working for a just distribution of the fruits of the earth and human labor is not mere philanthropy," he said on Wednesday. "It is a moral obligation. For Christians, the responsibility is even greater: It is a commandment." ..."
"... "I'm a believer in capitalism but it comes in as many flavors as pie, and we have a choice about the kind of capitalist system that we have," said Mr. Hanauer, now an outspoken proponent of redistributive government ..."
"... "What can be done by those students, those young people, those activists, those missionaries who come to my neighborhood with the hearts full of hopes and dreams but without any real solution for my problems?" he asked. "A lot! They can do a lot. ..."
Jul 11, 2015 | msn.com

ASUNCIÓN, Paraguay - His speeches can blend biblical fury with apocalyptic doom. Pope Francis does not just criticize the excesses of global capitalism. He compares them to the "dung of the devil." He does not simply argue that systemic "greed for money" is a bad thing. He calls it a "subtle dictatorship" that "condemns and enslaves men and women."

Having returned to his native Latin America, Francis has renewed his left-leaning critiques on the inequalities of capitalism, describing it as an underlying cause of global injustice, and a prime cause of climate change. Francis escalated that line last week when he made a historic apology for the crimes of the Roman Catholic Church during the period of Spanish colonialism - even as he called for a global movement against a "new colonialism" rooted in an inequitable economic order.

The Argentine pope seemed to be asking for a social revolution. "This is not theology as usual; this is him shouting from the mountaintop," said Stephen F. Schneck, the director of the Institute for Policy Research and Catholic studies at Catholic University of America in Washington.

The last pope who so boldly placed himself at the center of the global moment was John Paul II, who during the 1980s pushed the church to confront what many saw as the challenge of that era, communism. John Paul II's anti-Communist messaging dovetailed with the agenda of political conservatives eager for a tougher line against the Soviets and, in turn, aligned part of the church hierarchy with the political right.

Francis has defined the economic challenge of this era as the failure of global capitalism to create fairness, equity and dignified livelihoods for the poor - a social and religious agenda that coincides with a resurgence of the leftist thinking marginalized in the days of John Paul II. Francis' increasingly sharp critique comes as much of humanity has never been so wealthy or well fed - yet rising inequality and repeated financial crises have unsettled voters, policy makers and economists.

Left-wing populism is surging in countries immersed in economic turmoil, such as Spain, and, most notably, Greece. But even in the United States, where the economy has rebounded, widespread concern about inequality and corporate power are propelling the rise of liberals like Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts, who, in turn, have pushed the Democratic Party presidential front-runner, Hillary Rodham Clinton, to the left.

Even some free-market champions are now reassessing the shortcomings of unfettered capitalism. George Soros, who made billions in the markets, and then spent a good part of it promoting the spread of free markets in Eastern Europe, now argues that the pendulum has swung too far the other way.

"I think the pope is singing to the music that's already in the air," said Robert A. Johnson, executive director of the Institute for New Economic Thinking, which was financed with $50 million from Mr. Soros. "And that's a good thing. That's what artists do, and I think the pope is sensitive to the lack of legitimacy of the system."

Many Catholic scholars would argue that Francis is merely continuing a line of Catholic social teaching that has existed for more than a century and was embraced even by his two conservative predecessors, John Paul II and Benedict XVI. Pope Leo XIII first called for economic justice on behalf of workers in 1891, with his encyclical "Rerum Novarum" - or, "On Condition of Labor."

Mr. Schneck, of Catholic University, said it was as if Francis were saying, "We've been talking about these things for more than one hundred years, and nobody is listening."

Francis has such a strong sense of urgency "because he has been on the front lines with real people, not just numbers and abstract ideas," Mr. Schneck said. "That real-life experience of working with the most marginalized in Argentina has been the source of his inspiration as pontiff."

Francis made his speech on Wednesday night, in Santa Cruz, Bolivia, before nearly 2,000 social advocates, farmers, trash workers and neighborhood activists. Even as he meets regularly with heads of state, Francis has often said that change must come from the grass roots, whether from poor people or the community organizers who work with them. To Francis, the poor have earned knowledge that is useful and redeeming, even as a "throwaway culture" tosses them aside. He sees them as being at the front edge of economic and environmental crises around the world.

In Bolivia, Francis praised cooperatives and other localized organizations that he said provide productive economies for the poor. "How different this is than the situation that results when those left behind by the formal market are exploited like slaves!" he said on Wednesday night.

It is this Old Testament-like rhetoric that some finding jarring, perhaps especially so in the United States, where Francis will visit in September. His environmental encyclical, "Laudato Si'," released last month, drew loud criticism from some American conservatives and from others who found his language deeply pessimistic. His right-leaning critics also argued that he was overreaching and straying dangerously beyond religion - while condemning capitalism with too broad a brush.

"I wish Francis would focus on positives, on how a free-market economy guided by an ethical framework, and the rule of law, can be a part of the solution for the poor - rather than just jumping from the reality of people's misery to the analysis that a market economy is the problem," said the Rev. Robert A. Sirico, president of the Acton Institute for the Study of Religion and Liberty, which advocates free-market economics.

Francis' sharpest critics have accused him of being a Marxist or a Latin American Communist, even as he opposed communism during his time in Argentina. His tour last week of Latin America began in Ecuador and Bolivia, two countries with far-left governments. President Evo Morales of Bolivia, who wore a Che Guevara patch on his jacket during Francis' speech, claimed the pope as a kindred spirit - even as Francis seemed startled and caught off guard when Mr. Morales gave him a wooden crucifix shaped like a hammer and sickle as a gift.

Francis' primary agenda last week was to begin renewing Catholicism in Latin America and reposition it as the church of the poor. His apology for the church's complicity in the colonialist era received an immediate roar from the crowd. In various parts of Latin America, the association between the church and economic power elites remains intact. In Chile, a socially conservative country, some members of the country's corporate elite are also members of Opus Dei, the traditionalist Catholic organization founded in Spain in 1928.

Inevitably, Francis' critique can be read as a broadside against Pax Americana, the period of capitalism regulated by global institutions created largely by the United States. But even pillars of that system are shifting. The World Bank, which long promoted economic growth as an end in itself, is now increasingly focused on the distribution of gains, after the Arab Spring revolts in some countries that the bank had held up as models. The latest generation of international trade agreements includes efforts to increase protections for workers and the environment.

The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies, a direct challenge to the conventional view that economic inequalities shrink over time. The controversial implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy.

Mr. Piketty roiled the debate among mainstream economists, yet Francis' critique is more unnerving to some because he is not reframing inequality and poverty around a new economic theory but instead defining it in moral terms. "Working for a just distribution of the fruits of the earth and human labor is not mere philanthropy," he said on Wednesday. "It is a moral obligation. For Christians, the responsibility is even greater: It is a commandment."

Nick Hanauer, a Seattle venture capitalist, said that he saw Francis as making a nuanced point about capitalism, embodied by his coinage of a "social mortgage" on accumulated wealth - a debt to the society that made its accumulation possible. Mr. Hanauer said that economic elites should embrace the need for reforms both for moral and pragmatic reasons. "I'm a believer in capitalism but it comes in as many flavors as pie, and we have a choice about the kind of capitalist system that we have," said Mr. Hanauer, now an outspoken proponent of redistributive government policies like a higher minimum wage.

Yet what remains unclear is whether Francis has a clear vision for a systemic alternative to the status quo that he and others criticize. "All these critiques point toward the incoherence of the simple idea of free market economics, but they don't prescribe a remedy," said Mr. Johnson, of the Institute for New Economic Thinking.

Francis acknowledged as much, conceding on Wednesday that he had no new "recipe" to quickly change the world. Instead, he spoke about a "process of change" undertaken at the grass-roots level.

"What can be done by those students, those young people, those activists, those missionaries who come to my neighborhood with the hearts full of hopes and dreams but without any real solution for my problems?" he asked. "A lot! They can do a lot. "You, the lowly, the exploited, the poor and underprivileged, can do, and are doing, a lot. I would even say that the future of humanity is in great measure in your own hands."

[Jun 30, 2017] Elections Absenteeism, Boycotts and the Class Struggle by James Petras

Highly recommended!
Notable quotes:
"... Oligarchs compete and alternate with one another over controlling and defining who votes and doesn't vote. They decide who secures plutocratic financing and mass media propaganda within a tiny corporate sector. 'Voter choice' refers to deciding which preselected candidates are acceptable for carrying out an agenda of imperial conquests, deepening class inequalities and securing legal impunity for the oligarchs, their political representatives and state, police and military officials. ..."
"... The politicians who participate in the restrictive and minoritarian electoral system, with its predetermined oligarchic results, celebrate 'elections' as a democratic process because a plurality of voters, as subordinate subjects, are incorporated. ..."
"... The striking differences in the rate of abstention in France, Puerto Rico and the UK reflect the levels of class dissatisfaction and rejection of electoral politics. ..."
"... Corbyn's foreign policy promised to end the UK's involvement in imperial wars and to withdraw troops from the Middle East. He also re-confirmed his long opposition to Israel's colonial land-grabbing and oppression of the Palestinian people, as a principled way to reduce terrorist attacks at home. ..."
"... In other words, Corbyn recognized that introducing real class-based politics would increase voter participation. This was especially true among young voters in the 18-25 year age group, who were among the UK citizens most harmed by the loss of stable factory jobs, the doubling of university fees and the cuts in national health services. ..."
"... In contrast, the French legislative elections saw the highest rate of voter abstention since the founding of the 5 th Republic. These high rates reflect broad popular opposition to ultra-neo-liberal President Francois Macron and the absence of real opposition parties engaged in class struggle. ..."
"... The established parties and the media work in tandem to confine elections to a choreographed contest among competing elites divorced from direct participation by the working classes. This effectively excludes the citizens who have been most harmed by the ruling class' austerity programs implemented by successive rightist and Social Democratic parties ..."
"... The vast majority of citizens in the wage and salaried class do not trust the political elites. They see electoral campaigns as empty exercises, financed by and for plutocrats. ..."
"... Most citizens recognize (and despise) the mass media as elite propaganda megaphones fabricating 'popular' images to promote anti-working class politicians, while demonizing political activists engaged in class-based struggles. ..."
"... Modern "Democracy" is a system for privatizing power and socializing responsibility. The elites get the power, the masses have to take responsibility for the consequences. because, of course, it's a 'democracy.' ..."
Jun 30, 2017 | www.unz.com

Introduction

The most striking feature of recent elections is not ' who won or who lost' , nor is it the personalities, parties and programs. The dominant characteristic of the elections is the widespread repudiation of the electoral system, political campaigns, parties and candidates.

Across the world, majorities and pluralities of citizens of voting age refuse to even register to vote (unless obligated by law), refuse to turn out to vote (voter abstention), or vote against all the candidates (boycott by empty ballot and ballot spoilage).

If we add the many citizen activists who are too young to vote, citizens denied voting rights because of past criminal (often minor) convictions, impoverished citizens and minorities denied voting rights through manipulation and gerrymandering, we find that the actual 'voting public' shrivel to a small minority.

As a result, present day elections have been reduced to a theatrical competition among the elite for the votes of a minority. This situation describes an oligarchy – not a healthy democracy.

Oligarchic Competition

Oligarchs compete and alternate with one another over controlling and defining who votes and doesn't vote. They decide who secures plutocratic financing and mass media propaganda within a tiny corporate sector. 'Voter choice' refers to deciding which preselected candidates are acceptable for carrying out an agenda of imperial conquests, deepening class inequalities and securing legal impunity for the oligarchs, their political representatives and state, police and military officials.

Oligarchic politicians depend on the systematic plundering Treasury to facilitate and protect billion dollar/billion euro stock market swindles and the illegal accumulation of trillions of dollars and Euros via tax evasion (capital flight) and money laundering.

The results of elections and the faces of the candidates may change but the fundamental economic and military apparatus remains the same to serve an ever tightening oligarchic rule.

The elite regimes change, but the permanence of state apparatus designed to serve the elite becomes ever more obvious to the citizens.

Why the Oligarchy Celebrates " Democracy "

The politicians who participate in the restrictive and minoritarian electoral system, with its predetermined oligarchic results, celebrate 'elections' as a democratic process because a plurality of voters, as subordinate subjects, are incorporated.

Academics, journalists and experts argue that a system in which elite competition defines citizen choice has become the only way to protect 'democracy' from the irrational 'populist' rhetoric appealing to a mass of citizens vulnerable to authoritarianism (the so-called ' deplorables' ). The low voter turn-out in recent elections reduces the threat posed by such undesirable voters.

A serious objective analysis of present-day electoral politics demonstrates that when the masses do vote for their class interests – the results deepen and extend social democracy. When most voters, non-voters and excluded citizens choose to abstain or boycott elections they have sound reasons for repudiating plutocratic-controlled oligarchic choices.

We will proceed to examine the recent June 2017 voter turnout in the elections in France, the United Kingdom and Puerto Rico. We will then look at the intrinsic irrationality of citizens voting for elite politicos as opposed to the solid good sense of the popular classes rejection of elite elections and their turn to extra-parliamentary action.

Puerto Rico's Referendum

The major TV networks (NBC, ABC and CBS) and the prestigious print media ( New York Times, Washington Post, Financial Times and Washington Post ) hailed the ' overwhelming victory' of the recent pro-annexationist vote in Puerto Rico. They cited the 98% vote in favor of becoming a US state!

The media ignored the fact that a mere 28% of Puerto Ricans participated in the elections to vote for a total US takeover. Over 77% of the eligible voters abstained or boycotted the referendum.

In other words, over three quarters of the Puerto Rican people rejected the sham ' political elite election '. Instead, the majority voted with their feet in the streets through direct action.

France's Micro-Bonaparte

In the same way, the mass media celebrated what they dubbed a ' tidal wave ' of electoral support for French President Emmanuel Macron and his new party, 'the Republic in March'. Despite the enormous media propaganda push for Macron, a clear majority of the electorate (58%) abstained or spoiled their ballots, therefore rejecting all parties and candidates, and the entire French electoral system. This hardly constitutes a 'tidal wave' of citizen support in a democracy.

During the first round of the parliamentary election, President Macron's candidates received 27% of the vote, barely exceeding the combined vote of the left socialist and nationalist populist parties, which had secured 25% of the vote. In the second round, Macron's party received less then 20% of the eligible vote.

In other words, the anti-Macron rejectionists represented over three quarters of the French electorate. After these elections a significant proportion of the French people – especially among the working class –will likely choose extra-parliamentary direct action, as the most democratic expression of representative politics.

The United Kingdom: Class Struggle and the Election Results

The June 2017 parliamentary elections in the UK resulted in a minority Conservative regime forced to form an alliance with the fringe Democratic Unionist Party (DUP), a far-right para-military Protestant party from Northern Ireland. The Conservatives received 48% of registered voters to 40% who voted for the Labor Party. However, 15 million citizens, or one-third of the total electorate abstained or spoiled their ballots. The Conservative regime's plurality represented 32% of the electorate.

Despite a virulent anti-Labor campaign in the oligarch-controlled mass media, the combined Labor vote and abstaining citizens clearly formed a majority of the population, which will be excluded from any role the post-election oligarchic regime despite the increase in the turnout (in comparison to previous elections).

Elections: Oligarchs in Office, Workers in the Street

The striking differences in the rate of abstention in France, Puerto Rico and the UK reflect the levels of class dissatisfaction and rejection of electoral politics.

The UK elections provided the electorate with something resembling a class alternative in the candidacy of Jeremy Corbyn. The Labor Party under Corbyn presented a progressive social democratic program promising substantial and necessary increases in social welfare spending (health, education and housing) to be funded by higher progressive taxes on the upper and upper middle class.

Corbyn's foreign policy promised to end the UK's involvement in imperial wars and to withdraw troops from the Middle East. He also re-confirmed his long opposition to Israel's colonial land-grabbing and oppression of the Palestinian people, as a principled way to reduce terrorist attacks at home.

In other words, Corbyn recognized that introducing real class-based politics would increase voter participation. This was especially true among young voters in the 18-25 year age group, who were among the UK citizens most harmed by the loss of stable factory jobs, the doubling of university fees and the cuts in national health services.

In contrast, the French legislative elections saw the highest rate of voter abstention since the founding of the 5 th Republic. These high rates reflect broad popular opposition to ultra-neo-liberal President Francois Macron and the absence of real opposition parties engaged in class struggle.

The lowest voter turn-out (28%) occurred in Puerto Rico. This reflects growing mass opposition to the corrupt political elite, the economic depression and the colonial and semi-colonial offerings of the two-major parties. The absence of political movements and parties tied to class struggle led to greater reliance on direct action and voter abstention.

Clearly class politics is the major factor determining voter turnout. The absence of class struggle increases the power of the elite mass media, which promotes the highly divisive identity politics and demonizes left parties. All of these increase both abstention and the vote for rightwing politicians, like Macron.

The mass media grossly inflated the significance of the right's election victories of the while ignoring the huge wave of citizens rejecting the entire electoral process. In the case of the UK, the appearance of class politics through Jeremy Corbyn increased voter turnout for the Labor Party. However, Labor has a history of first making left promises and ending up with right turns. Any future Labor betrayal will increase voter abstention.

The established parties and the media work in tandem to confine elections to a choreographed contest among competing elites divorced from direct participation by the working classes. This effectively excludes the citizens who have been most harmed by the ruling class' austerity programs implemented by successive rightist and Social Democratic parties.

The decision of many citizens not to vote is based on taking a very rational and informed view of the ruling political elites who have slashed their living standards often by forcing workers to compete with immigrants for low paying, unstable jobs. It is deeply rational for citizens to refuse to vote within a rigged system, which only worsens their living conditions through its attacks on the public sector, social welfare and labor codes while cutting taxes on capital.

Conclusion

The vast majority of citizens in the wage and salaried class do not trust the political elites. They see electoral campaigns as empty exercises, financed by and for plutocrats.

Most citizens recognize (and despise) the mass media as elite propaganda megaphones fabricating 'popular' images to promote anti-working class politicians, while demonizing political activists engaged in class-based struggles.

Nevertheless, elite elections will not produce an effective consolidation of rightwing rule. Voter abstention will not lead to abstention from direct action when the citizens recognize their class interests are in grave jeopardy.

The Macron regime's parliamentary majority will turn into an impotent minority as soon as he tries carry out his elite promise to slash the jobs of hundreds of thousands of French public sector workers, smash France's progressive labor codes and the industry-wide collective bargaining system and pursue new colonial wars.

Puerto Rico's profound economic depression and social crisis will not be resolved through a referendum with only 28% of the voter participation. Large-scale demonstrations will preclude US annexation and deepen mass demands for class-based alternatives to colonial rule.

Conservative rule in the UK is divided by inter-elite rivalries both at home and abroad. ' Brexit' , the first step in the break-up of the EU, opens opportunities for deeper class struggle. The social-economic promises made by Jeremy Corbyn and his left-wing of the Labor Party energized working class voters, but if it does not fundamentally challenge capital, it will revert to being a marginal force.

The weakness and rivalries within the British ruling class will not be resolved in Parliament or by any new elections.

The demise of the UK, the provocation of a Conservative-DUP alliance and the end of the EU (BREXIT) raises the chance for successful mass extra-parliamentary struggles against the authoritarian neo-liberal attacks on workers' civil rights and class interests.

Elite elections and their outcomes in Europe and elsewhere are laying the groundwork for a revival and radicalization of the class struggle.

In the final analysis class rule is not decided via elite elections among oligarchs and their mass media propaganda. Once dismissed as a 'vestige of the past', the revival of class struggle is clearly on the horizon.

(Republished from The James Petras Website by permission of author or representative)


Brás Cubas Show Comment Next New Comment June 28, 2017 at 5:57 pm GMT

A much needed analysis by Mr. Petras. Here in Brazil it is becoming increasingly apparent that extra-electoral manifestations are the only path left for the destitute classes. The only name to which the Left seems able to garner votes is the eternal Luiz da Silva, who has pandered to Capital all through his political career, and will possibly become inelectable anyway, by upcoming criminal convictions.

WorkingClass Show Comment Next New Comment June 29, 2017 at 5:18 pm GMT

"In the final analysis class rule is not decided via elite elections among oligarchs and their mass media propaganda. Once dismissed as a 'vestige of the past', the revival of class struggle is clearly on the horizon."

Globalism is the new Feudalism. In the U.S. the serfs still think they are "middle class".

Only the working class can help the working class. This truism is being re-learned.

jilles dykstra Show Comment Next New Comment June 30, 2017 at 7:26 am GMT

We see in any country with a district voting system how democracy does not function: USA, GB and France.
The Dutch equal representation system is far superior, the present difficulties of forming a government reflect the deep divisions in Dutch society.
These deep divisions should be clear anywhere, now that the struggle between globalisation and nationalism is in full swing.

jilles dykstra Show Comment Next New Comment June 30, 2017 at 7:28 am GMT

@Brás Cubas In nearly the whole of S America elections just reflect the struggle between two or more groups of rich people for power.

jacques sheete Show Comment Next New Comment June 30, 2017 at 9:05 am GMT

The vast majority citizens (sic) in the wage and salaried class do not trust the political elites. They see electoral campaigns as empty exercises, financed by and for plutocrats.

And they'd be correct.

What amazes me is how many "professional" people still smugly retain faith in an obviously rigged and parasitic system even as their independence is relentlessly eroded. Also, most of them, even the non-TV watchers, seem to slurp the usual propaganda about who the enemies supposedly are.

Self reflection obviously ain't their shtick. Maybe there's comfort in denial and mythology.

Expletive Deleted Show Comment Next New Comment June 30, 2017 at 11:38 am GMT

The DUP would be very quick to insist that they are not para-militaries. As would their Tweedledee, Sinn Féin (invariably referred to as 'Sinn-Féin-I-R-A' by the Unionist factions; not even banter).

It is undeniable that in the past they have had links to UVF/UDA, both straight-up rightwing paramilitary thug outfits formed to mirror and combat the Provisionals and latterly the Continuity IRA and self-styled "Real IRA" nationalist/socialist thugs. And presumably do so to this day.

"Everybody knows" that each political group is pretty much furtively hand-in-glove with their respective heavy mobs, and who's in which one. It's a wee tiny place, the Six Counties.

Expletive Deleted Show Comment Next New Comment June 30, 2017 at 11:59 am GMT

Corbyn has definitely struck a rich vein of popularity (if not populism) among the "don't vote it just encourages them" tendency, and a healthy majority of wealthy and not so wealthy young Brits. Listen to the Glasto crowd. He gets this everywhere now in public (and maybe at home, IDK).

Remarkable transformation for somebody who only few years ago was a dull grey teadrinker from Camden Council, with a half-century-old cardigan and a Catweazle beard.

Even The Demon Blair could never raise this sort of adulation.

eD Show Comment Next New Comment June 30, 2017 at 12:56 pm GMT

I want to like the article, but Petras gives three examples, all of which are bad examples for different reasons.

In the case of Puerto Rico, opposition parties campaigned, not for people to vote and to vote against the government position, but to abstain altogether. This is a long standing political tactic of opposition parties and other examples can be found. Its not used that often because its usually a better tactic to just try to get people to get out and vote against the government. However, it can work if there is a minimum turnout requirement for the election to be valid, which is often the case in referenda and seems to be here. But this is evident of people rejecting the government position, not the entire system. Voters obviously responded to the pro-Commonwealth status campaign. By the way, usually referenda on things like independence, or in this case statehood, get unusually high turnout, it was the opposite this time because of the opposition tactic.

On the other hand, in the 2017 French elections there really was a high amount of non-organized or dis-organized abstention on the part of pissed off voters. The problem with Petras account is that this was in fact widely covered in French media and by French political analysts, with commentary along the lines of "these people must be really pissed off not to vote!".

In the recent UK elections turnout was both quite high and increased, so I have no idea wtf Petras is talking about here.

If the examples used weren't so ridiculously bad the article could be OK I guess.

High abstention rates occur when big chunks of the electorate suspect that the elections are rigged, usually by means of vote counting fraud, but effective or legal restrictions on who can run or who can vote can do the job. The rigging might even take the form of discarding ballots, which is the most common form in the US, which means turnout would be recorded as low even if people tried to vote!

Keep in mind that with universal suffrage, it seems consistently that about a quarter of the electorate has no interest in participating in electoral politics whatever the situation. If forced to vote by law, they will spoil their ballots, vote for parties that campaign to end the democratic system, or not vote anyway and suffer whatever legal penalties are imposed. Reasonably healthy democracies can get to turnouts of around 70% fairly consistently. Anything less should be taken as evidence of widespread electoral fraud.

TG Show Comment Next New Comment June 30, 2017 at 1:35 pm GMT

Modern "Democracy" is a system for privatizing power and socializing responsibility. The elites get the power, the masses have to take responsibility for the consequences. because, of course, it's a 'democracy.'

Bottom line: political systems are to a great extent irrelevant. Putting your faith in any system: monarchy, socialism, representative democracy, parliamentary democracy, checks and balances, etc., is a mistake. There is (almost) no system that cannot be made to muddle through if the elites have some consideration for the society as a whole. And there is absolutely no system that cannot be easily corrupted if the elites care only about themselves.

jacques sheete Show Comment Next New Comment June 30, 2017 at 3:21 pm GMT

@jilles dykstra

In nearly the whole of S America elections just reflect the struggle between two or more groups of rich people for power.

The same could be said for the revolution of 1776, and it continues in the US today.

I said, "No, there is a great difference. Taft is amiable imbecility. Wilson is willful and malicious imbecility and I prefer Taft."
Roosevelt then said : "Pettigrew, you know the two old parties are just alike. They are both controlled by the same influences, and I am going to organize a new party " a new political party " in this country based upon progressive principles.
"Roosevelt then said : "Pettigrew, you know the two old parties are just alike. They are both controlled by the same influences "

- R. F. Pettigrew, "Imperial Washington," The story of American Public life from 1870 to 1920 (1922), p 234

https://babel.hathitrust.org/cgi/pt/search?q1=amiable;id=yale.39002002948025;view=1up;seq=7;start=1;sz=10;page=search;orient=0

jacques sheete Show Comment Next New Comment June 30, 2017 at 3:26 pm GMT

I recommend not voting because it is not ethical to send a non-corrupt person to Washington. The United States is too powerful.

Good recommendation and for a good reason.

I'd say that it's unethical to send anyone to Washington since there is too much wealth and power concentrated in the hands of too few, ethical or not.

In fact, the record shows that few men are worthy to wield much power at all and a system such as we have is almost guaranteed to produce hideous, irresponsible monsters if not downright sadistic ones (like Hillary, for instance).

Instead of talking about draining the swamp, we should have flushed the toilet long go. Now we have to live with the stench.

Wally Show Comment Next New Comment June 30, 2017 at 4:42 pm GMT

@Expletive Deleted Looks like a Trump rally.

http://a.abcnews.com/images/Politics/AP_Donald_Trump_Rally_hb_160310_4x3_992.jpg

Wally Show Comment Next New Comment June 30, 2017 at 4:44 pm GMT

@Daniel Thom Hmmm.

President Trump Has Now Signed 40 Pieces Of Legislation As He Moves To Enact His Agenda

http://dailycaller.com/2017/06/25/president-trump-has-now-signed-40-pieces-of-legislation-as-he-moves-to-enact-his-agenda/

bluedog Show Comment Next New Comment June 30, 2017 at 8:04 pm GMT

@jilles dykstra Yes indeed just like it is here in the election between Clinton and Trump, two packs of wolves fighting over the sheep

unpc downunder Show Comment Next New Comment June 30, 2017 at 11:06 pm GMT

The primary reason why lots of working class people don't vote is because they dislike the liberal policy combinations offered by the elite-controlled political parties. Most working class people are socially conservative and economically moderate, while most wealthy, educated people are socially and economically liberal, so mainstream political parties only offer liberal policy packages.

Modern representative democracy was designed in the late 19th Century to allow for some democratic representation for the middle class while protecting the bourgeois elites from the rule of the mob. That may have been a reasonable concern at the time, but it now means tyranny of the liberal elites.

The solution is to reduce the power of political parties, either by making political parties more accountable to their grass roots supporters or getting rid of political parties and directly electing government ministers.

Wizard of Oz Show Comment Next New Comment July 1, 2017 at 12:20 am GMT

@eD A well informed comment without the kind of Marxist or other blinkers on that Petras wears. But I question the last sentence. Electoral fraud could work to add votes as well as destroy or lose them and vigilance is needed anyway. Are there highly numerate and worldly wise psephologists with adequate research funding who are acting plausibly to keep a check on the way the bureaucratic guardians of our electoral processes do their job? (All sorts of factors could make a big difference in the proportion who vote. Is it part of the culture one was broůght up in to believe that one had a duty to do one's modest best to participate? Are there a lot of elections at sometimes inconvenient times within a short space of time? Is there a genuine problem deciding between the only candidates who might win on either grand moral or national policy grounds or even simple self interest? Is it assumed only one candidate can possibly win the seat? That last is one of the few arguments for proportional representatiion because a dutiful voter who has a preference for one party will make his infinitesimal contribution by voting).

Even Australia with its 80 to 90+ per cent turnouts to vote in sometimes complicated elections with mixed Alternative Vote/Preferential and proportional representation for the different houses of parliament (and not much "informal" voting as protest) exhibits the growing weaknesses of democracies. That is, as I propose to write in another comment, the corruption of respect for the oligarchs (whether traditional upper and upper middle classes or labour bosses), the replacement of the class that went into politics as a duty by professiinal calculating careerists – plus opportunistic extremists – and the growth of a sense of entitlement which ptobably adds up by now to 150 per cent of all that is or can be. Thanks to China's huge appetite for Australian resources and products Australian democracy can stagger on with scope even for absurd fantasies e.g. about Australia's proper level of masochism in rejecting coal for energy when it can make absolutely no difference to Australia – except to make it poorer.

Wizard of Oz Show Comment Next New Comment July 1, 2017 at 12:49 am GMT

@unpc downunder Your version of history differs from mine. 1832 and even 1867 in the UK still built in some protection from the unpropertied lower orders (and 100 per cent from women – publicly anyway) but Australian colonial suffrage was typically the alarming manhood suffrage with only property qualification for some upper house elections as a break on the masses' savage expropriatory instincts – not too much to be feared amongst ambitious colonial strivers in fact. The general assumption that everyone with an IQ of 100 and a degree in Fashionable Jargon-ridden Muddled Thinking is as worth listening to as anyone from the tradional educated bougeois or landed elite has inevitably put politics into the hands of the ruthless, often arriviste careerists.

Please think again about your last par. which I suggest is a prescription for (even worse) disaster. The idea of getting rid of political parties (how?) is as unrealistic as having the bored populace vote directly for membership of the executive government who, in parliamentary systems at least, have to command legislative majorities to be effective. And why do you think responsiveness to those few who join political parties is likely to benefit the wider public when you consider what has been wrought in the UK Labour Party by election of the leader by a flood of new young members wlling to pay Ł3 to join!! I believe the Tories have also moved in that idiotic direction. Imagine even the comparatively simple business of making motor cars being headed by a CEO who had campaigned for votes amingst all workers who had been employed for more than 4 weeks with promises of squeezing shareholders and doubling wages.

Wizard of Oz Show Comment Next New Comment July 1, 2017 at 1:00 am GMT

@jilles dykstra Your observation seems to depend for its truth on people (and you?) seeing politics and national life as a zero sum game with no chance of increase in wealth or other good things of life. That seems to be a logical attitude only in countries which sre still Malthusian like say Niger with its TFF of 7! Is that a tealistic assessment of 2017 South America, or most of it?

Wizard of Oz Show Comment Next New Comment July 1, 2017 at 1:21 am GMT

@jilles dykstra We see in any country with a district voting system how democracy does not function: USA, GB and France.
The Dutch equal representation system is far superior, the present difficulties of forming a government reflect the deep divisions in Dutch society.
These deep divisions should be clear anywhere, now that the struggle between globalisation and nationalism is in full swing. I had in mind your comment when writing part of my last par in #17 which I won't repeat.

But allow me to expŕess astonishment at the idea that a truly sovereign nation benefits from an electoral system which so represents irreconcilable differences in society that a government cannot be formed. The Netherlands comfortable position as a minor feature of the EU makes it perhaps less of a problem than, at least potentially, it is for Israel. Whenever Israel handles anything really stupidly it is a good bet that it is during wrangling over putting together a majority government.

Another problem with PR well illustrated by Israel that you don't mention is that citizens have no local member who has to show that he cares about his constituents' concerns and actually gets to know about them. That, for the average citizen has to be a really important matter. In Australia we have just seen a pretty dodgy Chinese government aligned businessman/ donor to the New South Wales Labor Party rewarded with nomination to a winnable place in the PR election of the Senate. There is no way he would be put forward to win votes in a local electorate of thousands of voters rather than millions.

[Dec 05, 2016] The Trans-Pacific Partnership Permanent Lock In The Obama Agenda For 40% Of The Global Economy

Oct 06, 2015 | Zero Hedge
We have just witnessed one of the most significant steps toward a one world economic system that we have ever seen. Negotiations for the Trans-Pacific Partnership have been completed, and if approved it will create the largest trading bloc on the planet. But this is not just a trade agreement. In this treaty, Barack Obama has thrown in all sorts of things that he never would have been able to get through Congress otherwise. And once this treaty is approved, it will be exceedingly difficult to ever make changes to it. So essentially what is happening is that the Obama agenda is being permanently locked in for 40 percent of the global economy.

The United States, Canada, Japan, Mexico, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam all intend to sign on to this insidious plan. Collectively, these nations have a total population of about 800 million people and a combined GDP of approximately 28 trillion dollars.

Of course Barack Obama is assuring all of us that this treaty is going to be wonderful for everyone

In hailing the agreement, Obama said, "Congress and the American people will have months to read every word" before he signs the deal that he described as a win for all sides.

"If we can get this agreement to my desk, then we can help our businesses sell more Made in America goods and services around the world, and we can help more American workers compete and win," Obama said.

Sadly, just like with every other "free trade" agreement that the U.S. has entered into since World War II, the exact opposite is what will actually happen. Our trade deficit will get even larger, and we will see even more jobs and even more businesses go overseas.

But the mainstream media will never tell you this. Instead, they are just falling all over themselves as they heap praise on this new trade pact. Just check out a couple of the headlines that we saw on Monday…

Overseas it is a different story. Many journalists over there fully recognize that this treaty greatly benefits many of the big corporations that played a key role in drafting it. For example, the following comes from a newspaper in Thailand

You will hear much about the importance of the TPP for "free trade".

The reality is that this is an agreement to manage its members' trade and investment relations - and to do so on behalf of each country's most powerful business lobbies.

These sentiments were echoed in a piece that Zero Hedge posted on Monday

Packaged as a gift to the American people that will renew industry and make us more competitive, the Trans-Pacific Partnership is a Trojan horse. It's a coup by multinational corporations who want global subservience to their agenda. Buyer beware. Citizens beware.

The gigantic corporations that dominate our economy don't care about the little guy. If they can save a few cents on the manufacturing of an item by moving production to Timbuktu they will do it.

Over the past couple of decades, the United States has lost tens of thousands of manufacturing facilities and millions of good paying jobs due to these "free trade agreements". As we merge our economy with the economies of nations where it is legal to pay slave labor wages, it is inevitable that corporations will shift jobs to places where labor is much cheaper. Our economic infrastructure is being absolutely eviscerated in the process, and very few of our politicians seem to care.

Once upon a time, the city of Detroit was the greatest manufacturing city on the planet and it had the highest per capita income in the entire nation. But today it is a rotting, decaying hellhole that the rest of the world laughs at. What has happened to the city of Detroit is happening to the entire nation as a whole, but our politicians just keep pushing us even farther down the road to oblivion.

Just consider what has happened since NAFTA was implemented. In the year before NAFTA was approved, the United States actually had a trade surplus with Mexico and our trade deficit with Canada was only 29.6 billion dollars. But now things are very different. In one recent year, the U.S. had a combined trade deficit with Mexico and Canada of 177 billion dollars.

And these trade deficits are not just numbers. They represent real jobs that are being lost. It has been estimated that the U.S. economy loses approximately 9,000 jobs for every 1 billion dollars of goods that are imported from overseas, and one professor has estimated that cutting our trade deficit in half would create 5 million more jobs in the United States.

Just yesterday, I wrote about how there are 102.6 million working age Americans that do not have a job right now. Once upon a time, if you were honest, dependable and hard working it was easy to get a good paying job in this country. But now things are completely different.

Back in 1950, more than 80 percent of all men in the United States had jobs. Today, only about 65 percent of all men in the United States have jobs.

Why aren't more people alarmed by numbers like this?

And of course the Trans-Pacific Partnership is not just about "free trade". In one of my previous articles, I explained that Obama is using this as an opportunity to permanently impose much of his agenda on a large portion of the globe…

It is basically a gigantic end run around Congress. Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty. If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more. This treaty includes many of the rules that alarmed Internet activists so much when SOPA was being debated, it would essentially ban all "Buy American" laws, it would give Wall Street banks much more freedom to trade risky derivatives and it would force even more domestic manufacturing offshore.

The Republicans in Congress foolishly gave Obama fast track negotiating authority, and so Congress will not be able to change this treaty in any way. They will only have the opportunity for an up or down vote.

I would love to see Congress reject this deal, but we all know that is extremely unlikely to happen. When big votes like this come up, immense pressure is put on key politicians. Yes, there are a few members of Congress that still have backbones, but most of them are absolutely spineless. When push comes to shove, the globalist agenda always seems to advance.

Meanwhile, the mainstream media will be telling the American people about all of the wonderful things that this new treaty will do for them. You would think that after how badly past "free trade" treaties have turned out that we would learn something, but somehow that never seems to happen.

The agenda of the globalists is moving forward, and very few Americans seem to care.

HedgeAccordingly

CIA Insider: China is About to End the Dollar

two hoots

Bill Clinton on signing NAFTA:

First of all, because NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement.

Freddie

Many of those NeoCon Bibi lovers and Jonathan Pollard conservatives love TPP and H1B Ted Cruz. Ted is also a Goldman Sachs boy.

Squids_In

That giant sucking sound just got gianter.

MrTouchdown

Probably, but here's a thought:

It might be a blowing sound of all things USA deflating down (in USD terms) to what they are actually worth when compared to the rest of the world. For example, a GM assembly line worker will make what an assembly line worker in Vietnam makes.

This will, of course, panic Old Yellen, who will promptly fill her diaper and begin subsidizing wages with Quantitative Pleasing (QP1).

Buckaroo Banzai

If this gets through congress, the Republican Party better not bother asking for my vote ever again.

Chupacabra-322

Vote? You seem to think "voting" will actually influence actions / Globalists plans which have been decades in the making amoungst thse Criminal Pure Evil Lucerferian Psychopaths hell bent on Total Complete Full Spectrum World Domination.

Yea, keep voting. I'll be out hunting down these Evil doers like the dogs that they are.

Buckaroo Banzai

I have no illusions regarding the efficacy of voting. It is indeed a waste of time.

What I said was, they better not dare even ASK for my vote.

Ignatius

Doesn't matter. Diebold is so good at counting that you don't even need to show up at the polls anymore. It's like a miracle of modern technology.

Peter Pan

Did the article say 40%?

I imagine they meant 40% of whatever is left after we all go to hell in a hand basket.

Great day for the multinationals and in particular the pharmaceutical companies.

[Dec 31, 2015] Oil, Asia shares see subdued end to year dominated by Fed, China

Notable quotes:
"... While cheaper fuel is a boost to consumer spending power in much of the developed world, it is also a disinflationary force that reinforces bets on loose monetary policy in Europe, Japan and China, even as the Federal Reserve proceeds with glacial tightening. ..."
finance.yahoo.com

While cheaper fuel is a boost to consumer spending power in much of the developed world, it is also a disinflationary force that reinforces bets on loose monetary policy in Europe, Japan and China, even as the Federal Reserve proceeds with glacial tightening.

Oil prices are ending the year how they began - under pressure.

[Dec 31, 2015] Now Comes The Great Unwind - How Evaporating Commodity Wealth Will Slam The Casino

Notable quotes:
"... Submitted by David Stockman via Contra Corner blog, ..."
Zero Hedge

Submitted by David Stockman via Contra Corner blog,

...Already, investment is estimated to have dropped by 20% in 2015, and that is just the beginning.

This unfolding collapse of oil and gas investments, of course, will ricochet through the capital goods and heavy construction sectors with gale force. Eventually, annual investment may decline by $250 to $400 billion before balance is restored, meaning that what were windfall profits and surging wages and bonuses in these sectors just a year or two back will evaporate in the years ahead.

... ... ...

... as the credit bubble begins to shrink it means that profits, incomes, balance sheets and credit-worthiness are all shrinking, too. So is the related GDP.

But now the days of heady accumulation of "sovereign wealth" in Saudi Arabia, Norway, Kazakhstan and dozens of commodity producers in between is over and done. What is happening is that these funds are entering a cycle of liquidation which is unprecedented in financial history.

Indeed, the data for Saudi Arabia, Qatar, Kuwait, the UAE and other members of the Gulf Cooperation Council (GCC) is stunning. During the global credit boom they amassed sovereign wealth funds totaling $2.3 trillion. But with deficits now estimated at 13% of GDP and rising, the level of asset liquidation is soaring.

Thus, if crude oil prices recover to $56 per barrel next year, the GCC states will need to liquidate $208 billion of investments.

... ... ...

In a word, the unnatural Big Fat Bid of the sovereign wealth funds is going All Offers as oil and commodity producers struggle to fund their budgets.

... ... ...

Jack Burton

ENERGY Sector "what were windfall profits and surging wages and bonuses in these sectors just a year or two back will evaporate in the years ahead."

This is already crushing Canada and North Dakota, whose actual oil field cut backs are only now beginning as they tried to produce their way out of the debt crisis. But the hedges have run out, prices seem glued to the basement and NOW the time has come to eliminate the expeditures. That mean people losing jobs all up and down the line.

Stockman is brilliant here, as always.

I was watching "The Big Short" last night too. Excellent film. Very historic and everyone should watch it.

[Dec 30, 2015] On Pareto Optimality

Notable quotes:
"... the ideal markets that would produce Pareto Optimal allocations don't actually exist ..."
"... moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isn't. ..."
"... In short, Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit. ..."
"... The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens. ..."
Dec 30, 2015 | Economist's View
Sandwichman, December 30, 2015 at 10:06 AM
"Graduate students of economics learn, early in their careers, that markets allocations are Pareto Optimal."

What they don't learn is that

1. the ideal markets that would produce Pareto Optimal allocations don't actually exist and

2. moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isn't.

In short, Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit.

The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens.

anne said in reply to Sandwichman

Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bull----.

[ Agreed completely and I think this an important conclusion. ]

Paine said in reply to anne

Yes

Sandy gets the guts of it

Though

The compensation principle is precisely what Pareto rule is all about

Yes we can scramble the goods all we want so long as in the end everyone is at least as well off as before the scramble

In a pure exchange model this is less exciting then in a one period production model

Going on to an inter temporal model with an infinite horizon gets into real juicy Wonderlands

The academy makes it's living as much by distracting fine minds as training them

anne said in reply to Sandwichman

The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest....

http://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html

December 29, 2015

Richest in U.S. Shape Private Tax System to Save Billions
By NOAM SCHEIBER and PATRICIA COHEN

The very wealthiest families are able to quietly shape tax policy that will allow them to shield millions, if not billions, of their income using maneuvers available only to several thousand Americans.

anne said in reply to Sandwichman...

Supposing I understand the essay, Roger Farmer is just writing the logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin of Species."

Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire" capitalism. Spencer sold a biological justification, Farmer is selling a logical justification of Empire.

Sandwichman said in reply to anne

No, I think Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed.

The bottom line is that NO ONE would have ever paid any attention to the not just "weak" but nonsensical concept if it didn't serve the function of justifying and ultimately glorifying great inequalities of wealth and income.
;

anne said in reply to Sandwichman

I understand the argument and I am entirely right:

Roger Farmer is just writing the logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin of Species."

Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire" capitalism. Spencer sold a biological justification, Farmer is selling a logical justification of Empire capitalism.

anne said in reply to Sandwichman

I needed to be sure the argument was as empty morally as I supposed initially, but I supposed correctly. The Roger Farmer essay is an amoral logical justification of imperial capitalism. Plato's "Republic" conceived amorally. ;

anne said in reply to Sandwichman

A mean little essay, carefully subtle and mean.

Paine said in reply to anne

But Anne as sandy points out Roger blows up the use of Pareto by his future generations argument

Those unable to establish their preferences are unaccounted for in the scrum

He uses this to draw a bold distinction between securities markets and fish catch of the day markets

Paine said in reply to Paine

It's not the way I'd make his point

But his distinction is important

Some are impacted that are not participating

Third party effects that can not be resolved even with repeated " games "
Because the players are not yet present

anne said in reply to Sandwichman

Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed.

The bottom line is that NO ONE would have ever paid any attention to the not just "weak" but nonsensical concept if it didn't serve the function of justifying and ultimately glorifying great inequalities of wealth and income.

[ Agreed completely, but this argument runs with mine. ]

anne said in reply to Sandwichman

Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed....

[ The issue is that Roger Farmer leaves Pareto Optimality unscathed, and this is an essential point. The essay is beyond the morality of now, but there is no beyond. ]

[Dec 30, 2015] On Pareto Optimality

Notable quotes:
"... the ideal markets that would produce Pareto Optimal allocations dont actually exist ..."
"... moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isnt. ..."
"... In short, Pareto Optiimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit. ..."
"... The next step in graduate students indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a principle of compensation. The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens. ..."
Dec 30, 2015 | Economist's View
Sandwichman, December 30, 2015 at 10:06 AM
"Graduate students of economics learn, early in their careers, that markets allocations are Pareto Optimal."

What they don't learn is that

1. the ideal markets that would produce Pareto Optimal allocations don't actually exist and

2. moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isn't.

In short, Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit.

The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens.

anne said in reply to Sandwichman

Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bull----.

[ Agreed completely and I think this an important conclusion. ]

Paine said in reply to anne

Yes

Sandy gets the guts of it

Though

The compensation principle is precisely what Pareto rule is all about

Yes we can scramble the goods all we want so long as in the end everyone is at least as well off as before the scramble

In a pure exchange model this is less exciting then in a one period production model

Going on to an inter temporal model with an infinite horizon gets into real juicy Wonderlands

The academy makes it's living as much by distracting fine minds as training them

anne said in reply to Sandwichman

The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest....

http://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html

December 29, 2015

Richest in U.S. Shape Private Tax System to Save Billions
By NOAM SCHEIBER and PATRICIA COHEN

The very wealthiest families are able to quietly shape tax policy that will allow them to shield millions, if not billions, of their income using maneuvers available only to several thousand Americans.

anne said in reply to Sandwichman...

Supposing I understand the essay, Roger Farmer is just writing the logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin of Species."

Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire" capitalism. Spencer sold a biological justification, Farmer is selling a logical justification of Empire.

Sandwichman said in reply to anne

No, I think Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed.

The bottom line is that NO ONE would have ever paid any attention to the not just "weak" but nonsensical concept if it didn't serve the function of justifying and ultimately glorifying great inequalities of wealth and income.
;

anne said in reply to Sandwichman

I understand the argument and I am entirely right:

Roger Farmer is just writing the logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin of Species."

Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire" capitalism. Spencer sold a biological justification, Farmer is selling a logical justification of Empire capitalism.

anne said in reply to Sandwichman

I needed to be sure the argument was as empty morally as I supposed initially, but I supposed correctly. The Roger Farmer essay is an amoral logical justification of imperial capitalism. Plato's "Republic" conceived amorally. ;

anne said in reply to Sandwichman

A mean little essay, carefully subtle and mean.

Paine said in reply to anne

But Anne as sandy points out Roger blows up the use of Pareto by his future generations argument

Those unable to establish their preferences are unaccounted for in the scrum

He uses this to draw a bold distinction between securities markets and fish catch of the day markets

Paine said in reply to Paine

It's not the way I'd make his point

But his distinction is important

Some are impacted that are not participating

Third party effects that can not be resolved even with repeated " games "
Because the players are not yet present

anne said in reply to Sandwichman

Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed.

The bottom line is that NO ONE would have ever paid any attention to the not just "weak" but nonsensical concept if it didn't serve the function of justifying and ultimately glorifying great inequalities of wealth and income.

[ Agreed completely, but this argument runs with mine. ]

anne said in reply to Sandwichman

Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed....

[ The issue is that Roger Farmer leaves Pareto Optimality unscathed, and this is an essential point. The essay is beyond the morality of now, but there is no beyond. ]

[Dec 30, 2015] IMF chief Lagarde warns of disappointing global growth in 2016

Notable quotes:
"... Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases. ..."
www.theguardian.com

The IMF managing director, Christine Lagarde, said the prospect of rising interest rates in the US and an economic slowdown in China were feeding uncertainty and a higher risk of economic vulnerability worldwide.

Added to that, growth in global trade has slowed considerably and a decline in raw material prices was posing problems for economies reliant on commodities, while many countries still had weak financial sectors as the financial risks increase in emerging markets, she said.

"All of that means global growth will be disappointing and uneven in 2016," Lagarde said, noting that mid-term prospects had also weakened as low productivity, ageing populations and the effects of the global financial crisis dampened growth. In October, the IMF forecast that the world economy would grow by 3.6% in 2016.

... ... ....

Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases.

Lagarde warned that rising US interest rates and a stronger dollar could lead to companies defaulting on their payments and that this could "infect" banks and states.

[Dec 29, 2015] The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed

Notable quotes:
"... The obvious candidate for this dark force [correlation between (rising) inequality and (low) growth] is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves -- for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism. That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals. ..."
"... The real problem is that money does not go to where it should go, as we see for example in the United States. The money does not flow into the real economy, because the transmission mechanism is broken. That is why we have a bubble in the financial system. The answer is not to tighten monetary policy, but to reform monetary policy so as to ensure that the money gets to the right place... ..."
"... As Stiglitz notes, the transmission mechanisms are broken. Economists trickle down monetary policy might work in theory, but not in practice, as we have seen for the last seven years, when low rates dont trickle down and were wasted instead on asset speculation by the 1%. ..."
"... Reform of the Fed, and the end of cronyism are essential to making sure that the stimulus of low rates gets to Main Street, to ordinary people, and not primarily to asset speculators. ..."
"... The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation. ..."
"... And in one sentence Summers illustrates exactly why we dodged a bullet in not appointing Summers to be Fed Chair. Preserving the power of the Fed is not the most important policy. Changing the Fed composition so that it is more consumer friendly and not dominated by Wall Street interests is the most important policy change needed. ..."
"... the Balkanized character of US banking regulation is indefensible and would be ended. The worst regulatory idea of the 20th century-the dual banking system-persists into the 21st. The idea is that we have two systems one regulated by the States and the Fed and the other regulated by the OCC so banks have choice. With ambitious regulators eager to expand their reach, the inevitable result is a race to the bottom. ..."
"... Summers is also calling for higher capital requirements. Excellent stuff! ..."
Dec 29, 2015 | Economist's View

'The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed'

This is the beginning of a long response from Larry Summers to an op-ed by Bernie Sanders:
The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed : Bernie Sanders had an op Ed in the New York Times on Fed reform last week that provides an opportunity to reflect on the Fed and financial reform more generally. I think that Sanders is right in his central point that financial policy is overly influenced by financial interests to its detriment and that it is essential that this be repaired.

At the same time, reform requires careful reflection if it is not to be counterproductive. And it is important in approaching issues of reform not to give ammunition to right wing critics of the Fed who would deny it the capacity to engage in the kind of crisis responses that have judged in their totality been successful in responding to the financial crisis.

The most important policy priority with respect to the Fed is protecting it from stone age monetary ideas like a return to the gold standard, or turning policymaking over to a formula, or removing the dual mandate commanding the Fed to worry about unemployment as well as inflation. ...

JohnH said...
Disagree!!! There is more to this than just interest rates. There is the matter of how the policy gets implemented--who gets low rates. Currently the low rates serve mostly the 1%, who profit enormously from them. Case in point: Mort Zuckerberg's 1% mortgage!

"The obvious candidate for this dark force [correlation between (rising) inequality and (low) growth] is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves -- for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism. That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals."

http://www.bloombergview.com/articles/2015-12-24/cronyism-causes-the-worst-kind-of-inequality

As we know (although most here steadfastly ignore it) the Fed is rife with crony capitalism. As Bernie pointed out, 4 of the regional governors are from Goldman Sachs. Other examples are abundant. Quite simply, the system is rigged to benefit the few, minimizing any potential trickle down.

If a broad economic recovery is the goal, ending cronyism at the Fed is likely to be far more effective that low interest rates channeled only to the 1%.

JohnH said in reply to JohnH...
Stiglitz:

The real problem is that money does not go to where it should go, as we see for example in the United States. The money does not flow into the real economy, because the transmission mechanism is broken. That is why we have a bubble in the financial system. The answer is not to tighten monetary policy, but to reform monetary policy so as to ensure that the money gets to the right place...

Small and medium enterprises cannot borrow money at zero interest rates - not even a private person, I wish I could do that (laughs). I'm more worried about the loan interest rates, which are still too high. Access for small and medium enterprises to credit is too expensive. That's why it is so important that the transmission mechanism work..."
http://www.cash.ch/news/alle/stiglitz-billiggeld-lost-kein-problem-3393853-448

And let's not forget consumer credit rates, which barely dropped during the Great Recession and are still well above 10%. Even mortgage lending, which primarily benefits the affluent, have been stagnant for years despite historically low rates.

As Stiglitz notes, the transmission mechanisms are broken. Economists' trickle down monetary policy might work in theory, but not in practice, as we have seen for the last seven years, when low rates don't trickle down and were wasted instead on asset speculation by the 1%.

Reform of the Fed, and the end of cronyism are essential to making sure that the stimulus of low rates gets to Main Street, to ordinary people, and not primarily to asset speculators.

Peter K. said in reply to JohnH...

Bernie Sanders:

"The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation. "

http://www.nytimes.com/2015/12/23/opinion/bernie-sanders-to-rein-in-wall-street-fix-the-fed.html

EMichael said in reply to Peter K....

It is hilarious.

"He's right! But his policies are wrong!"

You couldn't make this up......

JF said...
The financial system reform legislation in 2017 will also need to include these matters:

1. Licensure fees and higher and more differential income taxation rates based on the type of financial trading ratios the entities have (in order to direct more emphasis to real-economy lending and away from speculative and leveraged positions used in the financial asset trading marketplaces, so hedge funds probably would face the highest rates in income taxation). For a certain period after enactment these added taxes would be payable by the banks using their excess reserves, which will simply be eliminated until the reserve accounts return to the historically normal period when excess reserves were very small (there would no longer be a need for IOER, as the excess would be eliminated by operation of the taxation statutes). Attaching added ways & means statutes to all the financial service entities also serves to 'cover' some more of huge financial risk held by society and produced by them while the success of this huge sector actually contributes to the financing of self-government - which is also an indirect way to attach high Net Worth being used).

2. New statutory provisions need to reach any and all entities in the financial community regardless of definitions based on the functions they serve or provide (or the way they are named - so yes, the prior separation for deposit-management banking from investing activities can still happen, but this only helps to define which of the differential provisions apply, not help the entity escape them). Perhaps as a result Bank Holding Companies and other large entities won't use a complex network of hundreds of subsidiaries as these would not then serve as a way to avoid taxation, regulatory standards on what are prudent expectations, or supervision; or be used simply to obfuscate -- so investors and regulators can't see the truth of matters.

3. The newly named central bank needs to hold the discretion to buy Treasury bonds directly from the Treasury. This would discipline these fundamental asset-trading marketplaces and the huge primary dealer group of entities, and weaken the fox-and-hen-house influence on public finance.

4. New accounting approaches for the central bank would clarify what happens should the Congress direct redemption amounts or asset sales for the public's purposes. A good portion of the current FRB's book of owned assets can be redeemed or sold without affecting the 'power' of the central bank, and the proceeds used then, for example, to lower payroll taxes via a direct transfer to the social security trust fund's set of accounts).

Senator Sanders, good stuff. Bring out the vote, let us get others in Congress with whom you can work.

BillB said...
Summers: "The most important policy priority with respect to the Fed is protecting it from stone age monetary ideas like a return to the gold standard, or turning policymaking over to a formula, or removing the dual mandate commanding the Fed to worry about unemployment as well as inflation."

And in one sentence Summers illustrates exactly why we dodged a bullet in not appointing Summers to be Fed Chair. Preserving the power of the Fed is not the most important policy. Changing the Fed composition so that it is more consumer friendly and not dominated by Wall Street interests is the most important policy change needed.

Summers argument is the same we always hear from so-called "centrists." "You hippies should shut up because you are helping the opposition."

You hear the same sort of argument with respect to Black Lives Matter.

pgl said in reply to pgl...

On financial regulation - Summers is spot on here:

"the Balkanized character of US banking regulation is indefensible and would be ended. The worst regulatory idea of the 20th century-the dual banking system-persists into the 21st. The idea is that we have two systems one regulated by the States and the Fed and the other regulated by the OCC so banks have choice. With ambitious regulators eager to expand their reach, the inevitable result is a race to the bottom."

It is called regulatory capture.

Summers is also calling for higher capital requirements. Excellent stuff!

[Dec 28, 2015] Secular Stagnation

Notable quotes:
"... General Theory of Employment, Interest and Money ..."
"... Wall Street Journal ..."
"... Secular Stagnation: Facts, Causes and Cures ..."
Dec 28, 2015 | Monthly Review
... ... ...

Summers's remarks and articles were followed by an explosion of debate concerning "secular stagnation"-a term commonly associated with Alvin Hansen's work from the 1930s to '50s, and frequently employed in Monthly Review to explain developments in the advanced economies from the 1970s to the early 2000s.2 Secular stagnation can be defined as the tendency to long-term (or secular) stagnation in the private accumulation process of the capitalist economy, manifested in rising unemployment and excess capacity and a slowdown in overall economic growth. It is often referred to simply as "stagnation." There are numerous theories of secular stagnation but most mainstream theories hearken back to Hansen, who was Keynes's leading early follower in the United States, and who derived the idea from various suggestions in Keynes's General Theory of Employment, Interest and Money (1936).

Responses to Summers have been all over the map, reflecting both the fact that the capitalist economy has been slowing down, and the role in denying it by many of those seeking to legitimate the system. Stanford economist John B. Taylor contributed a stalwart denial of secular stagnation in the Wall Street Journal. In contrast, Paul Krugman, who is closely aligned with Summers, endorsed secular stagnation on several occasions in the New York Times. Other notable economists such as Brad DeLong and Michael Spence soon weighed in with their own views.3

Three prominent economists have new books directly addressing the phenomena of secular stagnation.4 It has now been formally modelled by Brown University economists Gauti Eggertsson and Neil Mehrotra, while Thomas Piketty's high-profile book bases its theoretical argument and policy recommendations on stagnation tendencies of capitalism. This explosion of interest in the Summers/Krugman version of stagnation has also resulted in a collection of articles and debate, edited by Coen Teulings and Richard Baldwin, entitled Secular Stagnation: Facts, Causes and Cures.5

Seven years after "The Great Financial Crisis" of 2007–2008, the recovery remains sluggish. It can be argued that the length and depth of the Great Financial Crisis is a rather ordinary cyclical crisis. However, the monetary and fiscal measures to combat it were extraordinary. This has resulted in a widespread sense that there will not be a return to "normal." Summers/Krugman's resurrection within the mainstream of Hansen's concept of secular stagnation is an attempt to explain how extraordinary policy measures following the 2007–2008 crisis merely led to the stabilization of a lethargic, if not comatose, economy.

But what do these economists mean by secular stagnation? If stagnation is a reality, does their conception of it make current policy tools obsolete? And what is the relationship between the Summers/Krugman notion of secular stagnation and the monopoly-finance capital theory?

... ... ...

In "secular stagnation," the term "secular" is intended to differentiate between the normal business cycle and long-term, chronic stagnation. A long-term slowdown in the economy over decades can be seen as superimposed on the regular business cycle, reflecting the trend rather than the cycle.

In the general language of economics, secular stagnation, or simply stagnation, thus implies that the long-run potential economic growth has fallen, constituting the first pillar of MISS. This has been most forcefully argued for by Robert Gordon, as well as Garry Kasparov and Peter Thiel.6 Their argument is that the cumulative growth effect of current (and future) technological changes will be far weaker than in the past. Moreover, demographic changes place limits on the development of "human capital." The focus is on technology, which orthodox economics generally sees as a factor external to the economy and on the supply-side (i.e., in relation to cost). Gordon's position is thus different than that of moderate Keynesians like Summers and Krugman, who focus on demand-side contradictions of the system. In Gordon's supply-side, technocratic view, there are forces at work that will limit the growth in productive input and the efficiency of these inputs. This pillar of MISS emphasizes that it is constraints on the aggregate supply-side of the economy that have diminished absolutely the long-run potential growth.

The second pillar of MISS, also a supply-side view, goes back at least to Joseph Schumpeter. To explain the massive slump of 1937, Schumpeter maintained there had emerged a growing anti-business climate. Moreover, he contended that the rise of the modern corporation had displaced the role of the entrepreneur; the anti-business spirit had a repressive effect on entrepreneurs' confidence and optimism.7 Today, this second pillar of MISS has been resurrected suggestively by John B. Taylor, who argues the poor recovery is best "explained by policy uncertainty" and "increased regulation" that is unfavorable to business. Likewise, Baker, Bloom, and Davis have forcefully argued that political uncertainty can hold back private investment and economic growth.8

Summers and Krugman, as Keynesians, emphasize a third MISS pillar, derived from Keynes's famous liquidity trap theory, which contends that the "full-employment real interest rate" has declined in recent years. Indeed, both Summers and Krugman demonstrate that real interest rates have declined over recent decades, therefore moving from an exogenous explanation (as in pillars one and two) to a more endogenous explanation of secular stagnation.9 The ultimate problem here is lack of investment demand, such that, in order for net investment to occur at all, interest rates have to be driven to near zero or below. Their strong argument is that there are now times when negative real interest rates are needed to equate saving and investment with full employment.

However, "interest rates are not fully flexible in modern economies"-in other words, market-determined interest rate adjustments chronically fail to achieve full employment. Summers contends there are financial forces that prohibit the real interest rate from becoming negative; hence, full employment cannot be realized.10

Some theorists contend that there has been demographic structural shifts increasing the supply of saving, thus decreasing interest rates. These shifts include an increase in life expectancy, a decrease in retirement age, and a decline in the growth rate of population.

Others, including Summers, point out that stagnation in capital formation (or accumulation) can be attributed to a decrease in the demand for loanable funds for investment. One mainstream explanation offered for this is that today's new technologies and companies, such as Google, Microsoft, Amazon, and Facebook, require far less capital investment. Another hypothesis is that there has been an important decrease in the demand for loanable funds, although they argue this is due to a preference for safe assets. These factors can function together to keep the real interest rate very low. The policy implication of secular low interest rates is that monetary policy is more difficult to implement effectually; during a recession, it is weakened and can even become ineffectual.

Edward Glaeser, focusing on "secular joblessness," places severe doubt on the first pillar of MISS, but then makes a very important additional argument. Glaeser rejects the notion that there has been a slowdown in technological innovation; innovation is simply "unrelenting." Likewise, he is far less concerned with secular low real interest rates, which may be far more cyclical. "Therefore," contends Glaeser, "stagnation is likely to be temporary."

Nonetheless, Glaeser underscores secular joblessness, and thus the dysfunction of U.S. labor markets constitutes a fourth pillar of MISS: "The dysfunction in the labour market is real and serious, and seems unlikely to be solved by any obvious economic trend." Somehow, then, the problem is due to a misfit of skills or "human capital" on the side of workers, who thus need retraining. "The massive secular trend in joblessness is a terrible social problem for the US, and one that the country must try to address" with targeted policy.11 Glaeser's argument for the dysfunction of U.S. labor markets is based on recession-generated shocks to employment, specifically of less-skilled U.S. workers. After 1970, when workers lost their job, the damage to human capital became permanent. In short, when human capital depreciates due to unemployment, overall abilities and "talent" are "lost" permanently. This may be because the skills required in today's economy need to be constantly practiced to be retained. Thus, there is a ratchet-like effect in joblessness caused by recessions, whereby recession-linked joblessness is not fully reversed during recoveries-and all this is related to skills (the human capital of the workers), and not to capital itself. According to Glaeser, the ratchet-like effect of recession-linked joblessness is further exacerbated by the U.S. social-safety net, which has "made joblessness less painful and increased the incentives to stay out of work."12

Glaeser contends that, if his secular joblessness argument is correct, the macroeconomic fiscal interventions argued for by Summers and Krugman are off-base.13 Instead, the safety net should be redesigned in order to encourage rather than discourage people from working. Additionally, incentives to work need to be radically improved through targeted investments in education and workforce training.14 Such views within the mainstream debate, emphasizing exogenous factors, are generally promoted by freshwater (conservative) rather than saltwater (liberal) economists. Thus, they tend to emphasize supply-side or cost factors.

The fifth pillar of MISS contends that output and productivity growth are stagnant due to a failure to invest in infrastructure, education, and training. Nearly all versions of MISS subscribe to some version of this, although there are both conservative and liberal variations. Barry Eichengreen underscores this pillar and condemns recent U.S. fiscal developments that have "cut to the bone" federal government spending devoted to infrastructure, education, and training.

The fifth pillar of MISS necessarily reflects an imbalance between public and private investment spending. Many theorists maintain that the imbalance between public and private investment spending, hence secular stagnation, "is not inevitable." For example, Eichengreen contends if "the US experiences secular stagnation, the condition will be self-inflicted. It will reflect the country's failure to address its infrastructure, education and training needs. It will reflect its failure to…support aggregate demand in an effort to bring the long-term unemployed back into the labour market."15

The sixth pillar of MISS argues that the "debt overhang" from the overleveraging of financial firms and households, as well as private and public indebtedness, are a serious drag on the economy. This position has been argued for most forcefully by several colleagues of Summers at Harvard, most notably Carmen Reinhart and Kenneth Rogoff.16 Atif Mian and Amir Sufi also argue that household indebtedness was the primary culprit causing the economic collapse of 2007–2008. Their policy recommendation is that the risk to mortgage borrowers must be reduced to avoid future calamities.17

As noted, the defenders of MISS do not necessarily support a compatibility between the above six pillars: those favored by conservatives are supply-side and exogenous in emphasis, while liberals tend towards demand-side and endogenous ones. Instead, most often these pillars are developed as competing theories to explain the warrant of some aspect of secular stagnation, and/or to defend particular policy positions while criticizing alternative policy positions. However, the concern here is not whether there is the possibility for a synthesis of mainstream views. Rather, the emphasis is on how partial and separate such explanations are, both individually and in combination.

Hans G. Despain teaches political economy at Nichols College, where he is the chair of the Department of Economics.

[Dec 27, 2015] 2016 will be a year of living dangerously for the global economy

Notable quotes:
"... WW I happened after 20 yrs during which the the superpower Britain had been blatantly replacing their dwindling economic influence by demonstrations of military powers. Now which nation today is siphoning off by ever more military means the products and raw materials of others, while not even caring a bit about welfare for the majority of their own citizens? ..."
"... But it's so much easier to make propaganda against Mr Putin's public appearances than seriously address the point that this guy is genuinely popular at home precisely because he refuses his country to be a sellout to USA's 1O %. ..."
Dec 27, 2015 | The Guardian

marketingexpert -> HorseCart 27 Dec 2015 14:38

If the big borrower nations like GB and USA were honest, it would be electoral suicide because all they could promise is massive reduction in living standards back to a level we can afford

And that will happen either by progressive erosion or catastrophic bubble burst and economiccollapse.

But It is so much easier Lefty fashion to promise jam today for everyone, and invent bogus bogeymen to pay for it all, or pretend you can borrow or print to prosperity. Anyone north of a five year old can see through such nonsense from the day they trade mars bars for marbles,

Buy gold, or farmland.

lingyai -> SrdeAth 27 Dec 2015 14:25

that's what the US has all those military bases around the world for.. can't have the world reserve currency being threatened...

KillerMarmot -> Lafcadio1944 27 Dec 2015 14:25

Neoliberalism is going to provide prosperity when clear-eyed analysis shows Neoliberalism to be little more than subjugation to oligarch rule and the most egregious inequity the world has ever known.

Actually the world is more prosperous than it has ever been. Over the last few decades, billions of people have been lifted out of abject poverty into something resembling a modern lifestyle. Infant mortality has been falling steadily. Life expectancy has been raising steadily. It is resounding triumph, but one that is little recognized,

Marjallche -> gilesjuk 27 Dec 2015 13:02

Yes I actually think it is, as dependencies breed fear of being exploited, breeds distrust as to whether the other side does or does not threaten with blackmail etc. I got the idea from Keynes, who saw stability in self-reliance of nations and instability in population import, which threw the balance in favour of big capital.

Marjallche -> JudiHoskyn885 27 Dec 2015 12:57

WW I happened after 20 yrs during which the the superpower Britain had been blatantly replacing their dwindling economic influence by demonstrations of military powers. Now which nation today is siphoning off by ever more military means the products and raw materials of others, while not even caring a bit about welfare for the majority of their own citizens?

But it's so much easier to make propaganda against Mr Putin's public appearances than seriously address the point that this guy is genuinely popular at home precisely because he refuses his country to be a sellout to USA's 1O %. Another pre WWI parallel. PS it seems to be a very anglo-saxon notion that the upper 10% belong to a better and preferable breed of humans. The rest being granted the "freedom" to crawl in the dirt and die in the name of "freedom" for the preservation of their "democratic" 1%ers privilege.

Iconoclastick 27 Dec 2015 12:54

It was bad in 2012, it's got far worse.

as the chart below shows, if there is anything the global financial system needs, is for the rating agencies, bond vigilantes, and lastly, general public itself, to realize that the UK's consolidated debt (non-financial, financial, government and household) to GDP is... just under 1000%. That's right: the UK debt, when one adds to its more tenable sovereign debt tranche all the other debt carried on UK books (and thus making the transfer of private debt to the public balance sheet impossible), is nearly ten times greater than the country's GDP. To call that "game over" is an insult to game overs everywhere.


http://www.zerohedge.com/news/psssst-france-here-why-you-may-want-cool-it-britain-bashing-uks-950-debt-gdp

Sammy Johnston -> gilesjuk 27 Dec 2015 12:41

All political parties follow the will of the banking families and corporate elites. The economy is in it's intended state, gearing up for the third world war, the formation of world government and the eventual digitalization of currency world wide.

To state that cameron has any control is naive. To say corbyn can be effective to oppose it is naive. We need to eliminate our current elite and start a new paradigm to have any sense of freedom again.

MancuMan -> eveofchange 27 Dec 2015 12:50

Aye, a few million people got murdered by the Communists but apart from that and the lack of joy in life for the survivors it all went very well indeed and we should give it another go.

ldopas -> eveofchange 27 Dec 2015 12:37

I see you have been studying the socialist comics again.

Evidence tells us, evidence, that capitalism has problems. Lots of them. But it does work for the most part, and the model of capitalism also when there is a disruption mostly recovers like a cut in the skin that heals. Socialism wherever tried ALWAYS has produced poor if not catastrophic results, and once a downward spiral is established there is nothing to stop it, no mechanism in place to heal it like capitalism.

So my money, pun intended, is with capitalism.

Look if you are fed up of our capitalist first world services, infrastructure and healthcare there are still a few deluded places where some sort of socialism exists; Cuba for example where everyone is equal in poverty and their infrastructure is non existent, perhaps N Korea?

Ask yourself this. when a country that is poor and gets the chance for democracy, why do they always go more capitalistic?

eveofchange -> jonsnow92 27 Dec 2015 12:25

I have told you what would happen if capitalism continues.

I opposed Stalin and his ilk, and his corruption of socialism. But under even he, Russia escaped the economic collapse of the thirties, and was invaded by a country that had been ravaged by capitalism's collapse . Russia even emerged stronger.

The nationalised economy worked perfectly, and defeated capitalist Germany (although Hitler himself,introduced aspects of socialism--as did the UK and US). But without a workers and working class democracy, nationalisation will not work for any length of time .

jonsnow92 -> eveofchange 27 Dec 2015 12:17

unless consciously overthrown by a working class takeover for socialism, would still carry on. What do you want?

It didn't work in USSR did it? The working class took over and it didn't end up in milk and honey on the streets. Same for East Germany - apart from the genius of Trabant not much else going on until the people started voting with their feet jumping walls and going to capitalism. And I didn't mention Albania, Cuba, North Korea and other great success stories from socialism.

BTW - in socialist countries you couldn't have a strike as the working class was in power and as Stalin said: "why would the working class strike if they are in power?"

eveofchange 27 Dec 2015 12:02

The problem is capitalism, as Marx correctly pointed out and analysed. One "solution" always leads to a worse problem---and it cannot be resolved,or solved Eventually there is either a major war, between desperate capitalist states fighting over shrinking markets, or there is a gigantic crash.--or both.This literally wipes out productive capacity, and thus the problem of "overproduction" is temporarily "solved". The same cycle is then repeated, to it's inevitable conclusion--again.
Millions, throughout the world, even in the UK, are made destitute by this, or even die--but capitalism, unless consciously overthrown by a working class takeover for socialism, would still carry on. What do you want?

> newsfreak 27 Dec 2015 13:33

The ambiguity of economic and financial forecasters tend to reach proverbial limits. They make a living out of ambiguity and what later end up being frustrated expectations: "2016 will be a year of living dangerously for the global economy" yet "there will be no explosion in 2016, but a fuse will be lit." How dangerous is a lit fuse? The whole financial world system is a sham based on printing currencies with no backing standard. At some point there will be a wake up call, a reality check, and a devastating free fall.

ID7829806 27 Dec 2015 11:58

Economic forecasting is a mug's game.

But a lot of people get paid a lot of money to do it. Forecasting is of course, at best, an inexact and purely speculative effort (I nearly wrote 'an inexact science', but there is nothing scientific about it, at all).

Those who have the confidence/cheek/arrogance to predict, tend to stick close to the average of an (emerging) consensus, if there is one. Commentators keep looking around and over their shoulders - no one wants to look silly - and so feed-on and affirm each other. Few stick their necks out - but then, if they do, they are likely unknown or a maverick, and does anyone therefore notice, or care?

A broken clock is right twice a day, but who wants to predict that the clock will fall off the wall (unless they have inside knowledge)?

Larry, you may be right. Or you may be wrong. 2016 is an Election Year in the US, which suggests 'nothing to see here' for the next 12 months. But then again, it didn't stop the last crash happening.

But the feeling in your water could be right, precisely because we are in unknown and unprecedented territory. The historic economic 'rule-book' hasn't so much been torn-up in recent years, rather - quietly - put back on the shelve, and self-consciously ignored.

These are unprecedented times. So: who knows what might happen? An unprecedented economic implosion round about 2017 is possible. Or not. But on a balance of probabilities: something without precedent is likely to happen (for good or ill): and none of us will have predicted it.

Dan_de_Macy 27 Dec 2015 11:58

Prediction:

Going South: Why Britain will have a Third World Economy by 2014 Paperback – 14 Jun 2012

http://www.amazon.co.uk/Going-South-Britain-Third-Economy/dp/0230392547

Reality:

http://www.theguardian.com/politics/2015/apr/17/imf-chief-praises-british-governments-handling-of-economy

Iconoclastick 27 Dec 2015 11:50

Other stuff building up a storm on the horizon...

Forget About Junk Bonds, This Is the New Credit-Equity Disconnect Investors Should Be Watching
Can contagion spread to stocks?

http://www.bloomberg.com/news/articles/2015-12-15/forget-about-junk-bonds-this-is-the-new-credit-equity-disconnect-investors-should-be-watching

This Junk Bond Derivative Index Is Saying Something Scary About Defaults. Markit's CDX index is pricing in a 2008-like selloff.

http://www.bloomberg.com/news/articles/2015-12-16/this-junk-bond-derivative-index-is-saying-something-scary-about-defaults

[Dec 27, 2015] Summer Rerun Why America Will Need Some Elements of a Welfare State

Notable quotes:
"... Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care. ..."
"... Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. ..."
"... Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire ..."
Dec 27, 2015 | naked capitalism

An excellent column by Martin Wolf in the Financial Times, where he is the lead economics editor. Starting with principles put forward by Ben Bernanke in his recent speech on income inequality, Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care.

James Levy, December 26, 2015 at 4:32 pm

I have no idea if Marx was right, in the long run, or wrong–the verdict is still out on the long-term viability of industrial capitalism, which is less than 250 years old and creaking mightily as I write this. It may be that when Rosa Luxemburg said that the choice was between Socialism and Barbarism, she underestimated how likely barbarism was. What I do know is that capitalism today isn't just too ugly to tolerate, it is downright murderous. Its imperatives are driving the despoliation of the planet. It's love of profit over all else is cutting corners and creating externalities that are lethal. But it has made a few percent of the global population comfortable and powerful, and they are holding onto that comfort and that power come hell or high water (and, ironically, if things continue apace both are on the menu).

Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. I am not enthusiastic that this will happen before it is way too late to save more than a fraction of the current world population, and send those people back to the lifestyles and thought patterns of 30 Year's War Europe.

    1. digi_owl

      Its a generational thing. Right after WW2, many of the elite had just that epiphany that unless they have the common people behind them, they are toast. But now they are dead or dying, and their grandkids are basically once more thinking that they can go it alone. This because they have not had the required experiences that help develop the wisdom.

      Reply
  1. Paul Tioxon

    What Marx saw long ago, we can see today, and without relegating ourselves to his analysis, come to our own conclusions. Contradictions, summed up well by Lincoln as a house divided against itself cannot stand is just as true today. Millions of guns to protect the citizenry from tyranny have only resulted in a 1/4 million murders and 5 times as many shootings since Jan 1, 2000, some placing people in wheel chairs and other crippling gunshot afflictions, and more and more institutionalized state oppression, economic exploitation and miserable lives propped up in an alcoholic haze until the liver or brain gives out. We have more food than we know what to do with so we throw away almost as much as we eat. And we have eaten ourselves into morbid obesity, diabetes and heart disease. The contradictions abound from the kitchen table to the kitchen cabinet of the White House where there seems to be nothing passed so freely as bad advice.

    The Welfare State arose from the sacrifices of the population in giving their sweat, blood and tears to defend their nation during war, to be rewarded for their sacrifices, rewards which were demands for power sharing and more in the paycheck, more benefits and more time to enjoy the life spent in a more prosperous world. It seems to me that Obamacare is not simply in death spiral all of its own making, but even more so, because it is the best attempt capitalism can produce in an America that is the most capitalist of societies down to the marrow its bones. Little competition from the Church or the social relations between nobles and subjects set for in the laws that were disestablished to free markets for commodification and money making. Money making enterprises structured the laws from slavery, to the voting franchise with little from the state to cushion any of the hardships of life in America.

    Health care is the largest industry we have. It is approaching 20% of the GNP. I remember the great national freak out in the late 1970s when congress realized it was approaching 10%. Nothing seems to be stopping the costs from spiraling upward and onward. No risk of deflation here where nothing is spared to save a life, operate on some poor little afflicted child, or buy a piece of equipment the size of an office building that shoots a proton beam at cancer, one cancer cell at a time.

    When Obama Care becomes a clear burden to even the democrats who can point to it now as some sort of accomplishment, and it is an accomplishment for the people who finally get to see a doctor, get into a hospital, get that operation or diagnosis that saves their lives, when even those accomplishments number in the millions, it will be part of a health care industry for which $Trillions of dollars can no longer be justified or even funded. As that financial collapse approaches, it would be better for politicians to declare the defeat of a program better rolled into one universal single payer system currently operating as Medicare, than try to reform, shore up or the old tried and true public lie, get rid of its waste and corruption.

    Declare victory with Medicare as the solution and put everyone into it. The only paper work left should be each person's medical history with diagnosis and healing as the happy ending to the story.

    Reply
  2. jgordon

    There is a fundamental error in perception in the Western world that is so pervasive that people can't even see it. As a most basic component of a healthy society people need to be able to survive at a local community level without outside support. Only after that is taken care of should people concern themselves with luxuries, inter-community and international relations.

    Welfare–not to mention other government services–can appear to have positive impacts if one only looks at their effects in isolation, however I think there is a devastating and pernicious impact on people's ability to form community bonds and have local resilience with things like welfare.

    Also, let's also not forget that Americans consume far more of the earth's precious resources than any other group in the world. Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire. Do these recipients of empire benefits have a moral right to share in the loot of empire? Perhaps instead of domestic welfare it would be more ethical for the American empire to provide social benefits for the indigenous peoples who are forced from their lands to work like slaves for the empire's benefit. Although admittedly if the American empire used it's loot for the benefit of the foreign peoples whose lives it destroyed then there'd probably be nothing left to spread around to the military, or to pacify and police the domestic population. So I suppose that's not a serious proposal.

    Reply
    1. Left in Wisconsin

      Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire

      This is obviously not true. Unless every social democratic country in the world is considered as a piece of the American empire. And even then, I would argue that we can easily afford a generous welfare state with a small shift in priorities away from (globally destabilizing) defense spending to social productive spending on human development.

      Reply
      1. jgordon

        Obvious to who? America lavishes so much money on its military not only because of corruption, but also because it has the world reserve currency and is a guarantor of the safety of international shipping. These facts are inextricably linked to the America's status as the world hegemon. The empire provides order and structure, and enforces the extraction of resources from the periphery to the center. The bread and circuses are inextricably linked to the empire's military activities and trying to tease them apart will only lead to collapse of the entire system sooner than it will otherwise happen.

        "Social Democratic"–now that's an interesting phrase. Did you know that Syria is a democracy, and was an extremely prosperous and well-education nation prior to 2011?

        Reply
        1. Vatch

          "Did you know that Syria is a democracy"

          Here's a telling paragraph from the Wikipedia article about Syria:

          Hafez al-Assad died on 10 June 2000. His son, Bashar al-Assad, was elected President in an election in which he ran unopposed.[68] His election saw the birth of the Damascus Spring and hopes of reform, but by autumn 2001 the authorities had suppressed the movement, imprisoning some of its leading intellectuals.[84] Instead, reforms have been limited to some market reforms.

          [Dec 27, 2015] The Sneaky Way Austerity Got Sold to the Public Like Snake Oil

          Notable quotes:
          "... When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in. ..."
          "... Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution. ..."
          "... the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do. ..."
          "... The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things. ..."
          Dec 27, 2015 | naked capitalism
          LP: You indicate that this approach to budgeting was invented as a way of making the New Deal acceptable to the business community. How did that work? Over time, who has benefitted from it? Who has lost?

          OC: Back in the 1940s, workers were fighting for their rights, class struggle was heating up, and soldiers would soon be returning from the fronts. At that point, a new business organization, the Committee for Economic Development (CED), came together. Led by Beardsley Ruml and other influential business figures, the CED played a crucial role in developing a conservative approach to Keynesian economics that helped make policies that would help put all Americans to work acceptable to the business community.

          The idea was that more consumers would translate into more profits - which is good for business. After all, the economic experts and budget technicians said so, not just the politicians. And the business leaders were told that economic growth and price stability would go along with this, which they liked.

          But things changed progressively over the 1970s and early 1980s. Firms went global. They became financialized. The balance of power between workers and owners started to shift more towards the owners, the capitalists. People were told they needed to sacrifice, to accept cuts to social spending and fewer rights and benefits on the job - all in the name of economic science and capitalism. The CAB was turned into a tool for preventing excessive spending - or justifying selected cuts.

          Middle class folks were afraid that inflation would erode their savings, so they were more keen to approve draconian measures to cut wages and reduce public budgets. People on the lower rungs of the economic ladder felt the pain first. But eventually the middle class fell on the wrong side of the fence, too. Most of them became relatively poorer.

          I suppose this shows the limits of democracy when information, knowledge, and ultimately power are unequally distributed.

          LP: You're really talking about birth of austerity and the way lies about public spending and budgets have been sold to the public. Why is austerity such a powerful idea and why do politicians still win elections promoting it?

          OC: Austerity is so powerful today because it feeds off of itself. It makes people uncertain about their lives, their debts, and their jobs. They become afraid. It's a strong disciplinary mechanism. People stop joining forces and the political status quo gets locked down.

          Even the
          name of this tool, the "cyclically adjusted budget," carries an aura of respect. It diverts our attention. We don't question it. It creates a barrier between the individual and the political realm: it undermines democratic participation itself. This obscure theory validates, with its authority, a big economic mistake that sounds like common sense but is actually snake oil - the notion that the federal government budget is like a household budget. Actually, it isn't. Your household doesn't collect taxes. It doesn't print money. It works very differently, yet the nonsense that it should behave exactly like a household budget gets repeated by politicians and policymakers who really just want to squeeze ordinary people.

          LP: How does all this play out in the U.S. and in Europe?

          OC: The European Union requires its members to comply with something called a cyclically adjusted budget constraint. Each country has to review its economic and fiscal plans with the European Commission and prove that those are compatible with the Pact. It's a ceiling on a country's deficit, but it's also much more than that.

          Thanks to the estimate, the governments of Italy or Spain, for example, are supposed to force the economy toward some ideal economic condition, the definition of which is obviously quite controversial and has so far rewarded those countries that have implemented labor market deregulation, cut pensions, and even changed the way elections happen. Again, it's a control mechanism.

          In the U.S. this scenario plays out, too, although less strictly. Talk about the budget often relies on the same shifty and politically-shaded statistical tools to support one argument or the other. Usually we hear arguments that suggest we have to cut social programs and workers' rights and benefits or face economic doom. Tune in to the presidential debates and you'll hear this played out - and it isn't strictly limited to one party.

          LP: How do we stop powerful players from co-opting economics and budgets for their own purposes?

          OC: Our education system is increasingly unequal and deprived of public resources. This is true in the U.S. but also in Europe, where the crisis accelerated a process that was already underway. When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in.

          In the economic field, we need to engage different points of view and keep challenging dominant narratives and frameworks. One day, human curiosity will save us from intellectual prostitution.

          craazyboy, December 25, 2015 at 10:10 am

          Most people don't eat, go to college, use healthcare, rent or buy housing on the east or west coast, or purchase military equipment (except perhaps small time stuff like assault rifles), so the BLS greatly underweights(or hedonics prices, or just pulls rent data outta their butts) these things in the inflation data they create. The Fed then goes into a tizzy if the data comes in a few tenths of a percent below 2%, even if the data spent years above 2%, and floods the country in liquidity so our job creators – banks and large corporations – will hire us and give us raises, and once they finish doing that, the BLS will signal that inflation is 2% and the Fed will then know all our problems are solved. It just takes time.

          See the book "Treasure Island" for how things are going on the revenue side. But more tax breaks for large corporations and the wealthy are needed so we don't force them to do any illegal tax avoidance stuff and they will then happily pay whatever they think their fair should be. Might be zero. They will then have money to buy stuff too, which is a big plus as well, when you think about it.

          So clearly, you can see why deficit spending almost seems inevitable.

          Then the next problem is we still have unemployment, and something needs to be done about that. For instance, lots of room for more government contracts for social purposes. Take Obamacare. Place a single source contract, now estimated between $1 and $2 billion, with a Canadian systems company that employs independent contractor Indian programmers. Eventually, we have Obamacare!

          We can do this if we just get serious about this and say "No More Austerity In America!"

          likbez, December 27, 2015 at 9:31 pm

          Emperor Severus is famously said to have given the advice to his sons: "Be harmonious, enrich the soldiers, and scorn all other men"

          Brooklin Bridge

          Can education provide the solution?

          I suspect that the educational bias occurs at all levels in the sense that much the same misinformation is provided regardless of neighborhood but progressively wrapped in more elegant pedagogical flim-flam-ery for the owner class. Basically, the bias changes, but not the message, as one goes from poor (austerity – this is your lot in life) to wealthy (austerity – you were born to make the tough decisions, it's in your genes – and you'll just have to accept the rewards, man up to your destiny and toss em a quarter on Sundays). The upper class does get a far better education, but the bias is or becomes unconscious over time.

          Basically, aristocracy is a nasty brutish cycle that keeps upping the ante of consequences.

          washunate, December 26, 2015 at 8:09 am

          Yves, INET and NEP and others have been lecturing that topic for years. How many trillions of dollars do we have to deficit spend before the failure of things to improve indicts the hypothesis itself?

          Maybe what matters is not the amount of the spending, but rather, the distribution.

          And what is so bad about deflation? The attachment of moral judgment to inflation and deflation is rather bizarre outside of establishment monetary economics. The basic monetary problem confronting the bottom 80% or so of American households is inflation, not deflation.


          Dan Lynch, December 25, 2015 at 11:27 am

          I don't buy the article's historical narrative.

          Conservatives have ALWAYS opposed spending on social programs and ALWAYS used the deficit as an excuse (unless the deficit was due to war or tax cuts for the rich). This was true during the New Deal; FDR himself was a deficit hawk.

          Nonetheless for years the public supported social programs and no politician dared to cut them. Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution.

          What changed? I would say the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do.

          The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things.

          Vatch, December 25, 2015 at 12:40 pm

          History teaches us that peacetime austerity can be horribly disastrous. Some examples:

          British austerity during the 19th century included the Great Irish Famine of 1845-1849: The Irish population was about 8 million people in 1841, and the death toll of the famine was at least a million. This is a huge percentage loss of life. Due to the combination of deaths with emigration and births that did not occur, the 1851 population of 6.5 million was estimated to be about 2.5 million lower than expected. Since food was exported during the famine, this was definitely an extreme case of austerity.

          Soviet austerity during the 1930s: Millions died, and food was exported during the famine period of 1931-1933. Austerity is often associate with conservatives, so I guess conservative austerity enthusiasts must be pleased with the performance of the eminent conservative Josef Stalin.

          Chinese austerity during the Great Leap Forward of 1958-1962: Tens of millions died - perhaps as many as 45 million. The same irony about conservatives and Stalin is true about conservatives and Mao, but on a far greater scale.

          Merry Christmas.

          ben chifley

          july 24 2015: Krugman:Ignore the 'MIT gang' at US economy's peril Paul Krugman says while economists of the '70s discarded Keynes, he never went away at MIT.‏
          http://www.chron.com/opinion/outlook/article/Krugman-Ignore-the-MIT-gang-at-US-economy-s-6404243.php

          MIT: Libertarian Haven | Independent Political Report‏
          http://www.independentpoliticalreport.com/2011/01/mit-libertarian-haven/

          Soros | MIT Global Education & Career Development‏
          https://gecd.mit.edu/go-abroad/distinguished-fellowships/explore-fellowships/soros

          washunate

          This is a pretty remarkable piece of rambling drivel. To the extent coherent points can be taken away from this, it appears there are at least two major flaws:

          1) There is absolutely no link between public opinion and CAB. Germany chooses to have national healthcare, passenger rail, and renewable energy. The US chooses to have national security, predatory medicine, and car-dependent sprawl.

          2) There is absolutely no link between austerity and concentration of wealth and power. France has a much more equal distribution of wealth than the US. Yet the US has run enormous deficits while France is supposedly constrained by the techno mumbo jumbo nonsense of the EU.

          The notion that 'austerity' is sold to the public is just a blatant falsehood. Americans don't support the budget priorities in Washington. It's a collective action problem, not a public opinion problem.

        2. [Dec 24, 2015] In 2012, Greek pension funds, which were obliged under Greek law to own government bonds were hit by debt write-down and lost about 10 billion euros or roughly 60 percent of their reserves

          econbrowser.com
          Jeffrey J. Brown

          In reading the following NYT article about the Greek Crisis, with an emphasis on pensions and pensioners, I recalled Professor Hamilton's post on the US Social Security system. To borrow Warren Buffet's phrase about finding out who is skinny dipping when the tide goes out, I wonder if the tide has just receded faster for Greece than for the US, in terms of over promised and under-funded Social Security and pension plans, especially in regard to vastly underfunded state and local government pension plans. And of course, federal government owns both the asset and the liability for the Social Security Trust Fund

          http://www.nytimes.com/2015/06/09/world/europe/greece-pensions-debt-negotiations-alexis-tsipras.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0

          Greece's social security system was troubled even before the crisis, already divided into more than 130 funds and offering a crazy quilt of early-retirement options that were a monument to past political patronage.

          In 2012, the pension funds, which were obliged under Greek law to own government bonds*, were hit by a huge debt write-down as those bonds plummeted in value. As a result they lost about 10 billion euros, or $11.1 billion - roughly 60 percent of their reserves.

          Greece's creditors, seeking to make the Greek labor market more competitive, insisted that the government reduce the amount companies and workers must contribute toward pensions. And they insisted that Greece reduce its minimum wage so that those who do contribute have smaller outlays.

          At the same time, the pension system was becoming an even bigger component of the social safety net, absorbing thousands. People like Ms. Meliou retired early, either because of the sale of state-owned companies, because they feared their salaries would be cut and thus their pensions would be smaller, or simply because their businesses failed. Few are living comfortably, and many support unemployed children.

          *Remind you of another system?

          [Dec 24, 2015] An Aging Society Is No Problem When Wages Rise

          Notable quotes:
          "... Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied. ..."
          "... Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich. ..."
          "... Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings. ..."
          economistsview.typepad.com

          Dean Baker:

          An Aging Society Is No Problem When Wages Rise: Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.
          While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.
          We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)
          The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.
          For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.

          RC AKA Darryl, Ron said...

          Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied.

          DrDick -> Darryl, Ron...

          "they will need to raise the payroll tax cap on Social Security"

          Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich.

          Bud Meyers -> DrDick...

          Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings.

          mulp

          "We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised."

          Illogical!

          If wages of younger workers were maintaining the same gains over their previous generation peers, and in fact, gained even more due to reduced supply of workers relative to steady demand for labor as the large boomer cohort leaves the labor force to the smaller subsequent generation.

          Instead, conservative free lunch economicntheory, itself grossly illogical, has led to cuts in wages as a matter of policy based on the idea that workers are not consumers, so gdp can grow faster if workers are paid less, leading to a larger supply of consumers with pockets of money being created by the tinker bell of wealth.

          While changing demographics might require higher payroll taxes, say younger generations having more kids than the boomer generation and being stay at home parents than boomers were, in reality, the younger generations are moving further along the trend line of working more, just like the boomers.

          Incomes are falling leading to reduced gdp growth because that is driven by labor incomes which are labor costs, and lower gdp means lower wage income means lower tax revenue with a fixed tax rate.

          Social Security has structural problems simply because conservatives have sold Americans a bill of goods, promising something for nothing.

          TANSTAAFL

          As a leading edge boomer, I've had the best of both good and bad policy. Great big government benefits when young to give me a great start in life, followed by bad policy tax hikes for me paid for by screwing the generation of children I did not have, and now 68, getting the great big government Social Security benefits Reagan signed into law in 1983, doubly great because, my big government start in life lasted to 2001 and made me very rich from simply working and living like my parents who were shaped by the depression. And Republicans can not cut my benefits because I'm hidden in the biggest block of the Republican base who almost all depend on Social Security.

          [Dec 24, 2015] The Fed Has Created A Monster And Just Made A Dangerous Mistake, Stephen Roach Warns

          Zero Hedge
          Stephen Roach is worried that the Fed has set the world up for another financial market meltdown.

          Lower for longer rates and the proliferation of unconventional monetary policy have created "a breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really a part of the problem of financial instability rather than trying to provide a sense of calm in an otherwise unstable world," Roach told Bloomberg TV in an interview conducted a little over a week ago.

          To be sure, Roach's sentiments have become par for the proverbial course. That is, it may have taken everyone a while (as in five years or so) to come to the conclusion we reached long ago, namely that central banks are setting the world up for a crisis that will make 2008 look like a walk in the park, but most of the "very serious" people are now getting concerned. Take BofAML for instance, who, in a note we outlined on Wednesday, demonstrated the prevailing dynamic with the following useful graphic:

          Perhaps Jeremy Grantham put it best: "..in the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006."

          Indeed. It's with that in mind that we bring you the following excerpts from a new piece by Roach in which the former Morgan Stanley chief economist and Yale fellow recounts the evolution of the Fed and how the FOMC ultimately became "beholden to the monster it had created".

          * * *

          From "The Perils of Fed Gradualism" as posted at Project Syndicate

          By now, it's an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization.

          A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake. The Fed is borrowing a page from the script of its last normalization campaign – the incremental rate hikes of 2004-2006 that followed the extraordinary accommodation of 2001-2003. Just as that earlier gradualism set the stage for a devastating financial crisis and a horrific recession in 2008-2009, there is mounting risk of yet another accident on what promises to be an even longer road to normalization.

          The problem arises because the Fed, like other major central banks, has now become a creature of financial markets rather than a steward of the real economy. This transformation has been under way since the late 1980s, when monetary discipline broke the back of inflation and the Fed was faced with new challenges.

          The challenges of the post-inflation era came to a head during Alan Greenspan's 18-and-a-half-year tenure as Fed Chair. The stock-market crash of October 19, 1987 – occurring only 69 days after Greenspan had been sworn in – provided a hint of what was to come. In response to a one-day 23% plunge in US equity prices, the Fed moved aggressively to support the brokerage system and purchase government securities.

          In retrospect, this was the template for what became known as the "Greenspan put" – massive Fed liquidity injections aimed at stemming financial-market disruptions in the aftermath of a crisis. As the markets were battered repeatedly in the years to follow – from the savings-and-loan crisis (late 1980s) and the Gulf War (1990-1991) to the Asian Financial Crisis (1997-1998) and terrorist attacks (September 11, 2001) – the Greenspan put became an essential element of the Fed's market-driven tactics.

          The Fed had, in effect, become beholden to the monster it had created. The corollary was that it had also become steadfast in protecting the financial-market-based underpinnings of the US economy.

          Largely for that reason, and fearful of "Japan Syndrome" in the aftermath of the collapse of the US equity bubble, the Fed remained overly accommodative during the 2003-2006 period. The federal funds rate was held at a 46-year low of 1% through June 2004, before being raised 17 times in small increments of 25 basis points per move over the two-year period from mid-2004 to mid-2006. Yet it was precisely during this period of gradual normalization and prolonged accommodation that unbridled risk-taking sowed the seeds of the Great Crisis that was soon to come.

          Today's Fed inherits the deeply entrenched moral hazard of the Asset Economy. The longer the Fed remains trapped in this mindset, the tougher its dilemma becomes – and the greater the systemic risks in financial markets and the asset-dependent US economy.

          Full post here

          * * *

          Roach goes on to say that we're already seeing the beginnings of what may very well turn out to be a dramatic unwind as high yield rolls over and the emerging world struggles to cope with a soaring dollar (remember, even though EM has largely avoided "original sin" i.e. borrowing in dollars, at the sovereign level, corporates are another story).

          As an aside, those interested in a comprehensive account of what Roach covers in the article cited above are encouraged to reach David Stockman's "The Great Deformation."

          [Dec 23, 2015] How America Lost the Rest of the World

          Notable quotes:
          "... I'm still trying to think through the implications but they are certainly disquieting. Without trying to hard I'd summarize that "the masks are coming off." ..."
          "... The question then is, what happens after "the masks come off?" ..."
          "... Short-sighted western pundits will still be penning deadline copy headlined "How Putin lost Ukraine" while those with real vision will be putting the finishing touches on "How America Lost the Rest of the World" ..."
          marknesop.wordpress.com
          Cortes, December 18, 2015 at 3:38 am
          Michael Hudson on IMF manoeuvres

          http://www.counterpunch.org/2015/12/18/the-imf-changes-its-rules-to-isolate-china-and-russia/

          Tim Owen, December 18, 2015 at 6:24 am
          Hard to overstate the importance of this article. Thanks for spotting it.

          There's a lot here but this passage is kind of free-standing in its value by simply condensing how the IMF has contorted itself:

          "The IMF thus is breaking four rules:

          1. Not lending to a country that has no visible means to pay back the loan breaks the "No More Argentinas" rule adopted after the IMF's disastrous 2001 loan.
          2. Not lending to countries that refuse in good faith to negotiate with their official creditors goes against the IMF's role as the major tool of the global creditors' cartel.
          3. And the IMF is now lending to a borrower at war, indeed one that is destroying its export capacity and hence its balance-of-payments ability to pay back the loan.
          4. Finally, the IMF is lending to a country that has little likelihood of refuse carrying out the IMF's notorious austerity "conditionalities" on its population – without putting down democratic opposition in a totalitarian manner. Instead of being treated as an outcast from the international financial system, Ukraine is being welcomed and financed."

          I'm still trying to think through the implications but they are certainly disquieting. Without trying to hard I'd summarize that "the masks are coming off."

          The question then is, what happens after "the masks come off?"

          … war.

          (Sometimes it's best just to blurt out what's worrying you.)

          marknesop, December 18, 2015 at 10:36 am
          Short-sighted western pundits will still be penning deadline copy headlined "How Putin lost Ukraine" while those with real vision will be putting the finishing touches on "How America Lost the Rest of the World".

          [Dec 23, 2015] The Big Short Every American Should See This Movie

          Notable quotes:
          "... Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once. ..."
          Zero Hedge
          The Big Short opens nationwide today. But it happened to have one showing last night at a theater near me. My youngest son and I hopped in the car and went to see it. I loved the book by Michael Lewis. The cast assembled for the movie was top notch, but having the director of Anchorman and Talledaga Nights handle a subject matter like high finance seemed odd.

          The choice of Adam McKay as director turned out to be brilliant. The question was how do you make a movie about the housing market, mortgage backed securities, collateralized debt obligations, collateralized debt swaps, and synthetic CDOs interesting for the average person. He succeeded beyond all expectations.

          Interweaving pop culture icons, music, symbols of materialism, and unforgettable characters, McKay has created a masterpiece about the greed, stupidity, hubris, and arrogance of Wall Street bankers gone wild. He captures the idiocy and complete capture of the rating agencies (S&P, Moodys). He reveals the ineptitude and dysfunction of the SEC, where the goal of these regulators was to get a high paying job with banks they were supposed to regulate. He skewers the faux financial journalists at the Wall Street Journal who didn't want to rock the boat with the truth about the greatest fraud ever committed.

          ...Ultimately, it is a highly entertaining movie with the right moral overtone, despite non-stop profanity that captures the true nature of Wall Street traders. This is a dangerous movie for Wall Street, the government, and the establishment in general. They count on the complexity of Wall Street to confuse the average person and make their eyes glaze over. That makes it easier for them to keep committing fraud and harvesting the nation's wealth.

          This movie cuts through the crap and reveals those in power to be corrupt, greedy weasels who aren't really as smart as they want you to think they are. The finale of the movie is sobering and infuriating. After unequivocally proving that Wall Street bankers, aided and abetted by the Federal Reserve, Congress, the SEC, and the mainstream media, destroyed the global financial system, put tens of millions out of work, got six million people tossed from their homes, and created the worst crisis since the Great Depression, the filmmakers are left to provide the depressing conclusion.

          No bankers went to jail. The Too Big To Fail banks were not broken up – they were bailed out by the American taxpayers. They actually got bigger. Their profits have reached new heights, while the average family has seen their income fall. Wall Street is paying out record bonuses, while 46 million people are on food stamps. Wall Street and their lackeys at the Federal Reserve call the shots in this country. They don't give a fuck about you. And they're doing it again.

          Every American should see this movie and get fucking pissed off. The theater was deathly silent at the end of the movie. The audience was stunned by the fact that the criminals on Wall Street got away with the crime of the century, and they're still on the loose. I had a great discussion with my 16 year old son on the way home. At least there is one millennial who understand how bad his generation is getting screwed.

          wee-weed up

          I read the book last year... It is outstanding! Highest recommendation. If you have not read this book, you cannot understand how today's market really works.

          JRobby

          This subject matter has to be put in a form that can be understood by the masses. Hopefully the popular actors and this director is a step in that direction.

          Main stream Hollywood as an informer? Hmmmmm? This adds to the current assumptions and rumors of fractures among the elite groups.

          We are reasonable people. If the banking elite is sacrificed and the other corporate oligarchs come into a more socially acceptable line, we may be satisfied. However, the banking elite must be sacrificed. There is no negotiation on that point.

          Of course some will say I am over optimistic, they are throwing it in our faces to make $$$ and it ends up a total police state so enjoy your "entertainment" for now.

          Time goes on. Time will tell.

          chunga

          First you'd have to believe that politicians give a fuck about any damn thing but themselves. REAL concern for minorities or communities LOL! Then you'd have to believe banks were forced to do *anything* they don't want.

          Then, you'd have to fall right to sleep and miss the part where all this crap was sold on Wall Street while at the same time betting against all the "shitty deals" they made, then the whole thing getting bailed out @ par. With par being at the absurd fraudulent property appraisals that were made by the lenders or their agents. It's just nuts.

          This was all planned, beginning with Greenspan. AIG's Greenberg KNEW their CDS paper was no damn good, but didn't care because the also KNEW there would be a bailout. The only problem for him was Paulson and Blankfein conspired to steal the bailout money...and they did!

          That's why all this money went looking for people...it was all planned.

          chunga

          Hundreds of scandals have gone by since then, thoroughly unpunished, so I wonder why this movie is coming out now. I looked into some of the cronies calling the shots at the GSE's back then and saved it. A lot is outdated by now. Seems like a fairly bi-partisan effort.

          FRANKLIN RAINES [D] – FNMA CEO (1999 – 2004) Raines accepted "early retirement" from his CEO position while the SEC pretended to investigate accounting irregularities. Fannie's own OHFHEO also accused him of abetting widespread accounting errors, including the shifting of losses, so he and his fellow execs could "earn" large bonuses. The WSJ reported back in 2008 that Raines was one of several cronies that received below market rates for mortgages from Countrywide. Raines alone receive loans for over $3 million while CEO of FNMA. Raines' compensation for his "work" at FNMA - $90 million.

          RAINES GRADE – F

          DANIEL MUDD [R] – FNMA CEO (2005 – 2008) Before becoming CEO of FNMA, Mudd worked at the Office of the Secretary of Defense, was an advisor to Asia-Pacific Economic Corp., "served" on the board of the Council of Foreign Relations, "consulted" at the World Bank, and held many positions at GE Capital including president and CEO. Mudd was dismissed as CEO of FNMA when FHFA became conservator in 2008. In 2011 Mudd and other GSE execs were charged by SEC with securities fraud. After his career at FNMA Mudd became CEO of a NYC hedge fund named "Fortress". Fortress invested in purchasing tax liens on delinquent property taxes from local governments under many benign corporate names such as "Pleasant Valley Capital" and "Travis Farm Investments". Cozy. Mudd's compensation for his "work" at FNMA - $80 million.

          MUDD GRADE – F

          NEEL KASHKARI [R] – FNMA CEO (Tenure is murky) Kashkari was a former investment banker for Goldman Sachs, was tapped by Hank "The Shank" Paulson to lend his skills over at TARP HQ, and now rather ironically, continues God's work as a Managing Director at PIMCO. Kashkari's compensation for his "work" at FNMA is also murky; I'll just assume it was too much.

          KASHKARI GRADE - F

          HERB ALLISON [D] – FNMA CEO (2008 – 2009) The esteemed Mr. Allison was quickly whisked off to oversee the wildly successful TARP program. I didn't find much on his compensation during his brief stint as FNMA CEO. Allison served in various positions at Merrill Lynch and became a member of the board in 1997. He was a director of the NYSE from 2003 – 2005.

          ALLISON GRADE – F

          MICHAEL WILLIAMS [?] – FNMA CEO (2009 – Jan 1, 2012) Mr. Williams is a 20 year veteran at FNMA. While "serving" as FNMA CEO, Williams managed to scrape by on less than $6 million in 2011 alone. This could and should be considered a hardship, given the complexities involved in purloining ~ $60 billion of Fed bailout money.

          WILLIAMS GRADE – F

          FANNIE'S MAJOR DANCE PARTNER, FREDDIE MAC, HAS ALSO PERFORMED VERY POORLY.

          Charles (my friends call me "Ed") Haldeman has announced his retirement plans but intends to be a good sport and stay on with insolvent FHLMC until another crony can be found to fill his wing-tips.

          That might take a while. "Serving" as CEO of the ultimate backstops for the lion's share of the MBS Ponzi is very stressful.

          We'll have to accept former Freddie exec David Kellermann's testimony posthumously. Mr. Kellermann was found hanging by the neck in the basement of his posh Vienna, VA home in the affluent suburb of Washington. D.C. way back in April of 2009. It is presumed he had no help and local police have stated there was no evidence of foul play.

          Urban Redneck

          GREED is non-partisan. And all sides agreed MOAR "home ownership" was desirable. The left got its SJW colorblind automation, while the underwriters were able to increase volumes by thousands of percent while reducing overall headcount. Securitization wasn't actually "automated" since the fuckwits were using MS-Excel, but it was commoditized with Blackrock's pricing model.

          These were the days of the original algorithms of mass financial destruction, which were primitive and largely FICO-centric, but everyone wanted to minimize the cost (of logic coding and external data sources) so they coding decisioning based solely on information contained in the mortgage application and the applicant's electronic credit report.

          khakuda

          Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once.

          Keynesians

          Wall Street is laughing at all the clowns who think this movie will "wake up America". It would have never came out if it was any kind of danger to Wall Street, the FED, or the establishment.

          Agent P

          Directed by Adam McKay (Anchorman, Step Brothers, The Other Guys....), so ... yeah I'm going to go see it. Remember the end credits for The Other Guys? He hates Wall Street....

          GoldenDonuts

          Perhaps you should read the book. These are real characters from a non fiction book. They may have changed a name or two but these are real people. I will lend you my copy if you can't afford one.

          conraddobler

          Yeah I can't imagine a commercially successful movie out of this that would actually tell the truth and make it to the screens.

          What someone should do is write one of those fantastical novels where everything is a symbol for something else and jazz it up, put some romance, danger, intrigue and of course big boobs in it.

          The real message ala the olden days usually had to be hidden to avoid the wrath of those it was really aimed at.

          [Dec 21, 2015] Weak president, neoliberal Obama and housing bubble

          Notable quotes:
          "... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
          "... That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/ ..."
          "... You think a rise in stock prices created by a fall in the cost of capital is a bubble. ..."
          "... keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this? ..."
          "... Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesnt favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didnt cost a dime. ..."
          "... It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors cant understand what the Fed is doing, even though they tell you. ..."
          "... Thats it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and its the governments fault. ..."
          "... Here is how they evaluate models: Good model; one that reaches the right good conclusions. Bad model; one that ends up saying stuff nobody should believe in. ..."
          "... Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest. ..."
          "... Democrats filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. ..."
          "... Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior. ..."
          economistsview.typepad.com
          reason said... December 18, 2015 at 02:20 AM
          I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)

          The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

          JF said in reply to reason... December 18, 2015 at 05:19 AM

          Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of" ....

          Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

          There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

          david said in reply to JF...

          except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

          sanjait said in reply to david... December 18, 2015 at 02:47 PM

          Are there enough of those to dominate securities prices?

          I don't see how there possibly could be. For everyone trying to reach for yield there are a lot of people happy to arbitrage or otherwise exploit those inefficiencies.

          pgl said in reply to reason... December 18, 2015 at 05:53 AM

          Nice comment. I think Krugman is letting others take out the bubble brains. But if he's reading your excellent comment - maybe he will go the fray.

          BenIsNotYoda said in reply to reason... December 18, 2015 at 06:35 AM

          "The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

          The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

          Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:35 AM

          It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

          BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:38 AM

          That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

          BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:38 AM

          I mean earnings yields not earnings growth.

          Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:48 AM

          So you say. And yet, stock values today conform very well with the standard model Williams says doesn't historically fit the data. While you are talking bubbles, the equity risk premium is parked in the normal range.

          How do you explain that?

          BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:54 AM

          so says Williams. dividend yields, earnings yields and risk premiums are not necessarily weighted heavily in investors' formation of expected returns. past returns do, to a great extent. that is what Williams shows.

          BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:56 AM

          our prehistoric brains are wired to trend follow patterns.

          pgl said in reply to BenIsNotYoda... December 18, 2015 at 09:13 AM

          Williams actually tries to model the rise in stock prices and defines any increase the model cannot explain a bubble. Of course maybe his modeling is not entirely spot on and fundamentals can explain the rise stock prices.

          But this is not what you do as you see any asset price increase as a bubble. Which is beyond stupid. Of course it would help if you ever bothered to do what Williams attempted - use a basic model of financial economics. Then again my guess is that is beyond your understanding of basic financial economics. So troll on!

          BenIsNotYoda said in reply to pgl... December 18, 2015 at 10:40 AM

          You think a rise in stock prices created by a fall in the cost of capital is a bubble. But no - it is a change in fundamentals.

          keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this?

          JohnH said in reply to pgl... December 18, 2015 at 04:22 PM

          The first thing pgl did when stocks corrected this summer was to call for QE4...he panicked because his portfolio was threatened...but claimed that he was only worried about workers!

          Fred C. Dobbs said in reply to reason... December 18, 2015 at 10:57 AM

          It does not seem reasonable or
          fair to pay practically no interest
          on savings, which is a consequence
          of Fed policy.

          A consequence of this is that people
          go into risky investments that lead
          to catastrophe, sometimes widespread.

          If the goal was to get people to spend
          (i.e. consume) more, it seems that they
          are persistently & stubbornly frugal.

          Chris Herbert said in reply to Fred C. Dobbs... December 18, 2015 at 02:31 PM

          Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesn't favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didn't cost a dime.

          sanjait said in reply to reason...

          Let me be the fourth person to compliment that comment.

          "leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates."

          QFT!

          The one hypothetical caveat (as BINY alluded to, knowingly or not) is that expectations often get out of whack based on momentum trading. So hypothetically, lowering rates could possibly feed that.

          But guess what? Rates are already at zero. They can't go lower. It's not even a question of lowering rates, but rather whether to keep them where they are. So a bubbles-from-monetary-fed-momentum argument falls completely flat. We've been at zero for 7 years now!

          reason said...

          It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

          Sanjait said in reply to reason...

          That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.

          And somehow the RW economists see no problem with this model

          DeDude said in reply to Sanjait...

          Here is how they evaluate models: Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.
          likbez said in reply to Sanjait...
          "Markets are efficient, unless the government does anything"

          This is a dangerous neoliberal dogma. Total lie.

          === quote ===
          The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

          Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

          Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
          ...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
          Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

          http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

          Peter K. said in reply to reason...

          And/or the markets are telling the Fed something, like they don't believe the Fed's forecasts about growth and inflation and are betting otherwise, but the hawks at the Fed dismiss the markets and say we need to raise rates now.

          It's all very convenient reasoning about markets.

          Vile Content said...

          "
          constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.
          "
          ~~pK~

          ... ... ...

          anne said...

          http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/

          November 23, 2015

          Shorts Subject
          By Paul Krugman

          Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

          But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

          In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

          It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

          So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

          The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          ** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          anne said in reply to anne...

          http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html

          August 16, 2002

          Mind the Gap
          By PAUL KRUGMAN

          More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

          If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          anne said in reply to anne...

          http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          August 8, 2005

          That Hissing Sound
          By PAUL KRUGMAN

          This is the way the bubble ends: not with a pop, but with a hiss.

          Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

          So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

          Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

          One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

          Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

          In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

          But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

          And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

          EMichael said in reply to anne...

          Yeah, the only thing he missed was the timing of the collapse.

          The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

          Yet prices accelerated until the top was reached a year after the column.

          anne said in reply to EMichael...

          http://www.nytimes.com/2006/08/25/opinion/25krugman.html

          August 25, 2006

          Housing Gets Ugly
          By PAUL KRUGMAN

          Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

          Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

          A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

          The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

          EMichael said in reply to anne...

          "Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

          You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

          One day people will understand that payments are the key to all finance.

          JohnH said...

          "and it is an outrage that basically nobody ended up being punished ."

          Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

          I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

          Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

          JohnH said in reply to anne...

          Oh, please...Krugman could barely criticize Obama, even when Obama introduced an austerity budget back in 2011.

          The tendency of people like Krugman to overlook Democrats' bad behavior only encourages more bad behavior. If Krugman really cared about the policies he champions, he would let the chips fall wherever...and not let empty suits like Obama get away with austerity and failure to enforce the law when Wall Street willfully violates it.

          pgl said in reply to JohnH...

          Did you forgot to read the post before firing off your usual hate filled fact free rant? Here - let me help you out:

          "some members of the new commission had a different goal. George Santayana famously remarked that "those who cannot remember the past are condemned to repeat it." What he didn't point out was that some people want to repeat the past - and that such people have an interest in making sure that we don't remember what happened, or that we remember it wrong. Sure enough, some commission members sought to block consideration of any historical account that might support efforts to rein in runaway bankers."

          It seems Krugman indeed bashed how the government sort of let this crooks off the hook. We know you have an insane hatred for President Obama. But do you also hate your poor mom? Why else would you continue to write such incredibly stupid things?

          JohnH said in reply to pgl...

          As I expected, rationalizations for Obama's refusal to enforce the law...since when does the buck no longer stop at the White House? And what's with trying to defend people who refuse to do their job and uphold the rule of law?

          pgl said in reply to JohnH...

          Krugman did not rationalize that. Neither have I.

          Either you know you are lying or you flunked preK reading.

          JohnH said in reply to pgl...

          Of course pgl rationalizs Obama's failures...he spent a lot of time denying that Obama introduced and signed off on austerity...and that he proposed cutting Social Security. And now he can't admit that Obama and Holder have refused to defend the rule of law by not prosecuting...or even seriously investigating...Wall Street criminality.

          RGC said in reply to William...

          Prosecutions don't require congressional action.

          Most of the New Deal was accomplished in 100 days.

          Promotion by a president can galvanize action.

          pgl said in reply to EMichael...

          The lack of prosecutions was a bad thing. Of course any prosecutor would tell you putting rich people in jail for anything is often difficult. Rich people get to hire expensive, talented, and otherwise slimy defense attorneys. I have to laugh at the idea that JohnH thinks he could have pulled this off. The slimy defense attorneys would have had his lunch before the judge's gavel could come down.

          JohnH said in reply to pgl...

          Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest.

          pgl is intent on explaining away Obama's failure to enforce the law...thereby encouraging more lawlessness.

          JohnH said in reply to William...

          Democrats' filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. Even Lieberman had a good record on many issues. Except for ACA, it turned out to be a do-nothing Congress, reflecting an abject lack of leadership...which is why many are so desperate for leadership. Having lacked it for seven years, many are willing to turn to anybody, even Trump, to provide it. Pathetic!

          RGC said in reply to William...

          No vitriol, just facts. And Obama had the example of FDR to follow - why didn't he follow it? I have been deeply disappointed in Obama.

          JohnH said in reply to pgl...

          pgl conveniently forgets my choice words about Bill Clinton, Harry Reid and Nancy Pelosi. What I object to is Democrats who position themselves to sound like FDR and then prosecute a neo-liberal agenda.

          Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior.

          [Dec 21, 2015] Monetalism is dead but remains of monetarist thinking are still lingering

          Notable quotes:
          "... Summers is right that bubbles are usually accompanied by some kind of financial euphoria. ..."
          "... There will be massive pushback because so many have wasted many years and resources building mathematically elegant but fatally flawed models that do not make accurate predictions on even represent the fundamentals of any economy. ..."
          economistsview.typepad.com
          Peter K. said in reply to pgl... December 16, 2015 at 10:07 AM
          "It seems to me looking at a year when the stock market has gone down a bit, credit spreads have widened substantially and the dollar has been very strong it is hard to say that now is the time to fire a shot across the bow of financial euphoria. Looking especially at emerging markets I would judge that under-confidence and excessive risk aversion are a greater threat over the next several years than some kind of financial euphoria."

          Summers is right that bubbles are usually accompanied by some kind of financial euphoria.

          ... ... ...

          Peter K. said in reply to Benedict@Large...

          I disagree with your assessment. People (elite?) are talking about unusual solutions because fiscal policy is being blocked politically.

          MMT doesn't seem that different from Keynesianism, except proponents have very big chips on their shoulders for some reason.

          Right now the Keynesians are arguing that the Fed shouldn't raise rates. Are the MMTers arguing any differently? Or are they merely giving us the blue prints for utopia. Blue prints don't help much if the politics are against you.

          Syaloch said in reply to Peter K....

          Great question.

          If I have two black boxes that always produce exactly the same outputs, does it matter whether their internal mechanisms are different?

          Dan Kervick said in reply to Syaloch...
          "Or maybe they would be effective because people believe they ought to be effective."

          Possibly. I think back in the 80's when monetarism was the super-sexy new view, there were a lot of people who thought inflation was mainly a function of the monetary base, so if the Fed made a big public stink about pumping up the monetary base, that could be counted on the boost inflation expectations, at least in some quarters, and the high expectations would in turn help to boost actual inflation. That doesn't seem to be the case any longer.

          Dan Kervick said in reply to pgl...
          The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly) to target the money supply.

          Conservative spear-carrier Niall Ferguson knows how important monetarism was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.

          http://www.niallferguson.com/journalism/finance-economics/friedman-is-dead-monetarism-is-dead-but-what-about-inflation

          Other references to the heyday of monetarism abound:

          http://www.voxeu.org/article/nominal-gdp-targeting-developing-nations

          Dan Kervick said in reply to pgl...
          The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly) to target the money supply.

          Conservative spear-carrier Niall Ferguson knows how important monetarism was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.

          http://www.niallferguson.com/journalism/finance-economics/friedman-is-dead-monetarism-is-dead-but-what-about-inflation

          Other references to the heyday of monetarism abound:

          http://www.voxeu.org/article/nominal-gdp-targeting-developing-nations

          bakho said... December 16, 2015 at 05:45 AM
          Kevin Hoover, The emperor has no clothes!

          "Given what we know about representative-agent models…there is not the slightest reason for us to think that the conditions under which they should work are fulfilled. The claim that representative-agent models provide microfundations succeeds only when we steadfastly avoid the fact that representative-agent models are just as aggregative as old-fashioned Keynesian macroeconometric models. They do not solve the problem of aggregation; rather they assume that it can be ignored."

          This the reason Macro needs to move into more data driven empirics.

          There will be massive pushback because so many have wasted many years and resources building mathematically elegant but fatally flawed models that do not make accurate predictions on even represent the fundamentals of any economy.

          Syaloch said... December 16, 2015 at 05:50 AM

          The Advantages of Higher Inflation - The New York Times

          From the article:

          "A critical problem with aiming for higher inflation is how to get from here to there. The Fed has spent enormous effort anchoring people's expectations to 2 percent. Even economists sympathetic to a higher target are wary of what such a shift might do to its credibility.

          "'A perfect world, where you could commit to 4 percent and everybody believed it, would be great,' Mr. Mishkin told me. 'We are not in a perfect world. Moving much higher than 2 percent raises the risk that expectations become unanchored.'

          "So here is an alternative proposal. If the Fed is too cautious to risk unhinging inflationary expectations, how about just delivering what it has promised? Among economists and investors, the problem with the Fed's 2 percent target is that just about everybody believes it is really a ceiling. That makes it even harder for inflation to rise to that level. The market expects the Fed to act pre-emptively to ensure it never goes over that line - which is what it seems to be doing now.

          "If the Fed is not going to aim for higher inflation, the least it could do is re-anchor expectations to the goal it established, allowing inflation to fluctuate above and below a 2 percent average. That alone might help deal with the next economic crisis.

          "'We haven't fully tested whether we can deal with this kind of crisis with a 2 percent inflation target,' said David H. Romer of the University of California, Berkeley. 'Central banks have lots of tools. If they say they are willing to keep using them until they get where they want, they can eventually do it.'"

          This highlights a confusing aspect of inflation targets. If the Fed simply announces a higher inflation target without taking any other action, have they really done anything? What's more, they not only need to announce the new target, they need to convince markets that they are willing to do whatever it takes to hit that target -- it's all about credibility and re-anchoring expectations. And while engaging in QE to push down longer-term rates might help make that statement more convincing, it doesn't seem to be strictly necessary for the new target to be effective.

          Thus inflation targets seem in at least some cases to operate purely through psychological manipulation, as a sort of placebo effect: inflation rises not because the Fed has injected money into the economy today or changed the cost of lending today, but rather because the Fed is able to "trick" markets into believing it will rise in the future.

          Peter K. said in reply to Syaloch...

          And the reverse is true. The markets are skeptical that the Fed will hit its 2 percent ceiling target any time soon.

          Inflation expectations are becoming un-anchored on the downside but nobody cares because .... oil.

          Dan Kervick said in reply to Peter K....
          I guess we'll all have to wait for Yellen's future memoirs to know the thinking that was going on inside the Fed during 2015. But it's interesting that both Yellen and Stanley Fischer, both formerly held in gigantic respect by the more prominent liberal economists, are now the targets of ire for apparently not seeing eye-to-eye with their opinionated friends on the outside. Despite the fact that BoG members have access to mountains of internal research and policy input that people on the outside can only guess at, the default position of the outsiders is that the insiders have been corrupted by power and fast-talking bankers or something.

          Here's my conjecture about what the Fed's thinking is: The Fed recognizes that keeping policy interest rates down at an unprecedentedly low basement level for years on end sends this message to the global economy: the US economy is a sick basket case. It needs the permanent life support of extraordinary monetary policy intervention to be kept from flat-lining.

          I think the people who actually work inside the Fed think that is total bunk, and that as they gradually wean the financial sector off of the monetary ventilator, nothing bad is going to happen at all. The patient is going to get up, walk around and breathe normally. And when that happens, it will say, "Wow, maybe I should have tried that earlier!" Business confidence will spurt; people will think, "Hey, I guess we're not in that gloomy post-2008 depression any more!", and the country will get on with its business more cheerfully.

          The Fed has had a devil of a time getting back to normal, because despite its best intentions it has inadvertently re-defined a condition of zero rates and excess reserves bleeding from bankers's ears as the new normal, and created an out-of-control public fixation on monetary policy intervention. Fed communications strategies aimed at guiding the market have turned back on them in a reflexive and self-defeating cycle. They got themselves into a terrible pattern for a while where every time there was good economic news, the markets would respond negatively because they interpreted the good news as evidence that the Fed would "taper" - which they regarded as bad news! And if there was bad news, the markets would respond favorably because they saw the bad news as evidence that the fed would "remain aggressive" - which is good news! Obviously that's a pretty pathological cycle to be in: it's a mechanism fro economic self-stultification. Indicating a move toward normalization too suddenly in 2013 caused the irrational "taper tantrum", so they have had to go more slowly this time around with the hand-holding and by building a longer "guidance" runway.

          Their chief need now is to push back against the monetary maniacs and hyperventilators who keep trying to convince impressionable business people and consumers that the Fed has somehow been "keeping the economy" afloat, and that when interest rates go up - from 1/4 to 1/2 of a percent! - we're all going to drown. If you have enough ambulance chasers convincing people they are sick and damaged, they will act sick and damaged.

          [Dec 20, 2015] Paul Krugman: The Big Short, Housing Bubbles and Retold Lies

          Notable quotes:
          "... I get the feeling that if doing a film review of The Force Awakens , most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. ..."
          "... In market fundamentalist world, markets dont fail. They can only be failed. Though its still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs. ..."
          "... The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects. ..."
          "... ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what weve called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature. ..."
          "... except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure ..."
          "... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
          "... Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJs lowest priority. Krugmans Democratic proclivities prevent him from stating the obvious. ..."
          "... Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obamas hollow presidency that theyll even support a racist demagogue to avoid another empty White House. ..."
          "... Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with teaser rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself Greenspan. ..."
          "... When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do. ..."
          economistsview.typepad.com

          Why are Murdoch-controlled newspapers attacking "The Big Short?"

          'The Big Short,' Housing Bubbles and Retold Lies, by Paul krugman, Commentary, NY Times: In May 2009 Congress created a special commission to examine the causes of the financial crisis. The idea was to emulate the celebrated Pecora Commission of the 1930s, which used careful historical analysis to help craft regulations that gave America two generations of financial stability.

          But some members of the new commission had a different goal. ... Peter Wallison of the American Enterprise Institute, wrote to a fellow Republican on the commission ... it was important that what they said "not undermine the ability of the new House G.O.P. to modify or repeal Dodd-Frank"...; the party line, literally, required telling stories that would help Wall Street do it all over again.

          Which brings me to a new movie the enemies of financial regulation really, really don't want you to see.

          "The Big Short" ... does a terrific job of making Wall Street skulduggery entertaining, of exploiting the inherent black humor of how it went down. ... But you don't want me to play film critic; you want to know whether the movie got the underlying ... story right. And the answer is yes, in all the ways that matter. ...

          The ...housing ... bubble ... was inflated largely via opaque financial schemes that in many cases amounted to outright fraud - and it is an outrage that basically nobody ended up being punished ... aside from innocent bystanders, namely the millions of workers who lost their jobs and the millions of families that lost their homes.

          While the movie gets the essentials of the financial crisis right, the true story ... is deeply inconvenient to some very rich and powerful people. They and their intellectual hired guns have therefore spent years disseminating an alternative view ... that places all the blame ... on ... too much government, especially government-sponsored agencies supposedly pushing too many loans on the poor.

          Never mind that the supposed evidence for this view has been thoroughly debunked..., constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.

          Sure enough, "The Big Short" has already been the subject of vitriolic attacks in Murdoch-controlled newspapers...

          The ... people who made "The Big Short" should consider the attacks a kind of compliment: The attackers obviously worry that the film is entertaining enough that it will expose a large audience to the truth. Let's hope that their fears are justified.

          btg said in reply to pgl...

          I get the feeling that if doing a film review of "The Force Awakens", most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. Krugman would not, however.

          Sanjait said...

          In market fundamentalist world, markets don't fail. They can only be failed. Though it's still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs.

          Are markets efficient or not? I feel like the fundiesndont really have a coherent explanation for what happened, other than insisting the government somehow did it.

          reason said...

          I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)

          The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

          reason said... December 18, 2015 at 02:32 AM

          It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

          Sanjait said in reply to reason... December 18, 2015 at 08:06 AM

          That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.

          And somehow the RW economists see no problem with this model

          DeDude said in reply to Sanjait... December 18, 2015 at 08:18 AM

          Here is how they evaluate models:

          Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.

          likbez said in reply to Sanjait...

          "Markets are efficient, unless the government does anything"

          This is a dangerous neoliberal dogma. Total lie.

          === quote ===
          The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

          Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

          Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
          ...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
          Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

          http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

          JF said in reply to reason...

          Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of"

          ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

          There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

          david said in reply to JF...

          except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

          BenIsNotYoda said in reply to reason...

          "The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

          The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

          Sanjait said in reply to BenIsNotYoda...

          It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

          BenIsNotYoda said in reply to Sanjait...

          That is exactly the point. Expected returns in stocks have nothing to do with earnings growth.

          http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

          Fred C. Dobbs said in reply to reason...

          It does not seem reasonable or fair to pay practically no interest on savings, which is a consequence of Fed policy. A consequence of this is that people go into risky investments that lead to catastrophe, sometimes widespread. If the goal was to get people to spend (i.e. consume) more, it seems that they are persistently & stubbornly frugal.

          anne, December 18, 2015 at 06:37 AM

          http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/

          November 23, 2015

          Shorts Subject
          By Paul Krugman

          Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

          But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

          In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

          It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

          So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

          The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          ** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          anne said in reply to anne... December 18, 2015 at 06:43 AM

          http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html

          August 16, 2002

          Mind the Gap
          By PAUL KRUGMAN

          More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

          If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          anne said in reply to anne... December 18, 2015 at 06:44 AM

          http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          August 8, 2005

          That Hissing Sound
          By PAUL KRUGMAN

          This is the way the bubble ends: not with a pop, but with a hiss.

          Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

          So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

          Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

          One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

          Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

          In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

          But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

          And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

          EMichael said in reply to anne... December 18, 2015 at 06:59 AM

          Yeah, the only thing he missed was the timing of the collapse. The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

          Yet prices accelerated until the top was reached a year after the column.

          anne said in reply to EMichael... December 18, 2015 at 07:43 AM

          http://www.nytimes.com/2006/08/25/opinion/25krugman.html

          August 25, 2006

          Housing Gets Ugly
          By PAUL KRUGMAN

          Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

          Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

          A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

          The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

          EMichael said in reply to anne... December 18, 2015 at 07:52 AM

          "Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

          You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

          One day people will understand that payments are the key to all finance.

          JohnH said...

          "and it is an outrage that basically nobody ended up being punished ."

          Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

          I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

          Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

          run75441 said in reply to JohnH...

          Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with "teaser" rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself "Greenspan."

          When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do.

          What was the SEC doing during this time period? What was the administration doing with Enron in 2002? Didn't Cheney get sued by the GAO to find out who he was talking to at Enron?

          Yes there is the matter of not prosecuting banking execs after 2008; however, the issue was allowed to grow during the prior administration and left on the next administration's doorstep. Closing the barn door after the perps have escaped is a bit late and it should have been stopped dead in its tracks during the prior 8 years.

          So keep going down that path and we can also talk about fraud with tranching, CDS, Naked CDs, reserves, etc.

          So, where was the administration during this time period?

          DeDude said...

          Subprime loans in poor communities represented a very small fraction of the total subprime volume and defaulted loans. I mean talk about the mouse and the elephant. Yet the FoxBots are being convinced to look at those scary mice and all that thundering noise they are making.

          Alex H said in reply to Peter K....
          In the book, one of the supposed villains went to the division of AIG that was selling CDSes (i.e. "insuring" the toxic crap) and explained to a direct subordinate of the division exactly how his bank and the other companies of Wall Street were suckering them into taking on absurd risks. In *2005*.

          Because he was massively short in this market, and AIG pulling the plug would have popped the bubble. Nobody else was selling CDSes (then), and Wall Street couldn't have pretended that their risks were covered without them. That doesn't make him a hero, but seriously, if AIG had listened, no collapse.

          Several of the characters effectively called up the ratings agencies to shout at them. Others called NYT and WSJ reporters, who ignored them. Then they called the SEC's enforcement division, who ignored them.

          Besides, if the other side in all of those bets were foreign "widows and orphans", then it wouldn't have wrecked the financial system. If Bear Stearns had been sitting as the middleman between a Korean pension fund and Steve Eisman, they'd have just taken their cut and moved on.

          [Dec 19, 2015] The Enduring Relevance of "Manias, Panics, and Crashes"

          Notable quotes:
          "... Manias, Panics, and Crashes ..."
          "... The New International Money Game ..."
          "... Manias, Panics and Crashes ..."
          "... Why Minsky Matters ..."
          "... Manias, Panics and Crashes ..."
          "... Manias, Panics and Crashes ..."
          December 17, 2015 | Angry Bear

          by Joseph Joyce

          The Enduring Relevance of "Manias, Panics, and Crashes"

          The seventh edition of Manias, Panics, and Crashes has recently been published by Palgrave Macmillan. Charles Kindleberger of MIT wrote the first edition, which appeared in 1978, and followed it with three more editions. Robert Aliber of the Booth School of Business at the University of Chicago took over the editing and rewriting of the fifth edition, which came out in 2005. (Aliber is also the author of another well-known book on international finance, The New International Money Game.) The continuing popularity of Manias, Panics and Crashes shows that financial crises continue to be a matter of widespread concern.

          Kindleberger built upon the work of Hyman Minsky, a faculty member at Washington University in St. Louis. Minsky was a proponent of what he called the "financial instability hypothesis," which posited that financial markets are inherently unstable. Periods of financial booms are followed by busts, and governmental intervention can delay but not eliminate crises. Minsky's work received a great deal of attention during the global financial crisis (see here and here; for a summary of Minksy's work, see Why Minsky Matters by L. Randall Wray of the University of Missouri-Kansas City and the Levy Economics Institute).

          Kindleberger provided a more detailed description of the stages of a financial crisis. The period preceding a crisis begins with a "displacement," a shock to the system. When a displacement improves the profitability of at least one sector of an economy, firms and individuals will seek to take advantage of this opportunity. The resulting demand for financial assets leads to an increase in their prices. Positive feedback in asset markets lead to more investments and financial speculation, and a period of "euphoria," or mania develops.

          At some point, however, insiders begin to take profits and withdraw from the markets. Once market participants realize that prices have peaked, flight from the markets becomes widespread. As prices plummet, a period of "revulsion" or panic ensues. Those who had financed their positions in the market by borrowing on the promise of profits on the purchased assets become insolvent. The panic ends when prices fall so far that some traders are tempted to come back into the market, or trading is limited by the authorities, or a lender of last resort intervenes to halt the decline.

          In addition to elaborating on the stages of a financial crisis, Kindleberger also placed them in an international context. He wrote about the propagation of crises through the arbitrage of divergences in the prices of assets across markets or their substitutes. Capital flows and the spread of euphoria also contribute to the simultaneous rises in asset prices in different countries. (Piero Pasotti and Alessandro Vercelli of the University of Siena provide an analysis of Kindleberger's contributions.)

          Aliber has continued to update the book, and the new edition has a chapter on the European sovereign debt crisis. (The prior edition covered the events of 2008-09.) But he has also made his own contributions to the Minsky-Kindleberger (and now –Aliber) framework. Aliber characterizes the decades since the early 1980s as "…the most tumultuous in monetary history in terms of the number, scope and severity of banking crises." To date, there have been four waves of such crises, which are almost always accompanied by currency crises. The first wave was the debt crisis of developing nations during the 1980s, and it was followed by a second wave of crises in Japan and the Nordic countries in the early 1990s. The third wave was the Asian financial crisis of 1997-98, and the fourth is the global financial crisis.

          Aliber emphasizes the role of cross-border investment flows in precipitating the crises. Their volatility has risen under flexible exchange rates, which allow central banks more freedom in formulating monetary policies that influence capital allocation. He also draws attention to the increases in household wealth due to rising asset prices and currency appreciation that contribute to consumption expenditures and amplify the boom periods. The reversal in wealth once investors revise their expectations and capital begins to flow out makes the resulting downturn more acute.

          These views are consistent in many ways with those of Claudio Borio of the Bank for International Settlements (see also here). He has written that the international monetary and financial system amplifies the "excess financial elasticity," i.e., the buildup of financial imbalances that characterizes domestic financial markets. He identifies two channels of transmission. First, capital inflows contribute to the rise in domestic credit during a financial boom. The impact of global conditions on domestic financial markets exacerbates this development (see here). Second, monetary regimes may facilitate the expansion of monetary conditions from one country to others. Central bankers concerned about currency appreciation and a loss of competitiveness keep interest rates lower than they would otherwise, which furthers a domestic boom. In addition, the actions of central banks with international currencies such as the dollar has international ramifications, as the current widespread concern about the impending rise in the Federal Funds rate shows.

          Aliber ends the current edition of Manias, Panics and Crashes with an appendix on China's financial situation. He compares the surge in China's housing markets with the Japanese boom of the 1980s and subsequent bust that initiated decades of slow economic growth. An oversupply of new housing in China has resulted in a decline in prices that threatens the solvency of property developers and the banks and shadow banks that financed them. Aliber is dubious of the claim that the Chinese government will support the banks, pointing out that such support will only worsen China's indebtedness. The need for an eighth edition of Manias, Panics and Crashes may soon be apparent.

          cross posted with Capital Ebbs and Flows

          [Dec 19, 2015] The Washington Post's Non-Political Fed Looks a Lot Like Wall Street's Fed

          Notable quotes:
          "... Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. ..."
          Dec 19, 2015 | Beat the Press

          ... ... ...

          But what is even more striking is the Post's ability to treat the Fed a neutral party when the evidence is so overwhelming in the opposite direction. The majority of the Fed's 12 district bank presidents have long been pushing for a rate hike. While there are some doves among this group, most notably Charles Evans, the Chicago bank president, and Narayana Kocherlakota, the departing president of the Minneapolis bank, most of this group has publicly pushed for higher rate hikes for some time. By contrast, the governors who are appointed through the democratic process, have been far more cautious about raising rates.

          It should raise serious concerns that the bank presidents, who are appointed through a process dominated by the banking industry, has such a different perspective on the best path forward for monetary policy. With only five of the seven governor slots currently filled, there are as many presidents with voting seats on the Fed's Open Market Committee as governors. In total, the governors are outnumbered at meetings by a ratio of twelve to five.

          Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. Furthermore, it seems determined to use that influence to push the Fed on a path that slows growth and reduces the rate of job creation. The Post somehow missed this story or at least would prefer that the rest of us not take notice.

          * https://www.washingtonpost.com/opinions/the-federal-reserve-makes-a-good-judgment-call-in-raising-interest-rates/2015/12/18/7954e1c6-a4f8-11e5-ad3f-991ce3374e23_story.html

          -- Dean Baker

          [Dec 19, 2015] Depletion of Earth resources

          peakoilbarrel.com
          Peter, 12/18/2015 at 2:01 pm
          In ten years time I doubt very much most people around the world will care about small changes in shale oil production.

          The United States uses 19 million barrels of oil per day. The same population in Germany, Great Britain, France, Poland, the low countries and Scandinavia use 10 million.
          The United States could reduce it's exorbitant consumption by firstly having the sort of extensive bus services that most European countries have. Ever time a train system can be built up and people would still get to work etc without any real hardship.
          http://www.bueker.net/trainspotting/map.php?file=maps/germany/germany.gif

          The real problems facing the world are far more difficult to adapt to.

          http://www.worldwildlife.org/threats/overfishing

          85% of fishing stock is being over fished and many stocks are collapsing, billions of people will be effected.

          http://www.theguardian.com/environment/2015/dec/02/arable-land-soil-food-security-shortage

          Due to over plowing, over use of fertilizers and not allowing land to lie fallow, vast areas of arable land is being turned into wasteland or lost.

          [Dec 18, 2015] The Upward Redistribution of Income: Are Rents the Story?

          Looks like growth of financial sector represents direct threat to the society
          Notable quotes:
          "... Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low. ..."
          "... Growth of the non-financial-sector == growth in productivity ..."
          "... In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers. ..."
          December 18, 2015 | cepr.netDean Baker:
          Working Paper: : In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period.

          This paper argues that the bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.

          Flash | PDF

          RC AKA Darryl, Ron said in reply to Fair Economist, December 18, 2015 at 11:34 AM

          "...the growth of finance capitalism was what would kill capitalism off..."

          "Financialization" is a short-cut terminology that in full is term either "financialization of non-financial firms" or "financialization of the means of production." In either case it leads to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages and increase rents.

          Consolidation, the alpha and omega of financialization can only be executed with very liquid financial markets, big investment banks to back necessary leverage to make the proffers, and an acute capital gains tax preference relative to dividends and interest earnings, the grease to liquidity.

          It takes big finance to do "financialization" and it takes "financialization" to extract big rents while maintaining low wages.

          RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:42 AM
          [THANKS to djb just down thread who supplied this link:]

          http://www.democraticunderground.com/10021305040

          Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy

          [graph]

          Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.

          Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...

          Companies are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt.

          Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

          In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?

          http://en.wikipedia.org/wiki/Financialization

          pgl said in reply to RC AKA Darryl, Ron, December 18, 2015 at 03:25 PM
          Your graph shows something I've been meaning to suggest for a while. Take a look at the last time that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great Depression which has similar causes as our Great Recession. Here is my observation.

          Give that Wall Street clowns a huge increase in our national income and we don't get more services from them. What we get is screwed on the grandest of scales.

          BTW - there is a simple causal relationship that explains both the rise in the share of financial sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid financial deregulation. First we see the megabanks and Wall Street milking the system for all its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear the brunt of the damage.

          Which is why this election is crucial. Elect a Republican and we repeat this mistake again. Elect a real progressive and we can put in place the types of financial reforms FDR was known for.

          Peter K. said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:50 AM

          " and it takes "financialization" to extract big rents while maintaining low wages."

          It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low.

          djb said...

          http://www.democraticunderground.com/10021305040

          I don't know about the last couple years but this chart indicates a large growth in financials as a share of gdp over the years since the 40's

          RC AKA Darryl, Ron said in reply to djb, December 18, 2015 at 12:03 PM
          [Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a share of total corporate profits.]

          *

          [Smoking gun excerpt:]

          "...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent...

          [Ouch!]

          [Now the whole enchilada:]

          http://www.washingtonmonthly.com/magazine/novemberdecember_2014/features/frenzied_financialization052714.php?page=all

          If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities-relative to the rest of the economy.

          The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.

          The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn't just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.

          This trend has continued even after the financial crisis of 2008 and subsequent financial reforms, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent. These numbers are lower than the high points of the mid-2000s; but, compared to the years before 1980, they are remarkably high.

          This explosion of finance has generated greater inequality. To begin with, the share of the total workforce employed in the financial sector has barely budged, much less grown at a rate equivalent to the size and profitability of the sector as a whole. That means that these swollen profits are flowing to a small sliver of the population: those employed in finance. And financiers, in turn, have become substantially more prominent among the top 1 percent. Recent work by the economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent to 13.9 percent.

          If the economy had become far more productive as a result of these changes, they could have been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial services themselves have become less, not more, efficient over this time period. The unit cost of financial services, or the percentage of assets it costs to produce all financial issuances, was relatively high at the dawn of the twentieth century, but declined to below 2 percent between 1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early twentieth century. Whatever finance is doing, it isn't doing it more cheaply.

          In fact, the second damaging trend is that financial institutions began to concentrate more and more on activities that are worrisome at best and destructive at worst. Harvard Business School professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in financial-industry revenues came from two things: asset management and loan origination. Fees associated either with asset management or with household credit in particular were responsible for 74 percent of the growth in financial-sector output over that period.

          The asset management portion reflects the explosion of mutual funds, which increased from $134 billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell, but fees associated with alternative investment vehicles exploded. This is, in essence, money for nothing-there is little evidence that hedge funds actually perform better than the market over time. And, unlike mutual funds, alternative investment funds do not fully disclose their practices and fees publicly.

          Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off. Instead of holding loans on their books, banks originate loans to sell off and distribute into this new type of banking sector.

          Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk. Bankers who originated the mortgages received significant commissions, with virtually no accountability or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees instead of properly screening for whether the loans would be any good for investors.

          The same model made it difficult, if not impossible, to renegotiate bad mortgages when the system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own conflicts of interests, and found themselves profiting while loans struggled. This process created bad debts that could never be paid, and blocked attempts to try and rework them after the fact. The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in median wages of the Great Recession and the sluggish recovery we still live with.

          And of course it's been an epic disaster for the borrowers themselves. Many of them, we now know, were moderate- and lower-income families who were in no financial position to borrow as much as they did, especially under such predatory terms and with such high fees. Collapsing home prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever savings they had and left them in deep debt, widening even further the gulf of inequality in this country.

          Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately about who controls, guides, and benefits from our economy as a whole. And here's the last big change: the "shareholder revolution," started in the 1980s and continuing to this very day, has fundamentally transformed the way our economy functions in favor of wealth owners.

          To understand this change, compare two eras at General Electric. This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole] pot of earnings."

          This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s, firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken. Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed, even during the height of the housing boom, Mason notes, "corporations were paying out more than 100 percent of their cash flow to shareholders."

          This lack of investment is obviously holding back our recovery. Productive investment remains low, and even extraordinary action by the Federal Reserve to make investments more profitable by keeping interest rates low has not been able to counteract the general corporate presumption that this money should go to shareholders. There is thus less innovation, less risk taking, and ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to put a check on what kinds of investments CEOs could make, and one of those investments was wage growth. Finance has now won the battle against wage earners: corporations today are reluctant to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually sluggish by retarding consumer demand, while also increasing inequality.

          How can these changes be challenged? The first thing we must understand is the scope of the change. As Mason writes, the changes have been intellectual, legal, and institutional. At the intellectual level, academic research and conventional wisdom among economists and policymakers coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation, and that the financial markets were always right. At the legal level, laws regulating finance at the state level were overturned by the Supreme Court or preempted by federal regulators, and antitrust regulations were gutted by the Reagan administration and not taken up again.

          At the institutional level, deregulation over several administrations led to a massive concentration of the financial sector into fewer, richer firms. As financial expertise became more prestigious than industry-specific knowledge, CEOs no longer came from within the firms they represented but instead from other firms or from Wall Street; their pay was aligned through stock options, which naturally turned their focus toward maximizing stock prices. The intellectual and institutional transformation was part of an overwhelming ideological change: the health and strength of the economy became identified solely with the profitability of the financial markets.

          This was a bold revolution, and any program that seeks to change it has to be just as bold intellectually. Such a program will also require legal and institutional changes, ones that go beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can be thought of as a reaction against the worst excesses of the financial sector at the height of the housing bubble, and as a line of defense against future financial panics. Many parts of it are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting consumers from fraud and bringing some transparency to the Wild West of the derivatives markets. But the scope of the law is too limited to roll back these larger changes.

          One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO, Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive market with serious consequences for the economy as a whole. On its first pass, the SEC found extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the agency found "what we believe are violations of law or material weaknesses in controls over 50 percent of the time."

          Lawmakers could require private equity and hedge funds to standardize their disclosures of fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds noted above didn't just happen by itself; it happened because the law structured the market for actual transparency and price competition. This will need to happen again for the broader financial sector.

          But the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.

          [Whew!]

          Puerto Barato said in reply to RC AKA Darryl, Ron,
          "3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
          ~~RC AKA Darryl, Ron ~

          Growth of the non-financial-sector == growth in productivity

          Growth of the financial-sector == growth in upward transfer of wealth

          Ostensibly financial-sector is there to protect your money from being eaten up by inflation. Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.

          Accountants handle this analysis poorly, but you can see what is happening. Boiling it down to the bottom line you can easily see that wiping out the financial sector is the remedy to the Piketty.

          Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration brought the zombie back to life then put the vampire back at our throats. What was the precipitating factor that snagged the financial sector without warning?

          Unexpected
          deflation
          !

          Gimme some
          of that

          pgl said in reply to djb...

          People like Brad DeLong have noted this for a while. Twice as many people making twice as much money per person. And their true value to us - not a bit more than it was back in the 1940's.

          Rock O Sock O Choco said in reply to djb... December 18, 2015 at 06:26 PM

          JEC - MeanSquaredErrors said...

          Wait, what?

          Piketty looks at centuries of data from all over the world and concludes that capitalism has a long-run bias towards income concentration. Baker looks at 35 years of data in one country and concludes that Piketty is wrong. Um...?

          A little more generously, what Baker actually writes is:

          "The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty." (emphasis added)

          But Piketty has always been very explicit that the recent rise in US income inequality is anomalous -- driven primarily by rising inequality in the distribution of labor income, and only secondarily by any shift from labor to capital income.

          So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than just being obviously wrong. Maybe.

          tew said...

          Some simple math shows that this assertion is false "As a result of this upward redistribution, most workers have seen little improvement in living standards" unless you think an apprx. 60% in per-capita real income (expressed as GDP) among the 99% is "little improvement".

          Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
          If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up 410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings those numbers to a 265% increase and a 62% increase.

          Certainly a very unequal distribution of the productivity gains but hard to call "little".

          I believe the truth of the statement is revealed when you look at the Top 5% vs. the other 95%.

          cm said in reply to tew...

          For most "working people", their raises are quickly eaten up by increases in housing/rental, food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than a single monthly rent (and probably less than your annual cable bill that you need to actually watch TV).

          pgl said in reply to tew...

          Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.

          anne said...

          In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period....

          -- Dean Baker

          anne said in reply to anne...

          http://www.census.gov/hhes/www/income/data/historical/household/

          September 16, 2015

          Real Median Household Income, 1980 & 2014


          1980 ( 48,462)

          2014 ( 53,657)


          53,657 - 48,462 = 5,195

          5,195 / 48,462 = 10.7%


          Between 1980 and 2014 real median household income increased by a mere 10.7%.

          anne said in reply to don...

          I would be curious to know what has happened to the number of members per household....

          http://www.census.gov/hhes/www/income/data/historical/household/

          September 16, 2015

          Household Size

          2014 ( 2.54)
          1980 ( 2.73)

          [ The difference in household size to real median household incomes is not statistically significant. ]

          anne said in reply to anne...

          http://www.census.gov/hhes/www/income/data/historical/families/index.html

          September 16, 2015

          Real Median Family Income, 1948-1980-2014


          1948 ( 27,369)

          1980 ( 57,528)

          2014 ( 66,632)


          57,528 - 27,369 = 30,159

          30,159 / 27,369 = 110.2%


          66,632 - 57,528 = 9,104

          9,104 / 57,528 = 15.8%


          Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014 real median family income increased by a mere 15.8%.

          cm said...

          "protectionist measures that have boosted the pay of doctors and other highly educated professionals"

          Protectionist measures (largely of the variety that foreign credentials are not recognized) apply to doctors and similar accredited occupations considered to be of some importance, but certainly much less so to "highly educated professionals" in tech, where the protectionism is limited to annual quotas for some categories of new workers imported into the country and requiring companies to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.

          A little mentioned but significant factor for growing wages in "highly skilled" jobs is that the level of foundational and generic domain skills is a necessity, but is not all the value the individual brings to the company. In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers.

          This applies less so e.g. in medicine. There are of course many heavily specialized disciplines, but a top flight brain or internal organ surgeon can essentially work on any person. The variation in the subject matter is large and complex, but much more static than in technology.

          That's not to knock down the skill of medical staff in any way (or anybody else who does a job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow a different pattern than in tech.

          Another example, the legal profession. There are similar principles that carry across, with a lot of the specialization happening along different legislation, case law, etc., specific to the jurisdiction and/or domain being litigated.

          [Dec 17, 2015] GDP Forecasts Have Consistently Been Too High

          cepr.net

          December 17, 2015

          GDP Forecasts Have Consistently Been Too High

          In an article * on the Federal Reserve Board's decision to raise interest rates, the Washington Post referred to the 2.4 percent median growth forecast of the Fed's Open Market Committee. For example, last December their median forecast for growth in 2015 was 2.8 percent. It now appears growth will be around 2.2 percent for the year. The Fed was not out of line with other forecasts. For example the Congressional Budget Office, which quite explicitly tries to be near the middle of major forecasts, forecast 2.9 percent growth for 2015.

          * https://www.washingtonpost.com/news/wonk/wp/2015/12/16/federal-reserve-launches-campaign-to-raise-interest-rates-and-return-u-s-economy-to-normal/

          -- Dean Baker

          [Dec 17, 2015] Update of CBOs long term SS projections

          www.cbo.gov

          "CBO's Publications - CBO's 2015 Long-Term Projections for Social Security: Additional Information"
          
          New From CBO

          pdf 446.38 KB

          "CBO's 2015 Long-Term Projections for Social Security: Additional Information"

          "Under current law, CBO projects, Social Security's trust funds, considered together, will be exhausted in 2029. In that case, benefits in 2030 would need to be reduced by 29 percent from the scheduled amounts."

          Summary

          "Social Security, which marked its 80th anniversary in 2015, is the largest single program in the federal government's budget. About 72 percent of the roughly 60 million people who currently receive Social Security benefits are retired workers or their spouses and children, and another 10 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The remaining 18 percent of beneficiaries are disabled workers or their spouses and children; they receive Disability Insurance (DI) benefits.

          In fiscal year 2015, spending for Social Security benefits totaled $877 billion, or almost one-quarter of federal spending. OASI payments accounted for about 84 percent of those outlays, and DI payments made up about 16 percent."

          [Dec 15, 2015] FOMC Tomorrow, Cargo Cult Economics

          Notable quotes:
          "... So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. ..."
          Jesse's Café Américain

          ...There is a heavy lean towards believing that the Fed will raise rates 25 basis points.


          Fed Funds futures are indicating expectation of a move to 100 basis points total by the end of next year. Let's see if they can pull that one off. It seems aspirational, if one wishes to have room to cut when their latest folly falls back upon them.

          The idea that since recoveries are often accompanied by inflation, if we can only use monetary policy to create inflation then the recovery will come, is so wrong-headed that it leaves me aghast.

          Even Keynes recognized that the point of stimulus was to provoke aggregate demand, which is the organic form of growth in the economy that will provide all the inflation that one might expect.

          But to pursue this effete, top down stimulus focused primary on the still unreformed Banking system and the wealthiest top few percent is beyond policy error, and more policy malpractice. And of course, if one puts austerity and financial parasitism into the mix, then we just aren't in Kansas anymore Toto.

          So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. The miners have been beaten bloody.

          [Dec 15, 2015] This Is How The Credit Crisis Spreads To Stocks

          Notable quotes:
          "... Yeah but its junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong? ..."
          "... The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational. ..."
          "... Charts: Bloomberg ..."
          "... And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations. ..."
          "... Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia? ..."
          "... ...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves. ..."
          "... What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy." ..."
          "... Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber. ..."
          "... if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia. ..."
          "... Our DC Beltway and NYC elites are wildly delusional about their ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated. ..."
          "... The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat. ..."
          "... Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population ..."
          "... The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that Americans from all walks of life are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake. ..."
          "... Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a fight against Islam ; TPTB certainly seem to be giving this angle their best shot these days. ..."
          "... What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity. ..."
          "... Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you. ..."
          Dec 14, 2015 | zerohedge.com

          "Yeah but it's junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong?"

          The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational.

          Here is Goldman's David Kostin explaining who the biggest buyer of stocks is (and will be) - as a reminder, it's not "mom(o) and pop".

          We expect corporations will continue to be the largest source of demand for stocks, with net purchases by US companies totaling $450 billion, equal to about 2% of public equity cap. We forecast equity inflows from equity-related ETFs ($225 billion), equity mutual funds ($200 billion), life insurance ($50 billion), and foreign investors ($25 billion). We forecast net outflows from households ($25 billion) and pensions ($150 billion).

          Well, the cost of funding that carnival of financial engineering and artifice (just ask Nordstrom, Macy's, IBM and so on) is soaring, as high-yield decompression pukes over into investment grade markets, spiking the cost of funding and crushing the 'economic feasibility' of debt-funded shareholder-friendliness:

          Charts: Bloomberg

          And, in case you thought "well, cost of funding has only gone up 30-40bps in IG, they can handle that," you are wrong! To all those who claim US corporate balance sheets are in great shape - they are not! Leverage is at record highs and interest coverage near record lows for the IG universe. And judging by today's collapse in Investment Grade bond prices, the market just woke up to this reality.

          Simply put, the Fed's policies enabled massive releveraging and now corporations are stuck with few options to escape a vicious circle - which by the way, is why it's called the credit 'cycle'.

          And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations.

          Selected Skeptical Comments

          strannick

          Professor Steve Cohen, the foremost Russia scholar in the U.S., laments, is that it is this narrative which has precluded America from ever concluding any real ability to find a mutually acceptable modus vivendi with Russia – which it sorely needs, if it is ever seriously to tackle the phenomenon of Wahhabist jihadism (or resolve the Syrian conflict).

          Wow, the foremost scholar on Russia is one dumb motherfucker. Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia?

          sam i am

          The Western nations underestimated the horrible trauma that the Russian society experienced in 1990s when the Russians peacefully surrendered their society, their lands, their economy to the West, hoping to be accepted and treated as equals by the "world" community. Instead, the West dealt with the Russian skillfully, decisively, and mercilessly, just like the American Indians were dealt with by the colonizers. The Russia was gutted, scalped, and hanged on a cross to die slow and painful death. Some say that Russia like a cat has nine lives. Others say that Russia died and resurrected like Phoenix or Jesus. Open wounds have not healed yet, when after the February 22nd 2014 putsch in Kiev, and publication of the US Department of Defense tenders on the constructions of facilities in Sevastopol for the US fleet and NAVY everyone in Russia, including its government, understood that it was a declaration of war, and stood up in arms.

          http://thesaker.is/ukraine-sitrep-december-13th-2015-by-scott/

          Global Observer

          ...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves.

          Ghordius

          "It is the basis to America's and Europe's claim to exceptionalism and leadership". seriously?

          "What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy.""

          so? yes, King Hussein is right, in the very beginning it was mainly the Soviet Union that fostered Ba'athism. and again, so? the Soviet Union is no more

          junction

          Obama is stark raving mad, and his female neocons - Nuland, Powers and assorted other power hungry bitches - are too busy following orders from Israel to realize they are on a treasonous path to World War III. Putin will vaporize Raqqa with one of his new nuclear weapons that works like a neutron bomb. In all likelihood, when the first Kalibr cruise missiles hit ISIS/Bush's Captagon meth plant in Raqqa, the U.S. National Reconnaissance Office couldn't even detect them to warn CIA black ops spies in the drug facility to run. Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber.

          Global Observer

          NOBODY WINS A NUCLEAR WAR.

          I hope that Putin and his Military Advisors are smart enough to figure that out.

          They are. But what the Americans don't seem to be aware of is that for some there are worse things than being dead and in order to avoid these worse things, people are prepared to die and nations willing to risk annihilation.

          Russia is willing to risk annihilation in order to be able to live peacefully and with dignity. Is the USA willing to risk annihilation in order to be able to continue to insult Russia and bully the world? If the USA is indeed willing to risk annihilation to continue to do that, it would be silly for Russia not to attack the USA while she still can, because if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia.

          monk27

          If the US will be stupid enough to start a war with Russia or/and China, it will lose such a fight big time. That will be the end of America as we know it, and also the end of the contemporary Western "elite" whether they believe it or not. Their move...

          MrPalladium

          "and also the end of the contemporary Western "elite"

          Our DC Beltway and NYC elites are wildly delusional about "their" ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated.

          No intelligent power like Russia is likely to waste a perfectly good nuke on Paducah Kentucky, but it is certain that the entire population of Manhattan Island, and the DC beltway will be vaporized along with West Los Angeles (propaganda production central) and Silly Valley. The effluvia of the silos in Iowa and Nebraska can be intercepted. Remarkably, our elites and their supporting substrata still believe that the main combatants will be rural boys from Texas and Tennessee which in a strange turn of justice will be the safest places to hide. Our 400 or so billionaire oligarchs who control this country are concentrated in about 20 zip codes. Do you really think that Russia hasn't already targeted them? The whole point of nuclear war is to decapitate the regime but spare the resources and general population for future use, and the real regime, the oligarchs, occupy a very modest and easily cleared amount of territory.

          The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat.

          August

          I do like the way you think, Mr. P, and it's entertaining to speculate about war, TEOTWAWKI etc.

          Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population (which is also rather dumbed-down, infantile and irresponsible). The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that "Americans from all walks of life" are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake.

          Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a "fight against Islam"; TPTB certainly seem to be giving this angle their best shot these days.

          monk27

          "They" (i.e. the Russians) stand a better chance to survive than us. Ours is a much more complex AND violent society than theirs. The Mad Max way of living works only in movie...

          Tall Tom

          NO. THEY DO NOT. NUCLEAR WINTER, PAL.

          You will either freeze to death or succumb to suffocation due to LACK OF OXYGEN.

          The ash will blot out most sunlight. Plants require sunlight to photosynthesize Carbon, from CO2, into complex sugars and starches.

          They transpire OXYGEN. Without the plants...YOU ARE DEAD.

          Watch this video. Even the former Soviet Academy of Sciences concur with this modeling. NOBODY WILL SURVIVE. It is GLOBAL EXTINCTION. It is a God Damned Extinction Level Event.

          https://www.youtube.com/watch?v=WCTKcd2Ko98

          I am a physicist. This is valid science. My warning is not without a solid foundation.

          Volkodav

          Soviet did not so much invade. Soviet was already, support moderate government, building infrastructure, schools and other. Girls attended school in dresses.

          Search for photos Kabul in 60's 70's

          Moderate leader was murdered in coup by extremist backed from outsiders. Russians, moderates and monorities were slaughtered. That is when Soviet, after much concern debate, sent additional forces. Soviet was not defeated, but withdrew orderly result of collapse of funds, problems.

          Soviet controlled more of country than west coalition ever did and alone, against outside interferences aiding radicals there was some beginning of what is today, some nasty creations. You never understood there was other side, moderate and civil

          https://www.youtube.com/watch?v=Xc2KeSkl5H0

          ebworthen

          What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity.

          Insurrexion

          Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you.


          [Dec 15, 2015] How to Invest in Bonds as Interest Rates Start Rising

          Notable quotes:
          "... For investors who hold bonds primarily for the income they generate, the drop in prices doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell it and take a loss. ..."
          TheStreet

          Keep in mind that the Fed's first rate hike won't really change much. Rates will still be at historic lows. It all depends on how much the central bank raises rates in the coming months. So you don't have to rush to do anything.
          An increase of 0.25 percentage point on Wednesday will almost certainly not result in big swings in bond values, especially given how many in the market expect the hike. And the Fed is likely to say that the pace of future increases will be slow.

          Still, higher rates lessen the value of the bonds you currently own. That's because newly issued bonds under those higher rates will pay out more than older ones. So the price of your older bonds falls as a result.

          For investors who hold bonds primarily for the income they generate, the drop in prices doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell it and take a loss.

          But it's a different story if you hold bonds through a mutual fund, as most investors do. The value of the fund declines with any interest rate hike because the fund becomes less attractive to investors.

          The drop in value is closely linked with the term of the bonds, known as duration. Those durations are usually indicated as short term, intermediate term, or long term. In theory, short-term bonds will drop the least in value, and long-term bonds will drop the most when rates go up.

          So what should investors do?

          Larry Swedroe, author of The Only Guide to a Winning Bond Strategy You'll Ever Need, urges investors not to make big moves without making a plan first.

          "Inaction is almost always better" than making a sudden shift in strategy in a panic, he said.

          "The most anticipated event of any we can think of is that the Fed is going to raise interest rates on Dec. 16," Swedroe said. "The market must already have that information incorporated into the current price" of bonds (and stocks too, for that matter).

          Don't try to outsmart the market, said Swedroe, who also is director of research for the BAM Alliance of financial advisers.

          Investors "stretching for yield" can make "very bad errors," Swedroe said, including investing in real estate investment trusts, dividend-paying stocks, emerging-market bonds, and other securities that are much more risky than bonds.

          If the economy falters and investors flee those asset classes and move to high-quality investments, investors in riskier assets "get crushed, just when you need the safety the most," said Swedroe.

          Swedroe suggests three possible strategies for investors looking for yield in this market.


          1.Stick to the middle. For bonds, the "sweet spot" for balancing risk and reward is via intermediate-term bonds with about a 5-year duration, Swedroe said. Investors there can get "most of the term premium without the longer-term inflation risk." Consider any low-cost, intermediate-term, high-quality bond fund, he said. That could include the Vanguard Intermediate-Term Bond ETF (BIV) or the Fidelity Spartan U.S. Bond Index Fund (FBIDX) -- there are many such funds available.
          2.Move to CDs. Investors who really want yield but can't stomach the market fluctuation of bond funds should look at certificates of deposit, "where you can have much higher yields" than bonds but with very low risk and no mutual fund fees. For example, 5-year CDs can pay up to 2.45% in annual percentage yield, while 5-year U.S. Treasury securities pay a yield of a mere 1.56%. Swedroe said CDs are most useful for investors with IRAs, who can choose where they hold their assets.
          3.Embrace the wisdom of the markets. This is the most Zen option. Swedroe said investors should take a page out of Warren Buffett's book, ignore market forecasts, and simply develop a financial plan. Find the best way to implement the plan -- with simplicity and low costs. "Stop worrying and stick with your plan," he said. Forever.

          If investors really do want to rely on the consensus judgment of the markets, they should consider the world's largest bond fund, the Vanguard Total Bond Market Index (VBMFX) (VBTLX) (BND) . (In April, Vanguard's fund surpassed Pacific Investment Management's Pimco Total Return Fund (PTTAX) , which had been the largest bond fund for decades.)

          Must Read: Why Wall Street Won't Be Pouring Cristal on New Year's Eve

          Vanguard's Total Bond index fund is totally market weighted, with no active calls about which types of bonds will outperform and which will not. The investor class charges a 0.2% fee annually, and the ETF class charges 0.07%. The fund's SEC yield is 2.27% and its average duration is 5.8 years (in the "sweet spot"), and its pretax return for the past 12 months as of Sept. 30 has been 2.64%. It's hard to get cheaper or simpler.

          Investors can also buy Treasury bonds directly from the government via Treasury Direct -- and pay no fees. The bonds available there are high-quality and simple to buy. There are some caveats: EE and E savings bonds must be held for at least one year, and you'll pay a penalty of three months' interest if you sell them within five years of buying them; they earn interest for 30 years. Other Treasury notes and bonds can be bought directly through Treasury Direct, but if you want to sell them before their term is up, you'll need to move them to a broker for sale. You can also buy resold Treasury securities at auction on Treasury Direct.

          And investors should also maintain perspective, according to Vanguard.

          "Many people look at bonds independently from their stocks," Fran Kinniry, of Vanguard's Investment Strategy Group, said in a statement. "But it's more beneficial to think, 'How do my bonds complement my stocks and fit into my whole investment picture?' You really want to put the two types of investments together and see how they interact as a whole. Ask yourself: 'What's my risk level for all my holdings? Does it align with my risk comfort if there's a downturn?' If you answer no, make the appropriate adjustments."

          In other words, investors should hold bonds to manage volatility, to provide consistency in a portfolio, and to earn a reasonable return. Using bonds for speculation or to take more risk makes an entire portfolio more volatile.

          So investors may want to stick to plain-vanilla bonds. If they plan to hold a bond fund to its average duration, which is listed on the prospectus, they will likely come out ahead even after an interest rate hike -- being paid more in interest than they have lost to reduced principal (or the face value of the bonds).

          Investors hold bonds for safety -- or at least they should. If you have too much money tied up in junk bonds or in long-term bonds, be prepared for swings in the value of the principal. If you can wait out the duration of the bonds, you will likely be OK. If you can't stomach big swings, face that about yourself and move to shorter duration bonds or CDs. They could pay less, but they will also fluctuate less in value.

          Must Read: 8 Winning Financial Stocks Once the Fed Raises Interest Rates

          Fixed-income investing is about reducing risk and receiving a predictable payment on schedule. Remember that the bonds will keep paying the same even if their face value has dropped.

          Now's the time when bond investors should verify that they have enough -- not too much, not too little -- in bonds, then sit back and collect the interest.


          [Dec 15, 2015] You can open your own company, but your can not predict the risks you are taking when economy is stagnant

          Notable quotes:
          "... Many people are merely worried about having a job and getting by rather than profoundly changing the system or being organized under shrewd far sighted leadership. ..."
          "... Mr. Harris, for one, is not ready. "It's scary when you hear that the government is planning to slow things down," the wiry 39-year-old said as he folded menus. "We live on people's extra money. That's the money they spend on pizza. And it still feels very fragile." ..."
          "... The Fed didnt demonstrate technical know-how. The corrupt politicians appointed the wrong technocrats. ..."
          "... You regulate the financial sector to decrease risk and increase sustainability. You dont starve it of credit so the entire thing collapses. ..."
          economistsview.typepad.com
          Peter K. said... December 13, 2015 at 06:18 AM
          Many people are merely worried about having a job and getting by rather than "profoundly" changing the system or being organized under "shrewd far sighted" leadership.

          http://www.nytimes.com/2015/12/14/business/economy/in-denver-worries-that-the-fed-will-chill-a-sizzling-recovery.html

          In Denver, Worries That the Fed Will Chill a Sizzling Recovery
          By BINYAMIN APPELBAUM

          DEC. 13, 2015

          AURORA, Colo. - William Harris tapped his retirement savings to open A-Town Pizza, a Neapolitan pizzeria, in this Denver suburb three years ago. He borrowed $200,000 to open a second location this year and now employs 60 people. On a good Friday, his shops sell 1,200 pies.

          In such stories, the Federal Reserve finds evidence that its seven-year campaign to reboot the American economy is succeeding. So on Wednesday, the Fed, which has held short-term interest rates near zero since December 2008, will most likely announce that it will start nudging rates upward, slowly ending what has amounted to a once-in-a-lifetime sale on money.

          Mr. Harris, for one, is not ready. "It's scary when you hear that the government is planning to slow things down," the wiry 39-year-old said as he folded menus. "We live on people's extra money. That's the money they spend on pizza. And it still feels very fragile."

          Monetary policy is conducted in a language of bloodless abstraction, and most Americans pay little, if any, attention. But the Fed is about to make a big bet, and the decisions it makes in Washington have large consequences, here in Colorado and across the nation.

          Janet L. Yellen, the Fed's chairwoman, and her colleagues have concluded that the economy is finally strong enough to grow with a little less help from the central bank. Indeed, they worry inflation will rise too quickly if they do not start raising interest rates. The first rate increase will be small, then the Fed expects to raise rates about one percentage point a year for the next few years.

          The Fed's move is coming in the face of worries about the health of the stock market and falling commodities prices. Still, by itself, the increase probably will not matter much. The Fed is expected to set short-term rates in a range from 0.25 to 0.5 percent, a small jump from the current range of zero to 0.25 percent.

          It is what follows that will make the difference.

          Denver seems ready for higher rates. The area's economy has enjoyed one of the nation's strongest rebounds from the recession. The local unemployment rate fell to 3.1 percent in October. There are new skyscrapers downtown and new subdivisions in every direction. The former oil town is now at the center of one of the nation's largest booms of technology start-ups.

          Yet the local mood is fragile. Housing prices have climbed 24 percent above the precrisis peak, but whereas that once would have encouraged economic optimism, now people fret that home prices are due for a fall.

          Optimists say that the economic expansion is just gaining steam and that modestly higher rates will probably not slow the region's growth.

          Pessimists see evidence of fragility in the same facts. Josh Downey, president of the Denver Area Labor Federation, says the resurgence of development has created construction jobs for a new generation of workers. They need cars to reach their jobs, and jobs to pay for their cars. "If those buildings stop going up in Denver, they're going to be out of a job and a car," he said.

          Mark McKissick, director of fixed-income research at Denver Investments, says he is waiting to see how quickly the Fed raises rates before he adjusts the firm's investment holdings. The economy, he says, does not seem strong enough to handle higher rates, and he expects the Fed to reach the same conclusion. Otherwise, he worries it could push the economy back into recession.

          "The Fed threw a bunch of money into the financial system, but it hasn't stimulated growth or inflation the way it might have in earlier periods," he said.

          Builders, for example, will start construction on about 9,000 single-family homes in the Denver metropolitan area this year, according to Metrostudy, a real estate research firm. That is up 14 percent from last year - but less than half the 20,000 home starts in the Denver area at the peak of the bubble in 2005.

          Some workers will be getting raises. Bakery and deli clerks at King Soopers, a grocery chain, will earn a minimum wage of $10.50, an increase of as much as $2 an hour, under the terms of a new contract negotiated by the United Food and Commercial Workers Union. The previous four-year deal held wages steady.

          Others, however, are still waiting for prosperity to affect them.

          Ethel Ayo's landlord raised her rent this year by $400 a month, to $1,126. Ms. Ayo has a part-time job as a home-care worker and her son, a college student, works at Enterprise Rent-a-Car. Together they can barely afford the rent - and then only because the landlord does not require full payment at the beginning of the month. "And you didn't hear me talk about food," Ms. Ayo said. "After I work two or three days, I buy $50 of food and make it last two or three weeks."

          Mr. Harris, the restaurateur, says Denver's growth feels nothing like the boom he lived through in Southern California a decade ago. He is struggling to repay his start-up costs, particularly during the holidays, when people eat less pizza. The Fed will most likely raise rates before his risks have paid off. If it has overestimated the recovery and moves too fast, people would have less money to spend, and Mr. Harris said he could lose his restaurants and his retirement savings.

          On South Broadway, a commercial strip south of downtown lined with dilapidated auto dealerships and freshly painted marijuana shops, those worries seem far away. Khalid Sarway, sales manager at Famous Motors, says he is selling about 25 used cars a month, and he does not think higher rates will bother his customers.

          "The people, they don't care about the rate," said Mr. Sarway, who added that he was making more money now than in the best years before the recession. "They just want a vehicle. They just want to be able to get back and forth between their jobs and school, or whatever their lifestyle is."

          North of downtown, Denver's tech entrepreneurs also see little immediate danger from higher rates.

          Steve Adams, the 62-year-old chief executive of Leo Technologies, runs a start-up, his sixth, in a former produce warehouse that has been renamed Industry, where the nearest thing to manual labor occurs when people play table tennis in the atrium.

          Uber has its Denver office in one corner of the sprawling building.

          Mr. Adams is trying to raise $500,000 to test a biometric device that uses blood pressure readings to measure hydration levels - data he says could help athletes as well as people with medical conditions, like those on dialysis.

          Like many of his peers, Mr. Adams thinks low rates have made it easier for young companies to raise money from investors seeking higher returns. Denver is also a technology frontier town, reliant on coastal capital, so it may be more vulnerable if the availability of funding begins to recede.

          But Mr. Adams said he expected the money to keep flowing even as rates on safer investments like corporate bonds started to rise. "The people I'm pitching want to get in early and make a big multiple," he said.

          Some in the real estate business similarly insist that the local market will probably remain hot. Greg Geller, the owner of Vision Real Estate, says builders are struggling to keep pace with population growth because it takes years to find land, obtain permits and train replacements for workers laid off during the recession.

          Others are less sanguine. Mitchell Goldman, the owner of Apex Homes, said customers rushed to buy houses in recent years because they worried prices would climb. Now people are holding back, wondering if prices will fall.

          "I've been getting asked the question a lot, 'Should we wait?'"

          Mr. Goldman said he expected that higher rates would also push some buyers out of the market. The math, after all, is inexorable. If mortgage rates increase by one percentage point, the monthly cost of a $300,000 mortgage increases by $177.

          He added that he was looking for land to build a home for his own family. They have moved several times in recent years, but with higher interest rates on the horizon, he wants to build "a more permanent forever home."

          "I'm a little more anxious," Mr. Goldman said. "Interest rates are never going to be what they were when I was growing up, but every little bit makes a difference."

          djb said in reply to Peter K....
          "Like many of his peers, Mr. Adams thinks low rates have made it easier for young companies to raise money from investors seeking higher returns."

          yes exactly how monetary policy is supposed to work

          Peter K. said...
          More Beckworth on the Fed tightening during 2008:

          ....

          Again, the Fed tightening in 2008 was not just about the absence of a 2% interest rate cut. It was about an expectation that the Fed was going to raise rates going forward, even though the economy was weakening. This development was huge because current spending decisions are shaped more by the expected path of interest rates than by current interest rates.

          So why did the public expect this tightening? Because the Fed was signalling it! Among other places, this signalling was clear in the August and September 2008 FOMC statements. Here is a gem from the August FOMC meeting (my bold):

          "Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee."

          And from the September FOMC meeting we get a similar warning:

          "The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee"

          This was forward guidance at its worst and points to a far more intense tightening cycle than is apparent by looking only at the current policy interest rate. The Fed was willing to strangle the already weak economy over inflation concerns and the market knew it.

          It was this severe tightening of monetary policy that turned an otherwise ordinary recession into the Great Recession. As I noted before, this tightening of policy occurred before the worst part of the financial crisis in late 2008. Recall that many of the CDOs and MBS were not subprime, but when the market panicked in late 2008 a liquidity crisis became a solvency crisis for all. Had the Fed not tightened during the second half of 2008 the financial panic probably would have been far less severe and the resulting bankruptcies far fewer. So no, it is not obvious that a severe financial crisis was inevitable.

          P.S. The Fed was not the only central bank to tighten in 2008 because of inflation concerns. The ECB did as well and repeated the mistake two times in 2011. These experiences illustrates the the limits of inflation targeting and why it is a monetary regime that has outlived its expiration date.

          Peter K. said in reply to Peter K....
          This is policy malfeasance by Bush's Fed. Once can think of it as macro policy rather than strictly monetary policy. The Fed needs its independence b/c politicians don't have the technical know-how? The Fed didn't demonstrate technical know-how. The corrupt politicians appointed the wrong technocrats.

          Imagine there was one of Wren-Lewis's fiscal councils deciding on fiscal spending for the year. As the housing bubble deflated, they should have increased fiscal spending to replace lost home builder jobs and lost housing wealth, instead of tightening fiscal policy over inflation fears.

          Peter K. said in reply to Peter K....
          You regulate the financial sector to decrease risk and increase sustainability. You don't starve it of credit so the entire thing collapses.

          [Dec 14, 2015] Dan Balz and the Pew Research Center Discover Wage Stagnation

          economistsview.typepad.com
          Peter K. said... December 13, 2015 at 06:58 AM
          http://cepr.net/blogs/beat-the-press/dan-balz-and-the-pew-research-center-discover-wage-stagnation

          Dan Balz and the Pew Research Center Discover Wage Stagnation

          by Dean Baker

          Published: 13 December 2015

          Okay, this one is a bit personal, but it reflects a larger issue. The Pew Research Center just put out a study showing that declining share of the U.S. population is middle class, with greater percentages falling both in the upper and lower income category than was the case four decades ago. Washington Post columnist Dan Balz touted this declining middle class story as an explanation for the rise of Donald Trump.

          The problem here is that there is zero new in the Pew study. My friend and former boss, Larry Mishel, has been writing about wage stagnation for a quarter century at the Economic Policy Institute. The biannual volume, The State of Working America, has been tracking the pattern of stagnating middle class wages and family income (for the non-elderly middle class, income is wages) since 1990.

          The Pew study added nothing new to this research. They simply constructed an arbitrary definition of middle class and found that fewer families fall within it.

          Perhaps having a high budget "centrist" outfit like Pew tout this finding is the only way to get a centrist Washington Post columnist like Balz to pay attention, but it is a bit annoying when we see someone touted for discovering what was already well-known. Oh well, at least it creates good-paying jobs for people without discernible skills.

          [Dec 13, 2015] Deregulation of exotic financial instruments like derivatives and credit-default swaps and corruption of Congress and government

          Notable quotes:
          "... Can you list all of the pro- or anti- Wall Street reforms and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspans record? ..."
          "... Its actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question What is a realistic alternative? Thats where differences and policy debate starts. ..."
          "... Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over objection by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). ..."
          "... It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I dont have time to hunt them up now. Besides, no one would read them anyway. ..."
          "... GS was one of several actions taken by the New Deal. That it wasnt sufficient by itself doesnt equate to it wasnt beneficial. ..."
          "... "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy." ..."
          "... The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail ..."
          "... Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. ..."
          "... It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats. ..."
          "... We had a financial dereg craze back in the late 1970s and early 1980s which led to the S L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse. ..."
          "... This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling. ..."
          "... According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. ..."
          "... The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry. ..."
          "... Great to see Bakers acknowledgement that an updated Glass-Steagall is just one component of the progressive wings plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types dont think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much. ..."
          "... Yes thats a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. ..."
          "... Slippery slope. Ya gotta find me a business of any type that does not protest any kind of regulation on their business. ..."
          "... Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clintons plan? Ive heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/ ..."
          "... Hillary Clinton unveiled her big plan to curb the worst of Wall Streets excesses on Thursday. The reaction from the banking community was a shrug, if not relief. ..."
          "... Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". ..."
          economistsview.typepad.com

          RGC said...

          Hillary Clinton Is Whitewashing the Financial Catastrophe

          She has a plan that she claims will reform Wall Street-but she's deflecting responsibility from old friends and donors in the industry.

          By William Greider
          Yesterday 3:11 pm

          Hillary Clinton's recent op-ed in The New York Times, "How I'd Rein In Wall Street," was intended to reassure nervous Democrats who fear she is still in thrall to those mega-bankers of New York who crashed the American economy. Clinton's brisk recital of plausible reform ideas might convince wishful thinkers who are not familiar with the complexities of banking. But informed skeptics, myself included, see a disturbing message in her argument that ought to alarm innocent supporters.

          Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street's meltdown. Hillary Clinton's redefinition of the reform problem deflects the blame from Wall Street's most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

          The seminal event that sowed financial disaster was the repeal of the New Deal's Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law's repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector's armies of lobbyists. The "universal banking model" was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

          Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale. The banks invented "guarantees" against loss and sold them to both companies and market players. The fast-expanding financial sector claimed a larger and larger share of the economy (and still does) at the expense of the real economy of producers and consumers. The interconnectedness across market sectors created the illusion of safety. When illusions failed, these connected guarantees became the dragnet that drove panic in every direction. Ultimately, the federal government had to rescue everyone, foreign and domestic, to stop the bleeding.

          Yet Hillary Clinton asserts in her Times op-ed that repeal of Glass-Steagall had nothing to do with it. She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks. Her argument amounts to facile evasion that ignores the interconnected exposures. The Federal Reserve spent $180 billion bailing out AIG so AIG could pay back Goldman Sachs and other banks. If the Fed hadn't acted and had allowed AIG to fail, the banks would have gone down too.

          These sound like esoteric questions of bank regulation (and they are), but the consequences of pretending they do not matter are enormous. The federal government and Federal Reserve would remain on the hook for rescuing losers in a future crisis. The largest and most adventurous banks would remain free to experiment, inventing fictitious guarantees and selling them to eager suckers. If things go wrong, Uncle Sam cleans up the mess.

          Senator Elizabeth Warren and other reformers are pushing a simpler remedy-restore the Glass-Steagall principles and give citizens a safe, government-insured place to store their money. "Banking should be boring," Warren explains (her co-sponsor is GOP Senator John McCain).
          That's a hard sell in politics, given the banking sector's bear hug of Congress and the White House, its callous manipulation of both political parties. Of course, it is more complicated than that. But recreating a safe, stable banking system-a place where ordinary people can keep their money-ought to be the first benchmark for Democrats who claim to be reformers.

          Actually, the most compelling witnesses for Senator Warren's argument are the two bankers who introduced this adventure in "universal banking" back in the 1990s. They used their political savvy and relentless muscle to seduce Bill Clinton and his so-called New Democrats. John Reed was CEO of Citicorp and led the charge. He has since apologized to the nation. Sandy Weill was chairman of the board and a brilliant financier who envisioned the possibilities of a single, all-purpose financial house, freed of government's narrow-minded regulations. They won politically, but at staggering cost to the country.

          Weill confessed error back in 2012: "What we should probably do is go and split up investment banking from banking. Have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail."

          John Reed's confession explained explicitly why their modernizing crusade failed for two fundamental business reasons. "One was the belief that combining all types of finance into one institution would drive costs down-and the larger institution the more efficient it would be," Reed wrote in the Financial Times in November. Reed said, "We now know that there are very few cost efficiencies that come from the merger of functions-indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players."

          The second grave error, Reed said, was trying to mix the two conflicting cultures in banking-bankers who are pulling in opposite directions. That tension helps explain the competitive greed displayed by the modernized banking system. This disorder speaks to the current political crisis in ways that neither Dems nor Republicans wish to confront. It would require the politicians to critique the bankers (often their funders) in terms of human failure.

          "Mixing incompatible cultures is a problem all by itself," Reed wrote. "It makes the entire finance industry more fragile…. As is now clear, traditional banking attracts one kind of talent, which is entirely different from the kinds drawn towards investment banking and trading. Traditional bankers tend to be extroverts, sociable people who are focused on longer term relationships. They are, in many important respects, risk averse. Investment bankers and their traders are more short termist. They are comfortable with, and many even seek out, risk and are more focused on immediate reward."

          Reed concludes, "As I have reflected about the years since 1999, I think the lessons of Glass-Steagall and its repeal suggest that the universal banking model is inherently unstable and unworkable. No amount of restructuring, management change or regulation is ever likely to change that."

          This might sound hopelessly naive, but the Democratic Party might do better in politics if it told more of the truth more often: what they tried do and why it failed, and what they think they may have gotten wrong. People already know they haven't gotten a straight story from politicians. They might be favorably impressed by a little more candor in the plain-spoken manner of John Reed.

          Of course it's unfair to pick on the Dems. Republicans have been lying about their big stuff for so long and so relentlessly that their voters are now staging a wrathful rebellion. Who knows, maybe a little honest talk might lead to honest debate. Think about it. Do the people want to hear the truth about our national condition? Could they stand it?

          http://www.thenation.com/article/hillary-clinton-is-whitewashing-the-financial-catastrophe/

          EMichael -> RGC...
          "She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks."

          Of course this claim is absolutely true. Just like GS would not have affected the other investment banks, whatever their name was. And just like we would have had to bail out those other banks whatever their name was.

          Peter K. -> EMichael...
          Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspan's record?

          Yes Hillary isn't Bill but she hasn't criticized her husband specifically about his record and seems to want to have her cake and eat it too.

          Of course Hillary is much better than the Republicans, pace Rustbucket and the Green Lantern Lefty club. Still, critics have a point.

          I won't be surprised if she doesn't do much to rein in Wall Street besides some window dressing.

          sanjait -> Peter K....
          "Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed..."

          That, right there, is what's wrong with Bernie and his fans. They measure everything by whether it is "pro- or anti- Wall Street". Glass Steagall is anti-Wall Street. A financial transactions tax is anti-Wall Street. But neither has any hope of controlling systemic financial risk in this country. None.

          You guys want to punish Wall Street but not even bother trying to think of how to achieve useful policy goals. Some people, like Paine here, are actually open about this vacuity, as if the only thing that were important were winning a power struggle.

          Hillary's plan is flat out better. It's more comprehensive and more effective at reining in the financial system to limit systemic risk. Period.

          You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it.

          likbez -> sanjait...

          "You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it."

          You are misrepresenting the positions. It's actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question "What is a realistic alternative?" That's where differences and policy debate starts.

          RGC -> EMichael...
          "Her argument amounts to facile evasion"

          Fred C. Dobbs -> RGC...

          'The majority favors policies to the left of Hillary.'

          Nah. I don't think so.

          No, Liberals Don't Control the Democratic Party http://www.theatlantic.com/politics/archive/2014/02/no-liberals-dont-control-the-democratic-party/283653/
          The Atlantic - Feb 7, 2014

          ... The Democrats' liberal faction has been greatly overestimated by pundits who mistake noisiness for clout or assume that the left functions like the right. In fact, liberals hold nowhere near the power in the Democratic Party that conservatives hold in the Republican Party. And while they may well be gaining, they're still far from being in charge. ...

          Paine -> RGC...

          What's not confronted ? Suggest what a System like the pre repeal system would have done in the 00's. My guess we'd have ended in a crisis anyway. Yes we can segregate the depository system. But credit is elastic enough to build bubbles without the depository system involved

          EMichael -> Paine ...

          Exactly.

          Most people think of lending like the Bailey Brothers Savings and Loan still exists.

          RC AKA Darryl, Ron -> EMichael...

          Don't be such a whistle dick. Just because you cannot figure out why GLBA made such an impact that in no way means that people that do understand are stupid. See my posted comment to RGC on GLBA just down thread for an more detailed explanation including a linked web article. No, GS alone would not have prevented the mortgage bubble, but it would have lessened TBTF and GS stood as icon, a symbol of financial regulation. Hell, if we don't need GS then why don't we just allow unregulated derivatives trading? Who cares, right? Senators Byron Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders all voted against GLBA to repeal GS for some strange reason and Dorgan made a really big deal out of it at the time. I doubt everyone on that list of Senators was just stupid because they did not see it your way.

          RC AKA Darryl, Ron -> EMichael...
          I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). We have had a Republican majority in the House since the 2010 election and now they have the Senate as well. If you are that sure that voters just choose divided government, then aren't we better off to have a Republican POTUS and Democratic Congress?

          sanjait -> RC AKA Darryl, Ron...

          "I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. "

          I know you think this is a really meaningful string that evidences causation, but it just looks like you are reaching, reaching, reaching ...

          RC AKA Darryl, Ron -> sanjait...

          Maybe. No way to say for sure. It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I don't have time to hunt them up now. Besides, no one would read them anyway.

          I am voting for whoever wins the Democratic nomination for POTUS. Bernie without a like-minded Congress would not do much good. But when we shoot each other down here at EV without offering any agreement or consideration that we might not be 100% correct, then that goes against Doc Thoma's idea of an open forum. Granted, with my great big pair then I am willing to state my opinion with no consideration for validation or acceptance, but not everyone has that degree of a comfort zone. Besides, I am so old an cynical that shooting down the overdogs that go after the underdogs is one of the few things that I still care about.

          RGC -> Paine ...

          GS was one of several actions taken by the New Deal. That it wasn't sufficient by itself doesn't equate to it wasn't beneficial.

          RC AKA Darryl, Ron -> RGC...

          [Lock and load.]

          http://www.occasionalplanet.org/2015/05/13/glass-steagall-one-democratic-senator-who-got-it-right/

          Glass-Steagall: Warren and Sanders bring it back into focus

          Madonna Gauding / May 13, 2015

          Senators Bernie Sanders and Elizabeth Warren are putting a new focus on the Glass-Steagall Act, which was, unfortunately, repealed in 1999 and led directly to the financial crises we have faced ever since. Here's a bit of history of this legislative debacle from an older post on Occasional Planet published several years ago :

          On November 4, 1999, Senator Byron Dorgan (D-ND) took to the floor of the senate to make an impassioned speech against the repeal of the Glass-Steagall Act, (alternately known as Gramm Leach Biley, or the "Financial Modernization Act") Repeal of Glass-Steagall would allow banks to merge with insurance companies and investments houses. He said "I want to sound a warning call today about this legislation, I think this legislation is just fundamentally terrible."

          According to Sam Stein, writing in 2009 in the Huffington Post, only eight senators voted against the repeal. Senior staff in the Clinton administration and many now in the Obama administration praised the repeal as the "most important breakthrough in the world of finance and politics in decades"

          According to Stein, Dorgan warned that banks would become "too big to fail" and claimed that Congress would "look back in a decade and say we should not have done this." The repeal of Glass Steagall, of course, was one of several bad policies that helped lead to the current economic crisis we are in now.

          Dorgan wasn't entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders also cast nay votes. The late Sen. Paul Wellstone opposed the bill, and warned at the time that Congress was "about to repeal the economic stabilizer without putting any comparable safeguard in its place."

          Democratic Senators had sufficient knowledge about the dangers of the repeal of Glass Steagall, but chose to ignore it. Plenty of experts warned that it would be impossible to "discipline" banks once the legislation was passed, and that they would get too big and complex to regulate. Editorials against repeal appeared in the New York Times and other mainstream venues, suggesting that if the new megabanks were to falter, they could take down the entire global economy, which is exactly what happened. Stein quotes Ralph Nader who said at the time, "We will look back at this and wonder how the country was so asleep. It's just a nightmare."

          According to Stein:

          "The Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8 and reversed what was, for more than six decades, a framework that had governed the functions and reach of the nation's largest banks. No longer limited by laws and regulations commercial and investment banks could now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp. The new law allowed it to be permanent. The updated ground rules were low on oversight and heavy on risky ventures. Historically in the business of mortgages and credit cards, banks now would sell insurance and stock.

          Nevertheless, the bill did not lack champions, many of whom declared that the original legislation - forged during the Great Depression - was both antiquated and cumbersome for the banking industry. Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.

          "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy."

          "I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).

          "The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen. Bob Kerrey, (D-Neb.).

          "If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world," said Sen. Chuck Schumer, D-N.Y. "There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive."

          Unfortunately, the statement by Chuck Schumer sounds very much like it was prepared by a lobbyist. This vote underscores the way in which our elected officials are so heavily swayed by corporate and banking money that our voices and needs become irrelevant. It is why we need publicly funded elections. Democratic senators, the so-called representatives of the people, fell over themselves to please their Wall Street donors knowing full well there were dangers for the country at large, for ordinary Americans, in repealing Glass-Steagall.

          It is important to hold Democratic senators (along with current members of the Obama administration) accountable for the significant role they have played in the current economic crisis that has caused so much suffering for ordinary Americans. In case you were wondering, the current Democratic Senators who voted yes to repeal the Glass-Steagall act are the following:

          Daniel Akaka – Max Baucus – Evan Bayh – Jeff Bingaman – Kent Conrad – Chris Dodd – Dick Durbin – Dianne Feinstein – Daniel Inouye – Tim Johnson – John Kerry – Herb Kohl – Mary Landrieu – Frank Lautenberg – Patrick Leahy – Carl Levin – Joseph Lieberman – Blanche Lincoln – Patty Murray – Jack Reed – Harry Reid – Jay Rockefeller – Chuck Schumer – Ron Wyden

          Former House members who voted for repeal who are current Senators.

          Mark Udall [as of 2010] – Debbie Stabenow – Bob Menendez – Tom Udall -Sherrod Brown

          No longer in the Senate, or passed away, but who voted for repeal:

          Joe Biden -Ted Kennedy -Robert Byrd

          These Democratic senators would like to forget or make excuses for their enthusiastic vote on the repeal of Glass Steagall, but it is important to hold them accountable for helping their bank donors realize obscene profits while their constituents lost jobs, savings and homes. And it is important to demand that they serve the interests of the American people.

          *

          [The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail.]

          pgl -> RC AKA Darryl, Ron...

          Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. I think that is what Hillary Clinton is saying.

          RC AKA Darryl, Ron -> pgl...

          It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats.

          pgl -> RC AKA Darryl, Ron...

          We had a financial dereg craze back in the late 1970's and early 1980's which led to the S&L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse.

          I don't care whether Hillary says 1999 was a mistake or not. I do care what the regulations of financial institutions will be like going forward.

          RC AKA Darryl, Ron -> pgl...

          I cannot disagree with any of that.

          sanjait -> RC AKA Darryl, Ron...

          "Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus"

          Yeah, it is kind of bizarre to blame one bill for a crisis that occurred largely because another bill was passed, based on some some vague assertion about how the first bill made everyone think crazy.

          RC AKA Darryl, Ron -> sanjait...
          Democrats did not vote for GLBA until after reconciliation between the House and Senate bills. Democrats were tossed a bone in the Community Reinvestment Act financing provisions and given that Bill Clinton was going to sign anyway and that Republicans were able to pass the bill without a single vote from Democrats then all but a few Democrats bought in. They could not stop it, so they just bought into it. I thought there was supposed to be an understanding of behaviorism devoted to understanding the political economy. For that matter Republicans did not need Democrats to vote for the CFMA either, but they did. That gave Republicans political cover for whatever went wrong later on. No one with a clue believed things would go well from the passage of either of these bills. It was pure Wall Street driven kleptocracy.
          likbez -> sanjait...
          It was not one bill or another. It was a government policy to get traders what they want.

          See

          Bruce E. Woych | August 6, 2013 at 5:45 pm |

          http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry-summers-the-truth-about-unlimited-risk-potential/

          The Untold Story: Brooksley Born, Larry Summers & the Truth …
          http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry...
          Oct 5, 2012 … Larry Summers is attempting to re-write history at the expense of … and they might just find one critical point revealed in Mr. Cohan's article.
          [PERTINENT EXCERPT]: Oct 5, 2012

          "As the western world wakes to the fact it is in the middle of a debt crisis spiral, intelligent voices are wondering how this manifested itself? As we speak, those close to the situation could be engaging in historical revisionism to obfuscate their role in the design of faulty leverage structures that were identified in the derivatives markets in 1998 and 2008. These same design flaws, first identified in 1998, are persistent today and could become graphically evident in the very near future under the weight of a European debt crisis.

          Author and Bloomberg columnist William Cohan chronicles the fascinating start of this historic leverage implosion in his recent article Rethinking Robert Rubin. Readers may recall it was Mr. Cohan who, in 2004, noted leverage issues that ultimately imploded in 2007-08.

          At some point, market watchers will realize the debt crisis story will literally change the world. They will look to the root cause of the problem, and they might just find one critical point revealed in Mr. Cohan's article.

          This point occurs in 1998 when then Commodity Futures Trading Commission (CFTC) ChairwomanBrooksley Born identified what now might be recognized as core design flaws in leverage structure used in Over the Counter (OTC) transactions. Ms. Born brought her concerns public, by first asking just to study the issue, as appropriate action was not being taken. She issued a concept release paper that simply asked for more information. "The Commission is not entering into this process with preconceived results in mind," the document reads.

          Ms. Born later noted in, the PBS Frontline documentary on the topic speculation at the CFTC was the unregulated OTC derivatives were opaque, the risk to the global economy could not be determined and the risk was potentially catastrophic. As a result of this inquiry, Ms. Born was ultimately forced from office.

          This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling.

          According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. "

          RC AKA Darryl, Ron -> Paine ...

          TBTF on steroids, might as well CFMA - why not?

          Bubbles with less TBTF and a lot less credit default swaps would have been a lot less messy going in. Without TARP, then Congress might have still had the guts for making a lesser New Deal.

          EMichael -> RC AKA Darryl, Ron...

          TARP was window dressing. The curtain that covered up the FED's actions.

          pgl -> RGC...

          Where have I heard about William Greider? Oh yea - this critique of something stupid he wrote about a Supreme Court decision:

          www.washingtonpost.com/news/volokh-conspiracy/wp/2014/06/06/how-many-errors-can-william-greider-make-in-two-sentences-describing-lochner-v-new-york/

          pgl -> RGC...

          "Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale."

          These would have flourished even if Glass-Steagall remained on the books. Leave it to RGC to find some critic of HRC who knows nothing about financial markets.

          RGC -> pgl...

          Derivatives flourished because of the other deregulation under Clinton, the CFMA. The repeal of GS helped commercial banks participate.

          RGC -> pgl...

          The repeal of GS helped commercial banks participate.

          Fred C. Dobbs -> pgl...

          Warren Buffet used to rail about how risky derivative investing is, until he realized they are *extremely* important in the re-insurance biz, which is a
          big part of Berkshire Hathaway.

          Peter K. said...

          http://cepr.net/blogs/beat-the-press/hillary-clinton-bernie-sanders-and-cracking-down-on-wall-street

          Hillary Clinton, Bernie Sanders, and Cracking Down on Wall Street
          by Dean Baker

          Published: 12 December 2015

          The New Yorker ran a rather confused piece on Gary Sernovitz, a managing director at the investment firm Lime Rock Partners, on whether Bernie Sanders or Hillary Clinton would be more effective in reining in Wall Street. The piece assures us that Secretary Clinton has a better understanding of Wall Street and that her plan would be more effective in cracking down on the industry. The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry.

          The piece assures us that too big to fail banks are no longer a problem, noting their drop in profitability from bubble peaks and telling readers:

          "not only are Sanders's bogeybanks just one part of Wall Street but they are getting less powerful and less problematic by the year."

          This argument is strange for a couple of reasons. First, the peak of the subprime bubble frenzy is hardly a good base of comparison. The real question is should we anticipate declining profits going forward. That hardly seems clear. For example, Citigroup recently reported surging profits, while Wells Fargo's third quarter profits were up 8 percent from 2014 levels.

          If Sernovitz is predicting that the big banks are about to shrivel up to nothingness, the market does not agree with him. Citigroup has a market capitalization of $152 billion, JPMorgan has a market cap of $236 billion, and Bank of America has a market cap of $174 billion. Clearly investors agree with Sanders in thinking that these huge banks will have sizable profits for some time to come.

          The real question on too big to fail is whether the government would sit by and let a Goldman Sachs or Citigroup go bankrupt. Perhaps some people think that it is now the case, but I've never met anyone in that group.

          Sernovitz is also dismissive on Sanders call for bringing back the Glass-Steagall separation between commercial banking and investment banking. He makes the comparison to the battle over the Keystone XL pipeline, which is actually quite appropriate. The Keystone battle did take on exaggerated importance in the climate debate. There was never a zero/one proposition in which no tar sands oil would be pumped without the pipeline, while all of it would be pumped if the pipeline was constructed. Nonetheless, if the Obama administration was committed to restricting greenhouse gas emissions, it is difficult to see why it would support the building of a pipeline that would facilitate bringing some of the world's dirtiest oil to market.

          In the same vein, Sernovitz is right that it is difficult to see how anything about the growth of the housing bubble and its subsequent collapse would have been very different if Glass-Steagall were still in place. And, it is possible in principle to regulate bank's risky practices without Glass-Steagall, as the Volcker rule is doing. However, enforcement tends to weaken over time under industry pressure, which is a reason why the clear lines of Glass-Steagall can be beneficial. Furthermore, as with Keystone, if we want to restrict banks' power, what is the advantage of letting them get bigger and more complex?

          The repeal of Glass-Steagall was sold in large part by boasting of the potential synergies from combining investment and commercial banking under one roof. But if the operations are kept completely separate, as is supposed to be the case, where are the synergies?

          But the strangest part of Sernovitz's story is that he leaves out Sanders' financial transactions tax (FTT) altogether. This is bizarre, because the FTT is essentially a hatchet blow to the waste and exorbitant salaries in the industry.

          Most research shows that trading volume is very responsive to the cost of trading, with most estimates putting the elasticity close to one. This means that if trading costs rise by 50 percent, then trading volume declines by 50 percent. (In its recent analysis of FTTs, the Tax Policy Center assumed that the elasticity was 1.5, meaning that trading volume decline by 150 percent of the increase in trading costs.) The implication of this finding is that the financial industry would pay the full cost of a financial transactions tax in the form of reduced trading revenue.

          The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry.

          It is incredible that Sernovitz would ignore a policy with such enormous consequences for the financial sector in his assessment of which candidate would be tougher on Wall Street. Sanders FTT would almost certainly do more to change behavior on Wall Street then everything that Clinton has proposed taken together by a rather large margin. It's sort of like evaluating the New England Patriots' Super Bowl prospects without discussing their quarterback.

          Syaloch -> Peter K....

          Great to see Baker's acknowledgement that an updated Glass-Steagall is just one component of the progressive wing's plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much.

          Peter K. -> Syaloch...

          Yes that's a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. If they want it done, it's probably not a good idea.

          EMichael -> Syaloch...

          Slippery slope. Ya' gotta find me a business of any type that does not protest any kind of regulation on their business.

          Syaloch -> EMichael...

          Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clinton's plan? I've heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/

          "Hillary Clinton unveiled her big plan to curb the worst of Wall Street's excesses on Thursday. The reaction from the banking community was a shrug, if not relief."

          pgl -> Syaloch...

          Two excellent points!!!

          sanjait -> Syaloch...

          "Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much."

          It has an effect of shrinking the size of a few firms, and that has a detrimental effect on the top managers of those firms, who get paid more money if they have larger firms to manage. But it has little to no meaningful effect on systemic risk.

          So if your main policy goal is to shrink the compensation for a small number of powerful Wall Street managers, G-S is great. But if you actually want to accomplish something useful to the American people, like limiting systemic risk in the financial sector, then a plan like Hillary's is much much better. She explained this fairly well in her recent NYT piece.

          Paine -> Peter K....

          There is absolutely NO question Bernie is for real. Wall Street does not want Bernie. So they'll let Hillary talk as big as she needs to . Why should we believe her when an honest guy like Barry caved once in power

          Paine -> Paine ...

          Bernie has been anti Wall Street his whole career . He's on a crusade. Hillary is pulling a sham bola

          Paine -> Paine ...

          Perhaps too often we look at Wall Street as monolithic whether consciously or not. Obviously we know it's no monolithic: there are serious differences

          When the street is riding high especially. Right now the street is probably not united but too cautious to display profound differences in public. They're sitting on their hands waiting to see how high the anti Wall Street tide runs this election cycle. Trump gives them cover and I really fear secretly Hillary gives them comfort

          This all coiled change if Bernie surges. How that happens depends crucially on New Hampshire. Not Iowa

          EMichael -> Paine ...

          If Bernie surges and wins the nomination, we will all get to watch the death of the Progressive movement for a decade or two. Congress will become more GOP dominated, and we will have a President in office who will make Hoover look like a Socialist.

          Syaloch -> EMichael...

          Of course. In politics, as they say in the service, one must always choose the lesser of two evils. https://www.youtube.com/watch?v=e4PzpxOj5Cc

          pgl -> EMichael...

          You should like the moderate Democrats after George McGovern ran in 1972. I'm hoping we have another 1964 with Bernie leading a united Democratic Congress.

          EMichael -> pgl...

          Not a chance in the world. And I like Sanders much more than anyone else. It just simply cannot, and will not, happen. He is a communist. Not to me, not to you, but to the vast majority of American voters.

          pgl -> EMichael...

          He is not a communist. But I agree - Hillary is winning the Democratic nomination. I have only one vote and in New York, I'm badly outnumbered.

          ilsm -> Paine ...

          I believe Hillary will be to liberal causes after she is elected as LBJ was to peace in Vietnam. Like Bill and Obomber.

          pgl -> ilsm...

          By 1968, LBJ finally realized it was time to end that stupid war. But it seems certain members in the State Department undermined his efforts in a cynical ploy to get Nixon to be President. The Republican Party has had more slime than substance of most of my life time.

          pgl -> Peter K....

          Gary Sernovitz, a managing director at the investment firm Lime Rock Partners? Why are we listening to this guy too. It's like letting the fox guard the hen house.

          sanjait -> Peter K....

          "The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry."

          This is just wrong. Is financial system risk in any way correlated with the frequency of transactions? Except for market volatility from HFT ... no. The financial crisis wasn't caused by a high volume of trades. It was caused by bad investments into highly illiquid assets. Again, great example of wanting to punish Wall Street but not bothering to think about what actually works.

          Peter K. said...

          Robert Reich to the Fed: this is not the time to raise rates.

          https://www.facebook.com/video.php?v=1116088268403768

          RGC said...

          Iceland's Radical Money Plan

          Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

          Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland".

          "The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

          Under this "Sovereign Money" proposal, the country's central bank would become the only creator of money. Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and Benes of the IMF and the Positive Money group in the UK.

          Public Banking Initiatives in Iceland, Ireland and the UK

          A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

          In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) - are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

          December 11, 2015
          Reinventing Banking: From Russia to Iceland to Ecuador

          by Ellen Brown

          http://www.counterpunch.org/2015/12/11/reinventing-banking-from-russia-to-iceland-to-ecuador/

          pgl -> RGC...

          "Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders."

          OK but that means they issue bank accounts which of course we call deposits. So is this just semantics? People want checking accounts. People want savings accounts. Otherwise they would not exist. Iceland plans to do what to stop the private sector from getting what it wants?

          I like the idea of public banks. Let's nationalize JPMorganChase so we don't have to listen to Jamie Dimon anymore!

          sanjait -> pgl...

          I don't know for sure (not bothering to search and read the referenced proposals), but I assumed the described proposal was for an end to fractional reserve banking. Banks would have to have full reserves to make loans. Or something. I could be wrong about that.

          Syaloch said...

          Sorry, but Your Favorite Company Can't Be Your Friend

          http://www.nytimes.com/2015/12/13/upshot/sorry-but-your-favorite-company-cant-be-your-friend.html?partner=rss&emc=rss&_r=0

          To think that an artificial person, whether corporeal or corporate, can ever be your friend requires a remarkable level of self-delusion.

          A commenter on the Times site aptly quotes Marx in response:

          "The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left remaining no other nexus between man and man than naked self-interest, than callous "cash payment". It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom - Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.

          "The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers."

          https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm

          [Dec 12, 2015] Robert Reich to the Fed: this is not the time to raise rates

          Notable quotes:
          "... Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you. ..."
          www.facebook.com

          Robert Reich

          Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you.

          Dwight McCabe

          According to Paul Krugman the banks desperately need rates higher so they make more profits. With these very low rates they are stuck in low profit. The Fed lives in the financial culture and all the learned people around them, bankers, are convinced that the economy needs higher rates. The economy will not benefit but the financial community sure will.

          David Van Dyne

          ...By the way, how about the negative returns on money market funds invested through a 401(k) plan?

          [Dec 11, 2015] Dangers of reaching for yield

          The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. Add to this fake earnings and share repurchases that weaken many companies including such stalwart as IBM and you get the message.
          Notable quotes:
          "... A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street. ..."
          "... All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk. ..."
          "... "Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap." ..."
          "... Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500. ..."
          economistsview.typepad.com

          BenIsNotYoda said... Friday, December 11, 2015 at 03:42 AM

          Another leg of the reach-for-yield/carry trade crumbling. Emerging markets, commodities and now corporate high yield. No bubbles here. Carry on.

          http://www.wsj.com/articles/as-high-yield-debt-reels-mutual-fund-blocks-holders-from-redeeming-1449767526

          Junk Fund's Demise Fuels Concern Over Bond Rout

          Third Avenue Focused Credit Fund takes rare step, seeking an orderly liquidation as junk-bond market swoons

          A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street.

          The decision by Third Avenue Management LLC means investors in the $789 million Third Avenue Focused Credit Fund may not receive all their money back for months, if not more.

          BenIsNotYoda said in reply to BenIsNotYoda...
          of course, biotech has to be added to this list; down 20%.
          pgl said in reply to BenIsNotYoda...
          Amgen shares trading at $145 and Gilead shares trading at $102. Not feeling sorry for these dudes.
          pgl said in reply to BenIsNotYoda...
          Talk about burying the lead:

          "The yield spread between junk-rated debt and U.S. Treasurys narrowed to a multiyear low in mid-2014, reflecting investors' confidence in companies' business prospects. But spreads have since risen, reflecting lower prices, as the energy bust intensified questions about junk-rated companies' ability to repay debts. All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk.

          "Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap."

          The Securities and Exchange Commission has been warning mutual-fund managers who purchase illiquid securities-those that may be difficult to buy or sell at stated prices because of a lack of willing investors-to prepare better for potential redemptions and is drawing up new rules requiring such measures."

          Simply put - people who go into the junk bond market get a very high return but they also take the risk. No feeling sorry for these guys especially given that the SEC gave them fair warning.

          Peter K. said in reply to pgl...
          "All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk."

          Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield.

          The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data.

          http://cepr.net/blogs/beat-the-press/matt-o-brien-takes-obama-to-task-on-fed-appointees

          Dean Baker again:

          "Preventing the rebirth of housing bubbles in these markets was a very good thing in my book. I will add the qualification that high interest rates is not my preferred way of bursting bubbles. The first recourse should be talk, as in using the Fed's bully pulpit, coupled with its research, to warn the markets of rising bubbles. Janet Yellen did this successfully in the summer of 2014 when she used congressional testimony to warn of bubbles in social media companies, biotech stocks, and junk bonds. She did not follow through with subsequent warnings, but all three markets did take a hit in the weeks following her testimony.

          For some reason most economists reject the idea of having the Fed talk down bubbles. I guess it is considered impolite. This seems more than a bit bizarre given the enormous damage done by bursting bubbles compared with the virtually costless effort to talk them down.

          Of course the Fed also has substantial regulatory powers which can be used to curb bank lending to support bubbles. This is also a policy option that should be pursued before deliberately slowing the economy with higher interest rates.

          Anyhow, I was not happy to see the economy slowed by the Taper Tantrum, but I was very happy to see that it prevented the growth of another bubble. It is unfortunate that almost no one knows this story - I guess it is difficult for reporters to get access to the Case-Shiller data on the web."

          pgl said in reply to Peter K....
          "The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data."

          Yep! And the lack of QE of late has driven up both government bond rates and credit spreads. Now wonder these vulture investors lost money. I'm not feeling for them a bit. And yes - BenIsNotYoda was being a drama queen.

          likbez said in reply to Peter K....
          "Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield."

          Yes, very true.

          Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500.

          Conservative investments like TIPS suffered.

          [Dec 11, 2015] Demand, Supply, and what is new after 2008

          Notable quotes:
          "... Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. ..."
          angrybearblog.com
          Angry Bear

          ... ... ...

          The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation.

          Krugman posted a graph showing how the US graph of inflation and unemployment has changed (just click the link and look). In the past high unemployment gradually lead to lower inflation and then to lower inflation and unemployment - this is the pattern predicted by Friedman, Phelps, Tobin (and discussed already by Samuelson and Solow in 1960). But in the recent past extremely high unemployment has come with low and stable core inflation.

          Things used look very different here in Italy than in the USA. Here is a graph of data from before January 2008. Extremely high unemployment was consistent with moderate and then with low inflation. The only clear shift in inflation occurred in 1996 and 1997 (which may or may not be when Italians began to think they might actually earn the wonderful reward of being allowed to adopt the Euro).

          filipograph

          By 2008, The flat Phillips curve (the Fillipo curve?) was already very clear to anyone who read Italian newspapers.

          Here are all data which are available on FRED (yes I sit in Rome and surf to St Louis for Italian data). Oddly the harmonized unemployment series is only available (at FRED) from 1983 on.

          filipo2

          In this graph there is also very little sign of Friedman-Phelps cycles. The old pattern was a steady decline from extremely high inflation - it looks almost like an expectations unaugmented Phillips curve. But then (really from 1986 on) there was fairly stable moderate to low inflation along with extreme swings in unemployment. I stress that this is CPI inflation including food and energy not core inflation. the peak oil spike in 2007 and the collapse in 2008 are clearly visible. It is possible that the most recent observations show a slide to actual persistent deflation, but it is more likely that the recent decline in inflation is due to the collapse of the price of oil.

          Unlearning economic paradigms | Bruegel , November 30, 2015 7:22 am

          […] Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. […]

          [Dec 11, 2015] Why Its Tricky for Fed Officials to Talk Politically

          "There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not." Economic and politics are like Siamese twins (which actually . If somebody trying to separate them it is a clear sign that the guy is either neoliberal propagandists or outright crook.
          Notable quotes:
          "... I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of purely economic (like many other things are camouflaged under neoliberalism.) ..."
          "... I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times. ..."
          "... This kind of debate seems to be a by-product of the contemporary obsession with having an independent central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy. ..."
          "... A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it. ..."
          "... The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries. ..."
          "... Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack. ..."
          "... As to why risk a political backlash in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all. ..."
          Dec 11, 2015 | Economist's View
          anne said...
          Fine column, with which I agree. Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate.

          As for the use of the word "hack" in referring to Janet Yellen, that needlessly insulting use was by a Washington Post editor and not by columnist Michael Strain.

          anne -> RW (the other)...

          As Brad notes, many Fed Chairs before Yellen have opined on matters outside monetary policy so why is Yellen subject to a different standard?

          [ Fine, I have reconsidered and agree. No matter how the headline was written, the headline was meant to be intimidating and was willfully mean and that could and should have been made clear immediately by the writer of the column. ]

          likbez -> anne...

          "Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate."

          Anne,

          I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

          That's why Greenspan got it, while being despised by his Wall-Street colleagues...

          He got it because he was perfect for promoting deregulation political agenda from the position of FED chair.

          pgl -> likbez...

          Greenspan was despised on Wall Street? Wow as he tried so hard to serve their interests. I guess the Wall Street crowd is never happy no matter how much income we feed these blow hards.

          anne -> likbez...

          So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

          [ I understand, and am convinced. ]

          Peter K. said...

          I respectfully disagree. Republicans are always working the refs and despite what the writer from AEI said, they're okay with conservative Fed chairs talking politics. They have double standards.

          Greenspan testified to Congress on behalf of Bush's tax cuts for the rich. Something about how since Clinton balanced the budget, the financial markets had too little safe debt to work with. (maybe that's why they dove into mortgaged-backed securities). But tax cuts versus more government spending? He and Rubin advised Clinton to drop his middle class spending bill and trade deficit reduction for lower interest rates. That's economics which have political outcomes.

          So if the rightwing is going to work the the refs, so should the left. We shouldn't unilaterally disarm over fears Congress will gun for the Fed. There should be more groups like Fed Up protesting.

          The good thing about Yellen's speech is that it's a signal to progressives that inequality is problem for her even as she is raising rates in a political dance with hawks and Congress.

          The Fed is constantly accused of increasing inequality so it's good Yellen is saying she thinks it's a bad thing and not American.

          Bernie Sanders is right that for change to happen we'll need more political involvement from regular citizens. We'll need a popular movement with many leaders.

          The Fed should be square in the sights of a progressive movement. A high-pressured economy with full employment should be a top priority.

          Instead I saw Nancy Pelosi being interviewed by Al Hunt on Charlie Rose the other night. Hunt asked her about Yellen raising rates.

          Pelosi said no comment as she wasn't looking at the data Yellen was and didn't want to interfere. The Fed should be independent, etc. Perhaps like Thoma she has the best of motives and doesn't want to motivate the Republicans to go after the Fed and oppose what she wants.

          Still I felt the Democratic leadership should be committed to a high-pressure economy. Her staff should know what Krugman, Summers etc are saying. What the IMF and World Bank are sayings.

          She should have said "they shouldn't raise rates until they see the whites of inflation's eyes" as Krugman memorably put it. She should have said that emphatically.

          We need a Democratic Party like that.

          Instead Peter Diamond is blocked from becoming a Fed governor by Republicans and Pelosi is afraid to comment on monetary policy.

          Peter K. -> Peter K....

          A longer reply from DeLong:

          http://www.bradford-delong.com/2015/12/must-read-i-would-beg-the-highly-esteemed-mark-thoma-to-draw-a-distinction-here-between-inappropriate-and-unwise-in-m.html

          Must-Read: I would beg the highly-esteemed Mark Thoma to draw a distinction here between "inappropriate" and unwise. In my view, it is not at all inappropriate for Fed Chair Janet Yellen to express her concern about excessive inequality. Previous Fed Chairs, after all, have expressed their liking for inequality as an essential engine of economic growth over and over again over the past half century--with exactly zero critical snarking from the American Enterprise Institute for trespassing beyond the boundaries of their role.

          But that it is not inappropriate for Janet Yellen to do so does not mean that it is wise. Mark's argument is, I think, that given the current political situation it is unwise for Janet to further incite the ire of the nutboys in the way that even the mildest expression of concern about rising inequality will do.

          That may or may not be true. I think it is not.

          But I do not think that bears on my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous, inattentive to precedent, shoddy, expired, expired, gone to meet their maker, bereft of life, resting in peace, pushing up the daisies, kicked the bucket, shuffled off their mortal coil, run down the curtain, and joined the bleeding choir invisible:

          Mark Thoma: Why It's Tricky for Fed Officials to Talk Politically: "I think I disagree with Brad DeLong...

          pgl -> Peter K....

          "my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous..."

          DeLong is exactly right here. Strain's argument has its own share of partisan lies whereas Yellen is telling the truth. Brad will not be intimidated by this AEI weasel.

          sanjait said...

          Why would Yellen not talk about inequality? It's an important macroeconomic topic and one that is relevant for her job. It's both an input and an output variable that is related to monetary policy.

          And, arguably I think, median wage growth should be regarded as a policy goal for the Fed, related to its explicit mandate of "maximum employment."

          But even if you think inequality is unrelated to the Fed's policy goals, that doesn't stop them from talking about other topics. Do people accuse the Fed of playing politics when they talk about desiring reduced financial market volatility? That has little to do with growth, employment and general price stability.

          likbez -> sanjait...

          I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times.

          Sandwichman said...

          I think I disagree with Mark Thoma's disagreement with Brad DeLong. Actually, ALL economic discourse is political and efforts to restrain the politics are inevitably efforts to keep the politics one-sided

          Dan Kervick said...

          This kind of debate seems to be a by-product of the contemporary obsession with having an "independent" central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy.

          But there really isn't. Different kinds of social, economic and political values and policy agendas are going to call for different kinds monetary and credit policies. It might be better for our political health if the Fed were administratively re-located as an executive branch agency that is in turn part of a broader Department of Money and Banking - no different from the Departments of Agriculture, Labor, Education, etc. In that case everybody would then view Fed governors as ordinary executive branch appointees who report to the President, and whose policies are naturally an extension of the administration's broader agenda. Then if people don't like the monetary policies that are carried out, that would be one factor in their decision about whom to vote for.

          There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not. Decisions in that latter area should be no more politics-free than decisions about taxing and spending. If we fold the central bank more completely into the regular processes of representative government, then if a candidate wants to run on a platform of keeping interest rates low, small business credit easy, bank profits small, etc., they could do so without all of the doubletalk about the protecting the independence of the sacrosanct bankers' temple.

          We could also then avoid unproductive wheel-spinning about that impossibly vague and hedged Fed mandate that can be stretched to mean almost anything people want it to mean. The Fed's mandate under the political solution would just be whatever monetary policy the President ran on.

          likbez -> Dan Kervick...

          "The Fed's mandate under the political solution would just be whatever monetary policy the President ran on"

          Perfect !

          Actually sanjait in his post made a good point why this illusive goal is desirable (providing "electoral advantage") although Greenspan probably violated this rule. A couple of hikes of interest rates from now till election probably will doom Democrats.

          Also the idea of FEB independence went into overdrive since 80th not accidentally. It has its value in enhancing the level of deregulation.

          Among other things it helps to protect large financial institutions from outright nationalization in cases like 2008.

          Does somebody in this forum really think that Bernanke has an option of putting a couple of Wall-Street most violent and destructive behemoths into receivership (in other words nationalize them) in 2008 without Congress approval ?

          Dan Kervick -> Sanjait ...

          Sanjait, with due respect, you are not really responding to the reform proposal, but only affirming the differences between that proposal and the current system.

          Yes, of course fiscal policy is "constrained" by Congress. Indeed, it is not just constrained by Congress but actually made by Congress, subject only to an overridable executive branch veto. The executive branch is responsible primarily for carrying out the legislature's fiscal directives. That's the point. In a democratic system decisions about all forms of taxation and government spending are supposed to be made by the elected legislative branch, and then executed by agencies of the executive branch. My proposal is that monetary policy should be handled in the same way: by the elected political branches of the government.

          You point out that under current arrangements, central banks can, if they choose, effect large monetary offsets to fiscal policy (or at least to some of the aggregate macroeconomic effects of those policies). I don't understand why any non-elected and politically unaccountable branch of our government should have the power to offset the policies of the elected branches in this way. Fiscal and monetary policy need to be yoked together to achieve policy ends effectively. Those policy ends should be the ones people vote for, not the ones a handful of men and women happen to think are appropriate.

          JF -> Dan Kervick...

          "In a democratic system" is what you wrote.

          It is more proper to refer to it as republicanism. The separation of powers doctrine, underlying the US constitution, is a reflection of James Madison's characterization in the 51st The Federalist Paper, and it is a US-defined republicanism that is almost unique:

          "the republican form, wherein the legislative authority necessarily predominates."

          - or something like that is the quote.

          In the US framers' view, at least those who constructed the re-write in 1787 and were the leaders - I'd say the most important word in Madison's explanation is the word "necessarily" - this philosophy has all law and policy stemming from the public, it presumes that you can't have stability and dynamic change of benefit to society without this.

          Arguably, aristocracies, fascists, totalitarians, and all the other isms, just don't see it that way, they see things as top-down ordering of society.

          The mythology of the monetary theorizing and the notions about a central bank being independently delphic has some of this top-down ordering view to it (austerianism, comes to mind). Well, I don't believe in a religious sense that this is how it should be, nor do you it seems.

          It will be an interesting Congress in 2017 when new legislative authorities are enacted to establish clearer framing of the ministerial duties now held by the FRB.

          Are FED officials scared that this will happen, and as a result they circle the wagons with their associates in the financial community now to fend off the public????

          I hope this is not true. They can allay their own fears by leading not back toward 1907, in my opinion.

          Of course, I could say where I'd like economic policies to go, and do here often, but this thread is about Yellin and other FED officials.

          I recognize that FRB officials can say things too, and should, as leaders of this nation (with a whole lot of research power and evidence available to them their commentary on political economics should have merit and be influential).

          Thanks for continuing to remind people that we govern ourselves in the US in a US-defined republican-form. But I think the people still respect and listen to leadership - so speak out FED officials.

          JF -> Dan Kervick...

          But Dan K, then you'd de-mythologize an entire wing of macroeconomics in a wing referred to as monetary theory based on a separate Central Bank, or some non-political theory of money.

          Don't mind the theory as it is an analytic framework that questions and sometimes informs - but it is good to step back and realize some of the religious-like framing.

          It is political-economy.

          Peter K. -> pgl...

          Yellen really lays it out in her speech.

          "The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.2 It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity."

          And even links to Piketty in footnote 42.

          "Along with other economic advantages, it is likely that large inheritances play a role in the fairly limited intergenerational mobility that I described earlier.42"

          42. This topic is discussed extensively in Thomas Piketty (2014), Capital in the 21st Century, trans. Arthur Goldhammer (Cambridge, Mass.: Belknap Press). Return to text

          Sanjait said...

          A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it.

          The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries.

          Do I believe this theory? Increasingly, yes I do. And seeing the Fed right now decide to raise rates, citing accelerating wage growth as one of the main reasons, has reinforced my belief.

          A Boy Named Sue said...

          Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack.

          A Boy Named Sue -> A Boy Named Sue...

          I do admit, Delong is my favorite conservative economist. He is witty and educational, unlike most RW hacks.

          Jeff said...

          As to "why risk a political backlash" in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all.

          [Dec 10, 2015] The Feds Painted Itself Into The Most Dangerous Corner In History - Why There Will Soon Be A Riot In The Casino

          As long as oil stay low I think there will be no recession...
          Notable quotes:
          "... Submitted by David Stockman via Contra Corner blog, ..."
          Zero Hedge

          Submitted by David Stockman via Contra Corner blog,

          Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.

          So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino - the very outcome that has filled them with fear and dread all these years.

          ... ... ...

          But the fantastic global credit bubble summarized below has now reached its apogee. China and the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.

          ... ... ...

          According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain't going to happen this time.

          Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally trod upon savers and retirees of American would well and truly revolt.

          Historical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.

          Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

          Katherine Schock, 1 year ago
          Just spent the major part of my day putting together the records to file the old man's tax this year. We have contributed mightily to the insurance industry, the pharmaceutical industry, the medical industry and yes, a major part of our income that makes up our yearly retirement amount has ended up in the pockets of these Wall Street bums! Therefore, I am posting this song as a tribute to Wall Street...thanks to you guys we barely have a dime left over! Hope you choke on your fucking bonus!

          Gene Burnett - Jump You F#kers (A Song For Wall Street) - YouTube

          [Dec 10, 2015] Regarding the Future is Bright

          Notable quotes:
          "... We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time. ..."
          "... the crucial indicator being real wage growth. ..."
          "... Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be bright for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes. ..."
          "... Clintons tech stock bubble popped and morphed into Bushs housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didnt help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existenc ..."
          "... The simple tool for reining in our excessively top-heavy financial sector is deflation! ..."
          "... Its generally useful to talk about macroeconomic factors in terms of cyclical and structural factors. Its a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous core problem that leads to recessions, I am very suspicious. Usually, such claims are about someones hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions. ..."
          Economist's View
          bakho said...
          Regarding the "The Future is Bright ".

          We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time.

          cawley said in reply to bakho...
          Agreed. Also with the crucial indicator being real wage growth.

          ken melvin said in reply to bakho...

          Yup, housing is the effect, not the cause.

          RC AKA Darryl, Ron said in reply to ken melvin...

          Exactly!

          New Deal democrat said in reply to bakho...

          Thanks.

          My post at Bonddad was an elaboration on a comment I made here two days ago. I had been meaning to reply to CR last year when he made the same argument, but never got around to it.

          In fairness, I think Bill makes an excellent case that we won't have another recession brought about by a housing bubble, and/or too much consumer leverage any time soon. But there are plenty of other reasons why the economy might tip back into recession, as comments here have already mentioned.

          Dan Kervick said in reply to New Deal democrat...

          Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be "bright" for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes.

          Dan Kervick said in reply to JF...

          Well I said the prospects are bleak only absent major structural political and economic changes. And they are. American society is killing off whole classes of people. The prisons are full; there are epidemics of substance abuse going on, and rising suicide rates. The Financial Times reported today Even if there is no recession, that just means that these people are not also laid off, and can trudge back and forth every day from their Wal-Jobs to their hardscrabble communities, slums and trailer parks and afford more booze to drink themselves to death or buy lottery tickets to win imaginary pots of gold that will never come, and to have a functioning TV so they can watch people scream at each other all night. Oh, and the prices of hookers and drugs are down. Bright times!

          Why should any of these people care what the "Bonddad" thinks about how bright the future is for people who ... well, own bonds; or who party in Manhattan and Silicon Valley with their fortunes; or who make use of their abundant low-anxiety leisure to talk to their college chums all day in the establishment punditariat?

          The up and down cyclical motions of the pretty horsies going up and down mean little to the people who sleep in the dark machinery underneath the merry-go-round.

          If US society keeps its basic overall shape, the future isn't bright. But it does contain just enough glare to make sure that the party boys with their ever-evolving fashion lines of fancy sunglasses will continue not to see half of the world.

          Dan Kervick said in reply to Dan Kervick...

          Incomplete sentence. I meant to say, "The Financial Times reported today on the further hollowing out of the US middle class and growing income stratification."

          Dan Kervick said in reply to Dan Kervick...

          America, 2015:

          http://www.theguardian.com/us-news/2015/may/14/homan-square-detainee-police-abuse

          JF said in reply to Dan Kervick...

          Yes, we absolutely have the opportunity to do better. We ought to try.

          Julio said in reply to JF...

          We are rich beyond belief. We just have to get used to the idea. Then, new vistas open up.

          JF said in reply to Julio...

          Yes. Net Wealth of US residents is nearly $85 T with an annual flow of economic activity over $17 T.

          We have a rising population, not a declining one.

          We produce more food than we can eat and have access to immense energy sources.

          And we have one of the better judicial systems and at least historically a governing set of institutions that brings up to the pragmatic middle that has made sound currency and nationwide payment systems, lots of supportive infrastructure including some good literacy levels from the educational system part of it.

          We can do better, but I'd take the US over any other place (we even have a moderate climate).

          This election might change my thinking on this last point about taking the US over say Canada - but I think I'll be happy to remain.

          Julio said in reply to JF...

          Yes, I went through some of the same thoughts when we reelected Bush-Cheney. But here I am.

          Dan Kervick said in reply to JF...

          JF, I agree that the aggregates and net numbers are great. But our cruel, stratified, inegalitarian social system is the problem. The way those aggregate quantities are spread out over the population is a global scandal.

          America is good for me too, personally. My wife and I live in a well-off upper middle class community in New Hampshire. Very good schools, no crime to speak of, a town full of healthy and advantaged kids 95% bound for colleges. We had and still do have various recession-related anxieties, but they are the anxieties most people in the world only dream of.

          But my life isn't America. It's a privileged and charmed part of it. If I get pulled over by a policeman for driving a bit too fast, I just get a courteous and smiling warning from Officer Friendly. Many others run a good chance of getting tasered, shot or sodomized in a police station. And that's just the tip of the iceberg of the savage inequalities.

          anne said in reply to New Deal democrat...

          http://bonddad.blogspot.com/2015/12/the-future-is-bright-or-perhaps-not.html

          December 9, 2015

          The Future is Bright . . . or perhaps not
          By New Deal democrat

          [ Really nicely done. ]

          Peter K. said in reply to bakho...

          Clinton's tech stock bubble popped and morphed into Bush's housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didn't help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existence.

          The solution is not to raise interest rates in a depressed economy.

          As DeLong has written the housing bubble was deflating and housing jobs were being replaced by export jobs.

          Then the whole thing short-circuited with the financial crisis.

          At the time the Fed was passively tightening over inflation concerns.

          Peter K. said in reply to Peter K....

          Another solution is more fiscal policy so that monetary policy doesn't carry all of the burden.

          Tax cuts for the rich isn't good fiscal policy.

          pgl said in reply to Peter K....

          Greg Mankiw links to some report on the effects of the Jeb! tax cuts but does not comment (Krugman did comment in this report). I followed the link and read the abstract. It is not exactly what Mankiw usually says about the wonders of tax cuts for rich people.

          Peter K. said in reply to pgl...

          I avoid Mankiw's website. No comments.

          :D

          Interesting though. Didn't Krugman blog that the report backs up his (everyone's) claims?

          pgl said in reply to Peter K....

          Krugman did. Abstract of the report and Krugman's comment below. I just found it funny that Mankiw gave a hat tip to something that I doubt he even read first. I guess Greg is getting a lot like JohnH in that way.

          Peter K. said in reply to pgl...

          "I guess Greg is getting a lot like JohnH in that way."

          So much trolling to do, so little time. It's hard to keep up with all the misinformation.

          PPaine said in reply to Peter K....

          Pay roll tax cuts and increased retirement payments

          Plus a greatly expanded earned income subsidy aka tax credit

          These are job class macro moves

          Bernie gets this

          Hillary ???

          PPaine said in reply to PPaine ...

          The fed needs to be captured first before we can rely on. It to operate in sync with a pro job class macro policy

          ilsm said in reply to PPaine ...

          ARAMCO and the pentagon need the cash!

          Norovirus said in reply to Peter K....

          "tax the financial industry to prevent"

          ~~Peter K~

          When you need less of something, tax it. This will shift the supply/price/demand curve of financial "services". We need more of sawmills but less of banks, brokers and quants. Production we need. Casino we don't need. Hell!

          If you want casino then go to Vegas -- more bells and whistles for you money!

          Guten
          fahrt
          !

          Laundry Bank & Trust said in reply to Norovirus...

          Most efficient way to tax financial services is a simple tool.

          "simplicity is the meaning of life.
          "
          ~~Ockham's axiom~

          "
          Simplicity is more sustainable than complexity.
          "
          ~~Ockham's first theorem~

          The simple tool for reining in our excessively top-heavy financial sector is deflation!

          sanjait said in reply to bakho...

          It's generally useful to talk about macroeconomic factors in terms of "cyclical" and "structural" factors. It's a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous "core problem" that leads to recessions, I am very suspicious. Usually, such claims are about someone's hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions.

          PPaine said in reply to sanjait...

          Well a chronic trade deficit And. Spontaneous over accumulation are clearly structural problems that may well require significant if varying full employment budget deficits over the whole cycle

          The inter action of structural and cyclical requires composite macro policy programs using multiple instruments

          The dollar should stay at the assumed long run balanced trade forex thru out the cycle
          Over accumulation suggests a ceiling of zero real for the policy rate

          Etc etc

          Sanjait said in reply to PPaine ...

          Rich developed countries are supposed to have a chronic trade deficit.

          But sure, let's humor that concern for a sec:

          What then, do you claim, is the structural factor that causes chronic trade deficits? This should be interesting.

          RC AKA Darryl, Ron said...

          RE: The Evolution of Work

          [This piece is sort of like the David Warsh broad brush economic history short form pieces except that it is focused purely on the plight of the proletariat instead of elites.]

          RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

          Dani Rodrik seems to be on the side of the weebles.

          ken melvin said in reply to RC AKA Darryl, Ron...

          Are we still evolving?

          RC AKA Darryl, Ron said in reply to ken melvin...

          Yep. Evolution never seems to be happening when most of what one sees is within their own generation, sort of by definition. What the millennials are evolving into is something I want to learn, but have not had the chance to duly observe for myself yet. Jealousy between my current wife and the mother of my children created an atmosphere too tedious for my current wife to be subjected to. You should know though that I am not the father of my children either. I just raised them from 4, 6, and 12. Husbands number one and two of the mother of my children were the biological fathers. She had no children with husbands number three (me) nor four. She is still hunting for number five but her powder is too wet now to fire.

          So, what have you learned from your grandchildren?

          From our three girls I learned that progress is mighty slow.

          PPaine said in reply to RC AKA Darryl, Ron...

          Yes

          I love his strong advocacy for cross border labor mobility. Control the borders but increase the OECD inflow

          We should set a huge quota for middle easterners

          But let them in very slowly
          Meanwhile those that apply
          Get to stay in a safe area provided by lady liberty

          Inside the us !

          RC AKA Darryl, Ron said in reply to PPaine ...

          That would trump Trump.

          ilsm said in reply to PPaine ...

          Wll st banks already get a cut on banking al Qaeda!

          bakho said in reply to RC AKA Darryl, Ron...

          Dani does not address hours worked or time off.
          The US has one of the worst leave policies in the developed world.
          When was the last reduction in the work week?
          There are a lot of services that are not being provided due to lack of money. Some of the underemployed could move into low level service jobs if other workers moved up to a higher level.

          It is a failure when large numbers of people do not have productive work. They have too little money to sustain potential output, leaving employment far below potential. It is a vicious downward spiral. The spiral is fixed by intervention that reverses the spiral. We have a failure of fiscal policy to address the root problem.

          Dan Kervick said in reply to bakho...

          He's a development economist and his article is about work in the developing world.

          RC AKA Darryl, Ron said in reply to bakho...

          We have a lot of failures and I don't have time enough to make a full list. Changing stuff requires political action on behalf of and usually orchestrated by those that have the needs that require addressing. We need massive working class majority electoral solidarity. Until then the political establishment is safe to treat us as second rate constituents and focus on the desires of the elite.

          JF said in reply to bakho...

          The Tim Taylor piece is helping to remind people to focus more attention on economic policies related to work practices being seen in society. More talk about this the better.

          My two cents, is that society is better when people are hired for stable, full-time jobs. All kinds of definitional matters attend to just saying this, but I still think it needs to be a predominating focus. Society wants more people to have full-time jobs, however you define full-time. So we need to watch developments in the gig economy carefully.

          By predominating full-time employment as a policy-making factor, I'd say this view means that in serious downturns, for instance, we do not want govts eliminating full time, stable jobs if we can somehow do fiscal sharing to avoid this as much as can be done.

          The largest employer segment in the US (well at least it used to be bigger than retail, last time I studied this) is state and local govt employment. These employers don't pay out of whack high-salaries and for the most part the hiring has had a stable and proportional growth rate (political bosses in the US don't hand out jobs to create voters much anymore). These employers create floors in the labor marketplace and this forces other employers to compete on stability factors and on the notion of being full-time. I think we want this type of competition.

          The right-wing Machiavelli ones understand this dynamic and that is why they are very happy to undermine govt employment (cut it, they are lazy anyway, ugh-bureaucrats don't do real things, etc.) - they don't want the competition as it raises the costs of their decades long control over wages.

          But any employer offering stability and full-time jobs - this is good, and economic policies for our society ought to take this into account as a predominating factor.

          sanjait said in reply to JF...

          Hey JF.

          I didn't have time to write up a solid reply the other day, but I did want to eventually respond to your question and comments about whether the central bank has control of long term interest rates ("it's own instruments...") through purchases.

          My quick answer:

          It influences their prices, but not through inducing scarcity. That is because, unlike commodities, securities are not priced based on their scarcity, they are priced based on their expected returns.

          So when the Fed buys $40b in bonds per month, in a $500+b per month liquid market, it's hardly going to move the price.

          But, the Fed does influence long term bond rates both by modulating the entire money supply and by setting expectations for how it will modulate the money supply in the future (aka., the reaction function.)


          One very huge observation apropos of all this: every time the Fed announced a new round of QE, longer term bond rates went UP rather than DOWN. Why? Because it showed the Fed's reaction function was looser than previously thought, and also they were more committed to staving off disinflation.

          Though I will concede, not everyone sees it this way. Even inside the Fed many of them had a simple model that says: buying more bonds = pushing down the price. But I get the impression they generally abandoned that model after operation twist utterly failed to work in that way.

          JF said in reply to sanjait...

          OK. Yield, price, cost to the govt - not always the same thing, but each has a perspective.

          Assuming you are correct that the later QE, and I don't know myself, just assumed that the cost to the govt of a new 10 year moderated a bit in a later QE, I think this evidence points to why they don't use new-QEing now.

          It dawned on them that its initial cost-to-govt effects, lowering interest rates, was just not happening. So why subsidize the dealer networks and stuff more assets on to their books using electronic entries into reserve accounts as payment when we (the FRB) have no idea what to do with assets of this magnitude.

          But off the thread's topic.

          [Dec 10, 2015] Special Report Buybacks enrich the bosses even when business sags

          Notable quotes:
          "... Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price. ..."
          "... But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers. ..."
          "... Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking." ..."
          "... As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending. ..."
          "... "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets. ..."
          "... The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar. ..."
          "... At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit. ..."
          finance.yahoo.com

          NEW YORK(Reuters) - When health insurer Humana Inc reported worse-than-expected quarterly earnings in late 2014 – including a 21 percent drop in net income – it softened the blow by immediately telling investors it would make a $500 million share repurchase.

          In addition to soothing shareholders, the surprise buyback benefited the company's senior executives. It added around two cents to the company's annual earnings per share, allowing Humana to surpass its $7.50 EPS target by a single cent and unlocking higher pay for top managers under terms of the company's compensation agreement.

          Thanks to Humana hitting that target, Chief Executive Officer Bruce Broussard earned a $1.68 million bonus for 2014.

          Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price.

          But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers.

          As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to short-term performance measures like EPS is prompting criticism that executives are using stock repurchases to enrich themselves at the expense of long-term corporate health, capital investment and employment.

          "We've accepted a definition of performance that is narrow and quite possibly inappropriate," said Rosanna Landis Weaver, program manager of the executive compensation initiative at As You Sow, a Washington, D.C., nonprofit that promotes corporate responsibility. Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking."

          A Reuters analysis of the companies in the Standard & Poor's 500 Index found that 255 of those companies reward executives in part by using EPS, while another 28 use other per-share metrics that can be influenced by share buybacks.

          In addition, 303 also use total shareholder return, essentially a company's share price appreciation plus dividends, and 169 companies use both EPS and total shareholder return to help determine pay.

          STANDARD PRACTICE

          EPS and share-price metrics underpin much of the compensation of some of the highest-paid CEOs, including those at Walt Disney Co, Viacom Inc, 21st Century Fox Inc, Target Corp and Cisco Systems Inc.

          ... ... ...

          As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending.

          Companies buy back their shares for various reasons. They do it when they believe their shares are undervalued, or to make use of cash or cheap debt financing when business conditions don't justify capital or R&D spending. They also do it to meet the expectations of increasingly demanding investors.

          Lately, the sheer volume of buybacks has prompted complaints among academics, politicians and investors that massive stock repurchases are stifling innovation and hurting U.S. competitiveness - and contributing to widening income inequality by rewarding executives with ever higher pay, often divorced from a company's underlying performance.

          "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets.

          The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S&P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar.

          At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit.

          SALARY AND A LOT MORE

          Today, the bulk of CEO compensation comes from cash and stock awards, much of it tied to performance metrics. Last year, base salary accounted for just 8 percent of CEO pay for S&P 500 companies, while cash and stock incentives made up more than 45 percent, according to proxy advisory firm Institutional Shareholder Services.

          ...In 1992, Congress changed the tax code to curb rising executive pay and encourage performance-based compensation. It didn't work. Instead, the shift is widely blamed for soaring executive pay and a heavier emphasis on short-term results.

          Companies started tying performance pay to "short-term metrics, and suddenly all the things we don't want to happen start happening," said Lynn Stout, a professor of corporate and business law at Cornell Law School in Ithaca, New York. "Despite 20 years of trying, we have still failed to come up with an objective performance metric that can't be gamed."

          Shareholder expectations have changed, too. The individuals and other smaller, mostly passive investors who dominated equity markets during the postwar decades have given way to large institutional investors. These institutions tend to want higher returns, sooner, than their predecessors. Consider that the average time investors held a particular share has fallen from around eight years in 1960 to a year and a half now, according to New York Stock Exchange data.

          "TOO EASY TO MANIPULATE"

          Companies like to use EPS as a performance metric because it is the primary focus of financial analysts when assessing the value of a stock and of investors when evaluating their return on investment.

          But "it is not an appropriate target, it's too easy to manipulate," said Almeida, the University of Illinois finance professor.

          ...By providing a lift to a stock's price, buybacks can increase total shareholder return to target levels, resulting in more stock awards for executives. And of course, the higher stock price lifts the value of company stock they already own.

          "It can goose the price at time when the high price means they earn performance shares … even if the stock price later goes back down, they got their shares," said Michael Dorff, a law professor at the Southwestern Law School in Los Angeles.

          Exxon Corp, the largest repurchaser of shares over the past decade, has rejected shareholder proposals that it add three-year targets based on shareholder return to its compensation program. In its most recent proxy, the energy company said doing so could increase risk-taking and encourage underinvestment to achieve short-term results.

          The energy giant makes half of its annual executive bonus payments contingent on meeting longer-term EPS thresholds. Since 2005, the company has spent more than $200 billion on buybacks.

          ADDITIONAL TWEAKS

          While performance targets are specific, they aren't necessarily fixed. Corporate boards often adjust them or how they are calculated in ways that lift executive pay.

          [Dec 09, 2015] Short Term Energy Outlook

          Notable quotes:
          "... EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. ..."
          www.eia.gov
          • EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. The current values of futures and options contracts for March 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $30/b to $63/b (at the 95% confidence interval). ...
          • The monthly average price of U.S. regular retail gasoline was $2.16/gallon (gal) in November, a decrease of 13 cents/gal from October and 75 cents/gal lower than in November 2014. EIA forecasts U.S. regular gasoline retail prices to average $2.04/gal in December 2015 and $2.36/gal for 2016.

          [Dec 09, 2015] JPMorgan Fed could trigger 'massive stop loss order' in the S P 500 if liftoff goes awry

          finance.yahoo.com

          This important event falls at a peculiar time–less than 48 hours before the largest option expiry in many years," wrote Kolanovic, noting that $1.1 trillion worth of Standard & Poor's 500-stock index options–of which $670 billion are puts–will expire on Dec. 18. Roughly one-third of the puts poised to expire are at or near the money, with strike prices from 1,900 to 2,050.

          "Clients are net long these puts and will likely hold onto them through the event and until expiry," the strategist wrote. "At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market."

          When a put is close to expiry, the writer of the option becomes a seller of the underlying security as it hits the strike price in order to mitigate the exposure. Thus, a negative reaction in the S&P 500 index to the Fed decision could trigger a wave of forced selling, potentially agitating markets.

          No one knows better than Kolanovic how systematic selling can amplify price changes in financial markets.

          However, it's fair to quibble with the premise: Is Janet Yellen really monitoring open interest in options linked to the S&P 500?

          [Dec 09, 2015] Something Did Blow Up In Junk

          Junk is really goes down. But with low oil price how really probably is the recession?
          Zero Hedge

          Thought Processor

          ...Seriously though, aren't HYG's always the canary in the coal mine...... No better buzzer for an incomming slowdown.

          anti Oligarchy

          I work right in the thick of the real economy... construction / utility / etc. It is happening right now on the ground floor, sales are drying up, inventories going up. It is as serious as you are projecting in these articles.

          Paint By Number

          My experience exactly. The industrial market (except for the flash in the pan oil boom) has been struggling since 2008. But something changed in September/October of this year. I can't tell you how many times I've heard "it's like someone flipped a switch."

          Most people have no idea of how many highly technical and specialized products (valves, cables, pumps, transformers, special alloy components) are keeping electricity, gas, and water going to their homes. Many of these manufacturers are teetering on the edge. If this situation does not change for the better in the next few months we will begin to see major and spectacular failures in our infrastructure.

          I can't overstate the potential devastating social and environmental chaos. It's all great fun to talk about popcorn and watching bankers jump from the 14th floor, but if the lights go out and don't come back on, there won't be much laughing.

          kelley805

          J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.

          Here are some signs of a coming recession.

          1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.

          http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell

          2. Factory orders continue to drop

          http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row

          3. Default risk spikes

          http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high

          4. M&A set record

          http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/

          5. Iron ore prices tumble

          http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30

          6. Baltic dry shipping index tumbles

          http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19


          [Dec 09, 2015] The Endless Parade of Recession Calls

          Notable quotes:
          "... We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. Weve also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians. ..."
          "... .... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi. ..."
          Dec 06, 2015 | Calculated Risk
          Note: I've made one recession call since starting this blog. One of my predictions for 2007 was a recession would start as a result of the housing bust (made it by one month - the recession started in December 2007). That prediction was out of the consensus for 2007 and, at the time, ECRI was saying a "recession is no longer a serious concern". Ouch.

          For the last 6+ years, there have been an endless parade of incorrect recession calls. The most reported was probably the multiple recession calls from ECRI in 2011 and 2012.

          ... ... ...

          Also on Friday I posted an excerpt from a Citi's research piece also suggesting a 65% chance of a recession in 2016.

          Here is the Citi research piece.

          Citi Recession Call

          [A] statistical approach is shown in Figure 46 and highlights the cumulative probability of a recession based on data from 1970-14 across US, UK, Germany and Japan. As the U.S. economy enters year seven, the cumulative probability of a recession in the next year rises to 65%.
          This is just an historical statistical approach based on elapsed time.

          Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view). Someday I'll make another recession call, but I'm not even on recession watch now.

          Rob_Dawg

          We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. We've also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians.

          sum_luk

          Rob_Dawg:

          all the old metrics are useless.

          .... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi.

          sum_luk

          Rajesh:

          I don't expect the U.S. economy to boom except on a relative basis.

          ... of course, Janet's theory is domestic US will carry on despite the fact that a strong dollar makes for cheap imports.

          Rob_Dawg

          Eventually China will have a shadow banking crisis that will leave the rest of the world with the problem of deciding how much to contain it. Very dangerous. 2016? No way of telling.

          sm_landlord

          Rajesh

          I'm with you on that, Rajesh. To the extent that I'm doomy about the macro economy, it's mostly about the rest of the world. The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.

          On the middle/micro level, I see a lot of government spending on things like street/road maintenance, which should prop some things up. Also, auto traffic seems to be back to pre-GR levels. Based on my recent visit to SM, anyway, most of the downtown area is approaching gridlock for much of the day again...

          Can't say the risk is zero, though, because I still see a lot of fragility and testing of limits.

          Cinco-X

          Rajesh:

          My no recession call for 2015 is looking good. I'm making a no recession in 2016 call now.

          I was in Walmart on Friday evening picking up a prescription, and the place was a ghost town. Drove by Best Buy the previous evening and the parking lot was about 25% full

          yuan

          sm_landlord:

          The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.

          Umm...so pretty much business as usual since 2008 (and the republican plan to sabotage obummers by opposing anything that might benefit working class 'merkins).

          curious
          HHNW_GDP.jpg 1920x1080 105 KB

          Early on in the housing bubble, Bill made a number of comments about bubbles using a plot of Household Net Worth to GDP ratio. Early on, he wrote that the ratio had been stable for nearly 50 years. He then changed his tune and started talking about a gradual increase since the 70's.

          Here's the raw data series.

          CitizenAllenM

          Funny how the Boomer generation peak is going to change the economics of so much, just like I predicted.

          I also predict a stunning comeback for Wal-Mart as the cost of living cuts really get going, and the Social Security Day Sales and Foodstamp sales kick off the monthly sales.

          The America of limited everything, as free riders are eliminated.

          Now, have you written off your skybox for 2015?

          LoL- business has so much fat they will need to cut to survive the increase in poverty that will be the boomer retirement.

          Already planning to shed vehicles as fast as Google Cars become available in 10 years

          Someday this war's gonna end...

          CitizenAllenM

          LoL- you have paid more to store that organ than any value it has--- http://phoenix.craigslist.org/wvl/msg/5329410176.html3

          Yup, $250 bucks for the middle class 1950s fantasy item!

          Can't really give them away- Upright Pianos are the worst- worth more as parts for creative reuse than as instruments.

          Grand Pianos still have some marginal value- unless a decent name brand and in excellent condition.

          One of my friends was talking about how valuable the family Steinway was, and I told them to contact the local piano dealer to get an idea of the value, and then see how much it was going to cost to have shipped down from Minnesota- after she made the calls she decided it was no prize and stopped negotiating for it in the estate settlement :wink:

          Technology is ruthlessly destroying mass books next, along with vinyl records, dvds, cds, etc. 8 tracks are worthless, cassette tapes even more worthless.

          Printers and scanners are the junk of America.

          Someday this war's gonna end...

          [Dec 08, 2015] GDP often is not a good measure of a society's wellbeing

          Notable quotes:
          "... The international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired and on which Deaton served, had earlier emphasized that GDP often is not a good measure of a society's wellbeing. These new data on white Americans' declining health status confirms this conclusion. The world's quintessential middle-class society is on the way to becoming its first former middle-class society. ..."
          Project Syndicate

          When Inequality Kills by Joseph E. Stiglitz - Project Syndicate

          The basic perquisites of a middle-class life were increasingly beyond the reach of a growing share of Americans. The Great Recession had shown their vulnerability. Those who had invested in the stock market saw much of their wealth wiped out; those who had put their money in safe government bonds saw retirement income diminish to near zero, as the Fed relentlessly drove down both short- and long-term interest rates. With college tuition soaring, the only way their children could get the education that would provide a modicum of hope was to borrow; but, with education loans virtually never dischargeable, student debt seemed even worse than other forms of debt.

          ... ... ...

          The international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired and on which Deaton served, had earlier emphasized that GDP often is not a good measure of a society's wellbeing. These new data on white Americans' declining health status confirms this conclusion. The world's quintessential middle-class society is on the way to becoming its first former middle-class society.

          [Dec 07, 2015] Academic Nightmares Where Everybody Majors in Money

          The key idea of neoliberal university if to view students as customers and the degree as a product to sell.
          Notable quotes:
          "... The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents " widespread and long-lasting academic fraud at the university ." ..."
          "... Students are increasingly perceived as customers ..."
          "... the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class. ..."
          "... Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. ..."
          www.counterpunch.org
          ... ... ...

          The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents "widespread and long-lasting academic fraud at the university." For years, employees of the university "knowingly steered about 1,5000 athletes toward no-show courses that never met and were not taught by any faculty members, and in which the only work required was a single research paper that received a high grade no matter what the content."

          It isn't only athletes who get the benefit of such "no-show" courses. Small academic programs and departments struggling to survive occasionally come up with such courses as a way of boosting their numbers of majors. Even Harvard is now having to grapple with the question of whether their "General Education" program has had the effect of encouraging students to take easy courses.

          Universities will bend over backwards not to fail a student–so long as he or she is actually paying tuition. I know of a case of a professor who was told by the director of the program in which the professor teaches to "take some responsibility" for the fact that some of this professor's students were failing a course. Apparently, the professor was expected to find a way to ensure that all the students passed the course. Fortunately, the professor is tenured, and hence had to freedom to refuse to do more than to try to help the students actually LEARN the material. Would an adjunct have felt free to do the same thing?

          Students are increasingly perceived as customers and some administrators, and even some faculty, appear to conceive the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class.

          Failing to pay tuition, however, is a different matter. Faculty are sometimes instructed not to allow students to attend courses if they have not paid their tuition by the beginning of the term (which, because of the glacial slowness of some financial aid programs, is frequently a problem).

          There's been a lot of discussion recently about how all students need to be taught ethics in college. Of course you can't require everyone to take the standard ethics class that is taught in the philosophy department. That would be too much work. If you suddenly are going to require that everyone at your university take ethics, well, you'd better dumb it down, so students won't object.

          Keep it rigorous, or dumb it down, requiring students to take an ethics course is unlikely to make them more ethical. The thing is, you rarely make people ethical by teaching them ethics. You can help them to better understand the complexities of some ethical dilemmas and you can arm them with theoretical language they can use to defend choices they probably would have made anyway, but that doesn't make them better people so much as it makes them happier people.

          Moral character is largely formed by the time students enter college. It isn't entirely formed, of course, so what happens to students in college can affect their moral development. People are so profoundly social that they continue to develop their conceptions of what is acceptable behavior throughout their entire lives. Aristotle recognized that. That's why he asserted that ethics was a subset of politics. If you want people to behave well, you have to organize your society in such a way that it sends a clear message concerning the behavior it approves of and the behavior it condemns. If the leaders of a given society want people to be honest and responsible, then they have to exemplify these character traits themselves, and then reward citizens who emulate their example.

          Universities would do a much better job of shaping students' characters in positive ways if instead of requiring students to take dumbed-down ethics classes, they gave a damn about ethics themselves, if they cared more about actually delivering the product they purport to be selling, rather than giving mere lip service to it. Many universities are now delivering degrees that are effectively equivalent to the indulgences sold by the Catholic church in the middle ages: expensive, but otherwise meaningless, pieces of paper.

          Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. The message that, sadly, is all too often driven home to students today is that none of the traditional human values that educational institutions purport to preserve and foster, including learning in the broadest sense, really matter. The message they all to often receive now is that nothing really matters but money.

          Now THAT is a nightmare!

          M.G. Piety teaches philosophy at Drexel University. She is the editor and translator of Soren Kierkegaard's Repetition and Philosophical Crumbs. Her latest book is: Ways of Knowing: Kierkegaard's Pluralist Epistemology. She can be reached at: [email protected]

          [Dec 07, 2015] The key prerequisite of casino capitalism is corruption of regulators

          Economist's View

          likbez said...

          When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

          The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

          As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

          So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

          GeorgeK said...

          I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

          Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

          The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

          This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

          [Dec 07, 2015] Hillary Clinton How I'd Rein In Wall Street

          Economist's View

          likbez said...

          When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

          The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

          As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

          So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

          GeorgeK said...

          I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

          Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

          The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

          This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

          [Dec 07, 2015] Academic Nightmares Where Everybody Majors in Money

          The key idea of neoliberal university if to view students as customers and the degree as a product to sell.
          Notable quotes:
          "... The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents " widespread and long-lasting academic fraud at the university ." ..."
          "... Students are increasingly perceived as customers ..."
          "... the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class. ..."
          "... Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. ..."
          www.counterpunch.org
          ... ... ...

          The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents "widespread and long-lasting academic fraud at the university." For years, employees of the university "knowingly steered about 1,5000 athletes toward no-show courses that never met and were not taught by any faculty members, and in which the only work required was a single research paper that received a high grade no matter what the content."

          It isn't only athletes who get the benefit of such "no-show" courses. Small academic programs and departments struggling to survive occasionally come up with such courses as a way of boosting their numbers of majors. Even Harvard is now having to grapple with the question of whether their "General Education" program has had the effect of encouraging students to take easy courses.

          Universities will bend over backwards not to fail a student–so long as he or she is actually paying tuition. I know of a case of a professor who was told by the director of the program in which the professor teaches to "take some responsibility" for the fact that some of this professor's students were failing a course. Apparently, the professor was expected to find a way to ensure that all the students passed the course. Fortunately, the professor is tenured, and hence had to freedom to refuse to do more than to try to help the students actually LEARN the material. Would an adjunct have felt free to do the same thing?

          Students are increasingly perceived as customers and some administrators, and even some faculty, appear to conceive the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class.

          Failing to pay tuition, however, is a different matter. Faculty are sometimes instructed not to allow students to attend courses if they have not paid their tuition by the beginning of the term (which, because of the glacial slowness of some financial aid programs, is frequently a problem).

          There's been a lot of discussion recently about how all students need to be taught ethics in college. Of course you can't require everyone to take the standard ethics class that is taught in the philosophy department. That would be too much work. If you suddenly are going to require that everyone at your university take ethics, well, you'd better dumb it down, so students won't object.

          Keep it rigorous, or dumb it down, requiring students to take an ethics course is unlikely to make them more ethical. The thing is, you rarely make people ethical by teaching them ethics. You can help them to better understand the complexities of some ethical dilemmas and you can arm them with theoretical language they can use to defend choices they probably would have made anyway, but that doesn't make them better people so much as it makes them happier people.

          Moral character is largely formed by the time students enter college. It isn't entirely formed, of course, so what happens to students in college can affect their moral development. People are so profoundly social that they continue to develop their conceptions of what is acceptable behavior throughout their entire lives. Aristotle recognized that. That's why he asserted that ethics was a subset of politics. If you want people to behave well, you have to organize your society in such a way that it sends a clear message concerning the behavior it approves of and the behavior it condemns. If the leaders of a given society want people to be honest and responsible, then they have to exemplify these character traits themselves, and then reward citizens who emulate their example.

          Universities would do a much better job of shaping students' characters in positive ways if instead of requiring students to take dumbed-down ethics classes, they gave a damn about ethics themselves, if they cared more about actually delivering the product they purport to be selling, rather than giving mere lip service to it. Many universities are now delivering degrees that are effectively equivalent to the indulgences sold by the Catholic church in the middle ages: expensive, but otherwise meaningless, pieces of paper.

          Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. The message that, sadly, is all too often driven home to students today is that none of the traditional human values that educational institutions purport to preserve and foster, including learning in the broadest sense, really matter. The message they all to often receive now is that nothing really matters but money.

          Now THAT is a nightmare!

          M.G. Piety teaches philosophy at Drexel University. She is the editor and translator of Soren Kierkegaard's Repetition and Philosophical Crumbs. Her latest book is: Ways of Knowing: Kierkegaard's Pluralist Epistemology. She can be reached at: [email protected]

          [Dec 06, 2015] CIA personnel and assets had the strongest motives to murder Kennedy

          www.nakedcapitalism.com
          Vatch

          JKF? I didn't know that the historian John King Fairbank was assassinated.

          roadrider

          Then I guess you have solid evidence to account for the actions of Allen Dulles, David Atlee Phillips, William Harvey, David Morales, E. Howard Hunt, Richard Helms, James Angleton and other CIA personnel and assets who had

          1) perhaps the strongest motives to murder Kennedy

          2) the means to carry out the crime, namely, their executive action (assassination) capability and blackmail the government into aiding their cover up and

          3) the opportunity to carry out such a plan given their complete lack of accountability to the rest of the government and their unmatched expertise in lying, deceit, secrecy, fraud.

          Because if you actually took the time to research or at least read about their actions in this matter instead of just spouting bald assertions that you decline to back up with any facts you would find their behavior nearly impossible to explain other than having at, the very least, guilty knowledge of the crime.

          skk

          Ruby claimed he was injected with cancer in jail, which ultimately rendered his second trial (after winning appeal overturning his death sentence) moot. It sounded crazy, but so did the motive proffered at his first trial-- that he wanted to save Mrs. Kennedy the anguish...

          that is such an amazing story.. i've yet to watch the video of Lyndon Johnson's swearing in - where Marr states he's seen to be winking and smiling etc -

          Jim Marrs - Kennedy Assassination Lecture

          those who wish - Pick it up at around 12 minutes. actually in that lecture he may well be showing videos of it - I wdn't know cos just listen to the audio.

          skk

          JFK is the one 'safe' conspiracy to talk about without getting the extreme whacko label.

          fascinating "lectures" - British Humanist Society and all - still you gotta listen to everything especially the other side:

          https://www.youtube.com/embed/V6s_Jw3RU9g?feature=oembed&wmode=opaque&list=PL44BEE83ED9D841A8

          Make a note of the names - rising stars in the I'm "left" but I'm not a conspiracist gaggle - ist a standard gaggle - Chomsky, Monbiot are in it ( to win it of course - their fabled "socialist" kingdom" ) - yeah yeah its BritLand so yeah why I care I suppose.

          [Dec 06, 2015] Beware Economics 101 -- this is a neoclassical junk

          Notable quotes:
          "... "The problem for early would ­- be neoclassical macroeconomists was that, strictly speaking, there was no microeconomic model of macroeconomics when they began their campaign. So they developed a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium growth path of the economy as being determined by the consumption and leisure preferences of a representative consumer, and explained deviations from equilibrium – which the rest of us know as the business cycle – by unpredictable 'shocks' to technology and consumer preferences. ..."
          "... This resulted in a model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy. Which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor. To which he decides how much labor to supply by solving a utility function that maximizes his utility over an infinite time horizon, which he rationally expects and therefore correctly predicts. ..."
          "... Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the notion that economics should deal with empirical or factual reality overboard quite some time ago. ..."
          "... Economists often invoke a strange argument by Milton Friedman that states that models do not have to have realistic assumptions to be acceptable - giving them license to produce severely defective mathematical representations of reality. ..."
          "... Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism does not diminish the value of their theory because it "works," in the sense that it generates valid predictions…. ..."
          "... Most important, philosophers of science have almost universally rejected Friedman's position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain. Otherwise, [predictions] are unable to foretell under what conditions they will continue to hold or fail. ..."
          "... With the advent of the Great Financial Crisis, which began in 2007 and continues to this day, the neoclassical models did fail. And they failed in the most spectacular way. ..."
          "... Nevertheless, for those like Krugman who are in love with orthodox economic theory, when facts don't conform to theory, so much worse for the facts. ..."
          "... It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous money creation and its "available funds" theory of banking, as Keen calls it, believes that debt matters. ..."
          "... A very good example of this is the MMT school, which even though it rejects the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least public debt. ..."
          "... The distinction between private debt and public debt, however, is not a clear one. We all saw, for instance, the ease with which private debt was converted into public debt in the cases of Ireland and Spain in the wake of the GFC. ..."
          "... The piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was formulated to replace Keynesian theory. ..."
          "... The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash of 2008. ..."
          "... However, because he has such an important platform, it matters more to many monetary economists (including the editor of this series) that he appears to lack a proper understanding of the nature of credit, and the role of banks in the economy. ..."
          "... So yes debt is a big problem with a poorly regulated banking industry (financial industry really because of shadow banking). ..."
          peakoilbarrel.com
          VK, 12/04/2015 at 2:57 pm
          Beware Economics 101. The peer review mechanism has horribly failed.

          When you read Krugman, this is what he and our central bankers believe.

          "The problem for early would ­- be neoclassical macroeconomists was that, strictly speaking, there was no microeconomic model of macroeconomics when they began their campaign. So they developed a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium growth path of the economy as being determined by the consumption and leisure preferences of a representative consumer, and explained deviations from equilibrium – which the rest of us know as the business cycle – by unpredictable 'shocks' to technology and consumer preferences.

          This resulted in a model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy. Which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor. To which he decides how much labor to supply by solving a utility function that maximizes his utility over an infinite time horizon, which he rationally expects and therefore correctly predicts.

          The economy would always be in equilibrium except for the impact of unexpected 'technology shocks' that change the firm's productive capabilities (or his consumption preferences) and thus temporarily cause the single capitalist/worker/consumer to alter his working hours.

          Any reduction in working hours is a voluntary act, so the representative agent is never involuntarily unemployed, he's just taking more leisure. And there are no banks, no debt, and indeed no money in this model."

          Prof. Steve Keen, Debunking Economics.

          Dennis Coyne, 12/04/2015 at 6:11 pm
          Hi VK,

          No this is not what Krugman believes at all. There are some economists that think in these terms, in the US it is primarily in the interior of the country, the economists on the east and west coast, (this includes Krugman and many others) would not think in these terms at all.

          Have you ever read anything by Krugman?

          VK, 12/05/2015 at 1:41 am
          Read Krugman for years. The basic neoclassical models are founded on the representative agent model with the above assumptions as core. Look up the PhD text book on economics – http://www.amazon.com/Microeconomic-Theory-Andreu-Mas-Colell/dp/0195073401

          Krugman gives assessments based on the representative agent models, with its no money, no debt, no banks assumptions. Very linear models, no dynamic modeling.

          Economic theory and modeling is stuck in the 19th century. Rest of the hard sciences, physics, chemistry, atmospherics moved on with Poincare and later Lorenz to dynamic simulations.

          VK, 12/04/2015 at 3:04 pm
          To Dennis Coyne, debt levels matter because "loans create deposits" and not vice versa. Bank of England published a paper last year on modern money creation http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

          The fractional reserve banking model taught in economics is absolutely empirically wrong. Because banks have the power to create credit money, they can issue in excess.

          Under the empirically correct credit money creation model, there can be an excessive build up of debt. Hence the more than 250 sovereign and domestic govt debt crises since 1850.

          Dennis Coyne, 12/04/2015 at 6:24 pm
          Hi VK,

          Rune Likvern posted the link and I read the paper. US textbooks through 1990 covered this exactly as in that paper, so it was a good refresher, but not different from what I had learned in the past.

          There can be excessive debt and banks can fail due to poor lending practices combined with a severe recession. Nations can also default. The question is how much debt is too much debt. In economics there are different opinions on this question. When I was studying economics the focus was on public debt crowding out private debt when an economy was close to full employment.

          Now there seems to be more focus on private debt, which nobody in economics used to worry about.

          It may be that the lack of banking regulation and the rise of shadow banking has made this more of a problem, I am out of date on the latest research.

          http://www.economist.com/blogs/freeexchange/2015/06/public-debt

          The article at the link above suggests up to about a 150% debt to GDP ratio is a safe level for public debt.

          VK, 12/05/2015 at 1:56 am
          U.S. Textbooks don't cover this at all. The assumption that Paul Samuelson used in his seminal undergraduate textbook that millions have studied was the fractional reserve lending model which is empirically false.

          The whole of economics is empirically false, it would be a laughing stock if people looked under the hood with its assumptions that are meant to preserve straight line thinking rather than dealing with reality, which is highly non-linear and dynamic.

          Private debt wasn't a concern in economics because they assumed away the role of banks to preserve the equilibrium models. Once you incorporate reality into the models, which is what a true science would do, you find that private debt levels matter.

          What economists think: Saver lends to borrower. Saver loses purchasing power, borrower gains purchasing power. Purchasing power hasn't changed in the economy. Just a shift

          What really happens: Saver puts money in a bank, has access to his money anytime. Borrower wants money, bank issues a credit and writes loan amount as asset. Purchasing power as a whole increases across the economy as both saver and borrower now have money to buy goods and services with.
          That's how the economy grows – bank issuance of credit. And it can easily be in excess.

          https://unlearningeconomics.wordpress.com/2012/04/03/the-keenkrugman-debate-a-summary/

          Jef, 12/05/2015 at 9:12 am
          Thanks for hanging in there VK.

          I tried to explain this to my father in law who is an attorney specializing in finance and accounting. He simply could not accept it or even wrap his head around it even after reading the Bank of England piece.

          It is fraud plain and simple and the cost to humanity in both financial terms and lives lost is huge.

          Glenn Stehle, 12/05/2015 at 9:34 am
          Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the notion that economics should deal with empirical or factual reality overboard quite some time ago.

          Perhaps no one was more explicit in articulating this notion that science should discard factual reality than Milton Friedman.

          Any number of critics have pointed this out. For instance,

          Economists often invoke a strange argument by Milton Friedman that states that models do not have to have realistic assumptions to be acceptable - giving them license to produce severely defective mathematical representations of reality.

          –NASSIM NICHOLAS TALEB, The Black Swan

          and

          Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism does not diminish the value of their theory because it "works," in the sense that it generates valid predictions….

          Most important, philosophers of science have almost universally rejected Friedman's position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain. Otherwise, [predictions] are unable to foretell under what conditions they will continue to hold or fail.

          AMITAI ETZIONI, The Moral Dimension

          With the advent of the Great Financial Crisis, which began in 2007 and continues to this day, the neoclassical models did fail. And they failed in the most spectacular way.

          Nevertheless, for those like Krugman who are in love with orthodox economic theory, when facts don't conform to theory, so much worse for the facts.

          Glenn Stehle, 12/05/2015 at 9:55 am
          It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous money creation and its "available funds" theory of banking, as Keen calls it, believes that debt matters.

          A very good example of this is the MMT school, which even though it rejects the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least public debt.

          The distinction between private debt and public debt, however, is not a clear one. We all saw, for instance, the ease with which private debt was converted into public debt in the cases of Ireland and Spain in the wake of the GFC.

          Dennis Coyne, 12/05/2015 at 12:38 pm
          Hi Glenn,

          Krugman does hold relatively mainstream views, but there are significant differences of opinion within economics. Many economists reject Keynesian theory, Krugman does not. The piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was formulated to replace Keynesian theory. Krugman would make many of the exact same criticisms.

          The "debt doesn't matter" theme is carried a little too far, nobody really argues this. The argument is that when the economy is doing poorly due to low aggregate demand (during a severe recession) and monetary policy is not effective because interest rates are near zero (so that the federal funds rate cannot be lowered any further), cutting fiscal deficits is poor public policy.

          Perhaps you disagree?

          Glenn Stehle, 12/05/2015 at 1:57 pm
          Dennis,

          Are you unaware of the famous debate between Krugman and Keen, and what it is all about?

          Perhaps this article by Ann Pettifor will help:

          The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash of 2008.

          Many rightly applaud Paul Krugman for using his platform at the New York Times to defend further fiscal stimulus in the US–against a hostile political crowd, not to mention the downright opposition of neo-liberal economists –- and we commend him for that.

          However, because he has such an important platform, it matters more to many monetary economists (including the editor of this series) that he appears to lack a proper understanding of the nature of credit, and the role of banks in the economy.

          https://www.opendemocracy.net/ourkingdom/steve-keen/keen-krugman-debate

          I very much recommend reading the entire article, and much more can be found by Googling "Keen vs Krugman debate."

          Dennis Coyne, 12/05/2015 at 12:15 pm
          Hi Vk,

          There are many of us who have studied beyond the introductory level. In my introductory courses, I believe we were taught this correctly, but that was long ago, I know when I instructed the introductory students as a grad student what I was teaching was essentially what I read in the paper you cited. Perhaps the "textbooks" have improved over time, I haven't read an economics textbook for many years.

          Have you read any economics papers lately, perhaps there has been more progress than you think. A fundamental problem with economics is that how we understand the workings of the economy can affect the way people behave. People will always try to game the system and this then effects the system. It is a difficult modelling problem not faced by chemists and physicists.

          If you solve it you should publish a paper.

          Dennis Coyne, 12/05/2015 at 1:41 pm
          Hi VK,

          You said:

          What economists think: Saver lends to borrower. Saver loses purchasing power, borrower gains purchasing power. Purchasing power hasn't changed in the economy. Just a shift

          Economists don't think this way at all. These kinds of lessons are often presented in introductory economics courses to show how economists once thought things worked in 1803 when Say introduced "Say's Law".

          Then the economics professor goes on to explain how a modern economy actually works (which we don't understand all that well.)

          Generally speaking economic growth is considered a good thing, and banks lending to borrowers that are likely to be able to repay the loan (not true leading up to the financial crisis due to poor regulation and lending practices), is not a problem in a well regulated banking sector (in the US this went away in the 1980s).

          So yes debt is a big problem with a poorly regulated banking industry (financial industry really because of shadow banking).

          Debt is like a lot of things in life, too much or too little can be a bad thing.

          The central bank can certainly influence the amount of lending by raising interest rates, as long as inflation is moderate, there is not much reason to do so.

          Rune Likvern, 12/05/2015 at 1:43 pm
          "US textbooks through 1990 covered this exactly as in that paper, so it was a good refresher, but not different from what I had learned in the past."

          And what is the title of those textbooks?

          "Now there seems to be more focus on private debt, which nobody in economics used to worry about."

          Was it US public or private debt that started the GFC in 2007/2008?

          [Dec 05, 2015] The Real Stuff Economy Is Falling Apart Zero Hedge

          www.zerohedge.com
          What is the service sector? Mostly software, restaurants, banks, construction companies, retailers, doctors and hospitals.

          Can an economy thrive if it doesn't make or move physical things? Intuitively the answer is no, because most of the services mentioned above either maintain the status quo (like healthcare and restaurants) or (like houses) consume rather than build capital. As for banking, in its current incarnation it's almost certainly a net negative, draining capital from productive uses and funneling it to trading desks and political action committees.

          The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting. As with so many of today's monetary and fiscal experiments, no one knows when definitive results will come in. But the data so far aren't encouraging.


          Noplebian

          History shows when the fiat currency system reaches it's end cycle, there is always a call for war. This one however, will wipe out billions!

          http://beforeitsnews.com/conspiracy-theories/2015/12/road-to-ww3-time-to...

          Eyeroller

          "The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting."

          Should read:

          "The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting while the MSM tells us how awesome everything is."

          toady

          Another "oldy-but-a-goody". This "transition from a manufacturing to a services economy" has been going on since before NAFTA, and it's now almost finished we'll finally get to see what the Reagan-Bush1 voodoo economics hath wrought.

          Good times!

          Amish Hacker

          In politics, "definitive results" do not exist. Causes and effects can be, and are, argued and denied ad infinitum , in spite of overwhelming evidence to the contrary. For example, Cheney & the neocons still claim they did the right thing in Iraq & Afghanistan, and proudly boast that they would do the same thing again today. Keynesian economists will argue that they made no mistakes over the last 8 years, we just didn't apply their prescriptions aggressively enough. And so on.

          In politics, confirmation bias is the leading cause of blindness.

          [Dec 04, 2015] The alleged 'decoupling' of GDP from energy

          peakoilbarrel.com
          Don Stewart, 12/01/2015 at 12:25 pm

          Dear Ron and Others
          Relative to the alleged 'decoupling' of GDP from energy. Please see:
          http://www.pnas.org/content/112/20/6271.full
          The material footprint of nations

          The apparent decoupling turns out to be mostly a mirage. It is true that rich countries outsource some of the more energy and materials intensive operations to poor countries, but if you count back from consumption, the rich countries are essentially as energy and materials dependent as they ever were. For fossil fuels, the coefficient is 90 percent…a 90 point increase in fossil fuels is needed for a 100 point increase in GDP.

          Part of what happens can perhaps be understood by thinking about beef imports. If England imports beef from Africa, then there is a great deal of materials and energy consumed in Africa to produce the beef. Only a small percentage of the resource used gets exported to England. If you start with the steak in England and look back at the supply chain, you find that the consumption of the pound of steak in England was responsible for the consumption of lots of energy and materials in Africa.

          I think that 'decoupling' is not the same as energy efficiency. Suppose, for example, that we look at the efficiency with which firewood is burned in an ordinary house. Back in the olden days, the wood was burned in a fireplace, which is inefficient. Then Franklin invented the Franklin stove and heating became more efficient in terms of calories of usable heat per cord of wood. But the stove wasn't necessarily any less or more expensive than the fireplace. Since GDP essentially measures cash outlay, the increased efficiency doesn't necessary have any direct impact on GDP.

          Recently, we have begun to adjust GDP for 'hedonic factors'. Suppose, for example, that one has an old radio with lots of static and poor sound quality. Then one buys a new radio with better sound quality. But suppose that the price you pay for the new radio is the same as it was for the old radio. GDP would be the same for both radios. But, recently, the US government has begun to make adjustments for the quality of the sound.

          Whether the hedonic adjustments make any sense depends on what sort of question you are trying to answer. If you are asking 'will my radio company be able to pay our debts?', then all that matters is your actual income. The fact that you had to improve the sound quality in order to remain competitive is an ancillary fact. If you are not getting any more income, then paying your debts doesn't get any easier.

          Don Stewart

          Fred Magyar, 12/01/2015 at 1:41 pm
          Why the GDP Is Not An Good Measure of A Nation's Well Being
          https://goo.gl/xKKHZx

          In their book, The Spirit Level: Why Greater Equality Makes Societies Stronger (link is external), Professors Richard Wilkinson and Kate Pickett, present data taken from multiple credible sources that show the gap between the poor and rich the greatest in the U.S. among all developed nations; child well being is the worst in the U.S. among all developed nations; and levels of trust among people in the U.S. among the worst of all developed nations.

          The Subcommittee on International Organizations, Human Rights and Oversight of the U.S. Congress' House Committee on Foreign Affairs stated, after examining the issue of the U.S.'s declining image abroad, "the decline in international approval of U.S. leadership is caused largely by opposition to the invasion of Iraq, U.S. support for dictators, and practices such as torture and rendition. They testified that this opposition is strengthened by the perception that our decisions are made unilaterally and without constraint by international law or standards-and that our rhetoric about democracy and human rights is hypocritical."

          The US ranks 114th out of 125 countries in international peace and security.

          http://www.goodcountry.org/

          To those in power who believe that only strength counts, and that people are always self-interested, I say "We tried it your way, and it didn't work. Let's try something new."

          Simon Anholt

          Ves, 12/02/2015 at 8:49 am
          Hi Dennis,
          I see up there little discussion about GDP and what it means.
          Let's say:
          Country A: use washable rags to clean kitchen counter-tops.
          Country B: use paper towels to clean same kitchen counter-tops.

          As result they both have clean kitchen counter-tops but Country B has higher GDP due to use of paper towels.

          So GDP means absolutely nothing or anything depending what you want to present.

          GDP is like looking at the sunset and your mind is thinking that you are actually looking at the sunset. But it takes 8 minutes for sunlight to reach the earth and that sun that we think we are looking at is already gone. (Since this site is loaded with scientist they can correct me with if that 8 minutes is more or less correct )

          Anyway, mostly GDP is used by some "smart" people we call economist to tell us some "story". For example they tell us: "You see sunny boy that GDP is big number this year, bigger than one from last year. So you should be content and happy. Not convinced? Don't worry we will "super size" that GDP for you next year. Isn't your tummy already feeling full and content?"

          This kind of storytelling is usually printed as financial news about GDP. Meaningless if you ask me from the point of average citizen.

          I have to go now because I have whole day of work planned for me by this economy and I will catch you later tonight to see your thoughts. Another thing that crosses my mind is how come that we work more or at least the same now when oil is at $40 compared to when oil was $100 last year? Wasn't the official meme that use of oil as our biggest invention beside sliced bread, made our life easier so we actually work less and spent more time with family & friends and doing odd staff like canoeing How come I don't feel that I did not get 60% discount due to price of oil in terms of work load from the last year Who is pocketing that 60%
          How about employed folks who bought kiwi Leaf? Do they work less and have more time with family and friends or they are paddling in the same hamster wheel we call economy?

          Dennis Coyne, 12/02/2015 at 12:39 pm
          Hi Ves,

          I agree GDP is a poor measure of well being. Another example would be World War 2 where a lot of output was created to destroy stuff (tanks, bombs, planes, ships, guns, etc), then stuff was destroyed, cities and other infrastructure in Europe and Asia and then it was rebuilt leading to a lot of economic growth. Were we better off? Probably not, especially the millions who died and their families.

          GDP has many problems, beyond paper towels and paper plates and other wasteful (in my opinion) uses of resources.

          I did a different chart using the human development index (HDI) from 1980 to 2013 which shows World primary energy use per unit of HDI(a dimensionless number) has been increasing roughly linearly, not decreasing as is the case for energy intensity.

          The HDI is also far from perfect as a measure of human welfare, but probably better than GDP.

          [Dec 04, 2015] German Financialization and the Eurozone Crisis

          Notable quotes:
          "... Bundenstalt für Finanzdienstleistungsaufsicht ..."
          naked capitalism
          Many studies of the Eurozone crisis focus on peripheral European states' current account deficits, or German neo-mercantilist policies that promoted export surpluses. However, German financialization and input on the eurozone's financial architecture promoted deficits, increased systemic risk, and facilitated the onset of Europe's subsequent crises.

          Increasing German financial sector competition encouraged German banks' increasing securitization and participation in global capital markets. Regional liberalization created new marketplaces for German finance and increased crisis risk as current accounts diverged between Europe's core and periphery. After the global financial crisis of 2008, German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis. Rethinking how financial liberalization facilitated German and European financial crises may prevent the eurozone from repeating these performances in the future.

          After the 1970s, German banks' trading activity came to surpass lending as the largest share of assets, while German firms increasingly borrowed in international capital markets rather than from domestic banks. Private banks alleged that political subsidies and higher credit ratings for Landesbanks, public banks that insured household, small enterprise, and local banks' access to capital, were unfair, and, in response, German lawmakers eliminated state guarantees for public banks. Landesbanks, despite their historic role as stable, non-profit, providers of credit, consequently had to compete with Germany's largest private banks for business. Changes in competition restructured the German financial system. Mergers and takeovers occurred, especially in commercial banks and Landesbanks. German financial intermediation ratios-total financial assets of financial corporations divided by the total financial assets of the economy-increased. Greater securitization and shadow banking relative to long-term lending increased German propensity for financial crisis, as securities, shares, and securitized debt constituted increasing percentages of German banks' assets and liabilities.

          Throughout this period, Germany lacked a centralized financial regulatory apparatus. Only in 2002 did the country's central bank, the Bundesbank, establish the Bundenstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, known as BaFin), which consolidated the responsibilities of three agencies to oversee the whole financial sector. However, neither institution could keep pace with new sources of financial and economic instability. German banking changes continued apace and destabilizing trends in banking grew.

          German desire for financial liberalization at the European level, meanwhile, helped increase potential systemic risk of European finance. Despite some European opposition to removing barriers to capital and trade flows, Germany prevailed in setting these preconditions for membership in the European economic union. Germany's negotiating power stemmed from its strong currency, as well as French, Italian, and smaller European economies' desire for currency stability. Germany demanded an independent central bank for the union, removal of capital controls, and an expansion of the tasks banks could perform within the Economic and Monetary Union (EMU). The Second Banking Coordination Directive (SBCD) mandated that banks perform commercial and investment intermediation to be certified within the EMU; the Single Market Passport (SMP) required free trade and capital flows throughout the EMU. The SMP and SBCD increased the scope of activity that financial institutions throughout the union were expected to provide, and opened banks up to markets, instruments, and activities they could neither monitor nor regulate, and hence to destabilizing shocks.

          Intra-EMU lending and borrowing subsequently increased, and total lending and borrowing grew relative to European countries' GDP from the early 1990s onward. Asymmetries emerged in capital flows between Europe's core, particularly the UK, Germany, and the Netherlands, to Europe's newly liberalized periphery. German banks lent increasing volumes to EMU member states, especially peripheral states. Though this lending on a country-by-country basis was a small percentage of Germany's GDP, it constituted larger percentages of borrowers' GDPs. In 2007, Germany lent 1.23% of its GDP to Portugal; this represented 17.68% of Portugal's GDP; in 2008, Germany lent 6% of its GDP to Ireland; this was 84% of Irish GDP. Germany, the largest European economy, lent larger percentages of its GDP to peripheral EMU nations relative to its lending to richer European economies. These flows, more potentially disruptive for borrowers than for the lender, reflected lack of oversight in asset management. German lending helped destabilize European financial systems more vulnerable to rapid capital inflows, and created conditions for large-scale capital flight in a crisis.

          Financial competition increased in Europe over this period. Financial merger activity first accelerated within national borders, and later grew at supra-national levels. These movements increased eurozone access to capital, but increased pressure for banks to widen the scope of the services and lending that they provided. Rising European securitization in this period increased systemic risk for the EMU financial system. European holdings of U.S.-originated asset-backed securities increased by billions of dollars from the early 2000s until shortly before 2008. German banks were among the EMU's top issuers and acquirers of such assets. As banks' holdings of these assets increased, European systemic risk increased as well.

          European total debt as a percentage of GDP rose in this period. Financial debt relative to GDP grew particularly sharply in core economies; Ireland was the only peripheral EMU economy with comparable levels of financial debt. Though government debt relative to GDP fell or held constant for most EMU nations, cross-border acquisition of sovereign debt increased until 2007. German banks acquired substantially larger portfolios of sovereign debt issued by other European states, which would not decrease until 2010. Only in 2009 did government debt relative to GDP increase throughout the eurozone, as governments guaranteed their financial systems to minimize the costs of the ensuing financial crisis.

          The newly liberalized financial architecture of the eurozone increased both the market for German financial services and overall systemic risk of the European financial system; these dynamics helped destabilize the German financial system and economy at large. Rising German exports of goods, services, and capital to the rest of Europe grew the German economy, but divergence of current account balances within the EMU exposed it to sovereign debt risk in peripheral states. Potential systemic risk changed into systemic risk after the subprime mortgage crisis began. EMU economies would not have subsequently experienced such pressure to backstop national financial systems or to repay sovereign loans had German banks not lent so much or purchased so many sovereign bonds within the union. Narratives that fail to acknowledge Germany's role in promoting the circumstances that underlay the eurozone crisis ignore the destabilizing power of financial liberalization, even for a global financial center like Germany.

          susan the other, December 3, 2015 at 1:06 pm

          This is very interesting. It describes just how the EU mess unfolded beginning in 1970 with deregulation of the financial industry in the core. Big fish eat little fish. It is as if for 4 decades the banks in Germany compensated their losses to the bigger international lenders by taking on the riskier borrowers and were able to do so because of German mercantilism and financial deregulation. Like the German domestic banks loaned the periphery money with abandon, and effectively borrowed their own profits by speculating on bad customers. As German corporations did business with big international banksters, who lent at lower rates, other German banks resorted to buying the sovereign bonds of the periphery and selling CDOs, etc. The German banks were as over-extended looking for profit as consumers living on their credit cards. Deregulation enriched only the biggest international banks. We could call this behavior a form of digging your own grave. In 2009 the periphery saw their borrowing costs threatened and guaranteed their own financial institutions creating the "sovereign debt" that the core then refused to touch. Hypocrisy ruled. Generosity was in short supply. The whole thing fell apart. Deregulation was just another form of looting.

          washunate, December 3, 2015 at 1:28 pm

          German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis.

          I agree with the general conclusion at the end that German financialization is part of the overall narrative of EMU, but I don't follow this specific link in the chain of events as described. The eurozone has a sovereign debt crisis because those sovereign governments privatized the profits and socialized the losses of a global system of fraud. And if we're assigning national blame, it's a system run out of DC, NY, and London a lot more than Berlin, Frankfurt, and Brussels.

          Current and capital account imbalances cancel each other out in the overall balance of payments. As bank lending decreases (capital account surplus shrinks) then the current account deficit shrinks as well (the 'trade deficit'). The problem is when governments step in and haphazardly backstop some of the losses – at least, when they do so without imposing taxes on the wealthy to a sufficient degree to pay for these bailouts.

          [Dec 04, 2015] Congressional Aid to Multinationals Avoiding Taxes

          EconoSpeak

          The OECD's Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the abuse of transfer pricing by multinationals. Senator Hatch is not a fan:

          Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation's competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments. I expect that we'll hear about these concerns from the business community and others during today's hearing.
          Indeed we heard from some lawyer representing The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:
          in particular how the changes to the international tax rules as developed under BEPS will significantly reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to create R&D jobs in the United States
          Yes – I find his testimony absurd at so many levels. Let's take Google as an example. When they say foreign subsidiaries – think Bermuda. Over the past three year, Google's income has average $15.876 billion per year but its income taxes have only average $2.933 billion for an effective tax rate of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries and the average tax rate on this income is only 6.5%. Nice deal! Google's tax model is not only easy to explain but is also a very common one for those in the Software Coalition. While all of the R&D is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google's sales are to UK customers. Only problem is that income ends up on Ireland's books with the UK getting a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes to be only 6.5% of foreign sourced income since Ireland's tax rate is 12.5%. But think Double Irish Dutch Sandwich and you'll get how the profits ended up in Bermuda as well as perhaps a good lunch! But what about that repatriation tax you ask. Google's most recent 10-K proudly notes:
          "We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries".
          In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate. Let's be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS initiative arose out of this failure. And now the Republicans in Congress are objecting to even these efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals will leave California and relocate in Bermuda? Who is this lawyer kidding? Myrtle Blackwood
          The development model in nation after nation is dependent upon global corporations. What is happening is simply a byproduct of this.
          Jack
          Would the problem of transfer mythical corporate location and the resulting lost taxes be resolved if taxes were based on point of revenue? Tax gross income where it is earned instead of taxing profits where they are not earned.

          [Dec 04, 2015] But It's Just A 0.25% Rate Hike, What's The Big Deal - Here Is The Stunning Answer

          Notable quotes:
          "... So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S P along with a Treasury market crashing in parallel and no buyers. ..."
          Zero Hedge

          johngaltfla

          Fascinating article Tyler. Because if the math is correct, which I believe it to be or damned close, then the Fed is about to drain several hundred billion dollars from an illiquid credit market leaving no bid at year end.

          So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S&P along with a Treasury market crashing in parallel and no buyers.

          Shit could get real between the next two Fed meetings, that is for certain.

          FireBrander

          Bernanke did a little "draining" of his own; and brought down the global financial system...

          THEN "SAVED IT", AND HE WAS HAILED AS A FUCKEN HERO!

          Yellen my just be trying to secure her spot on the cover of Time for "Saving Us Again".

          Fish Gone Bad

          In October of 2008 there was a fairly large drain of money and things got scary (https://research.stlouisfed.org/fred2/graph/?chart_type=line&height=600&...[1][id]=MULT&width=1000).


          [Dec 04, 2015] About those possible limits to creative destruction…

          You need to distinguish "creative destruction" due to new technologies invented from "greed based" destruction caused by financization and outsourcing... In both cases old job dissaper, but in case of finanzition based destruction of jobs no new jobs are ever created. It's just plain vanilla wealth transfer to upper 1% of the society.
          ftalphaville.ft.com
          The social instability that comes alongside creative destruction - or 'disruption' - is often justified by the notion that unemployment effects are only temporary since in the long run a multitude of new jobs (many of which we can't even imagine yet) will inevitably be created.

          Well, a new Oxford Martin School study by Carl Benedikt Frey and Thor Berger has found…

          • Only 0.5% of the US labor force is employed in industries that did not exist in 2000.
          • Even in Silicon Valley, only 1.8% of workers are employed in new industries
          • The majority of the 71 new 'tech' jobs relate to the emergence of digital technologies, (such as online auctions, video and audio streaming and web design) but also include renewable energy and biotech.
          • New jobs cluster in skilled cities, making economic activity increasingly concentrated and contributing to growing regional inequalities.

          This, in other words, is the reality of the new "zero to one" tech world, where moving fast and breaking things (including jobs), then not worrying about the consequences until you're a billionaire who can give his wealth away in one billion dollar tranches, is the acceptable norm. (Even though, arguably, the accumulation of those billions in the first place is often the job-destroying problem.)

          Dr. Frey adds the valuable commentary that:

          "Because digital businesses require only limited capital investment, employment opportunities created by technological change may continue to stagnate as economies become increasingly digitized. Major economies like the US need to think about the implications for lower-skilled workers, to ensure that vast swathes of people don't get left behind."

          Very fair point.

          Limited capital investment equals extremely low barriers to entry. This in turn equals absolutely ruthless competition, which - somewhat ironically - leads to the "why should I bother investing in anything at all since there's nothing in it for me in the long run" effect. The real-world equivalent, if you will, of the Grossman Stiglitz Paradox.

          As a consequence, faddy network effects - a.k.a who's first to benefit from natural monopoly formation or old-fashioned populism by another name - increasingly mean everything, reducing successful entrepreneurial enterprise to a simple lottery/gambling game or (at best) a highly politicised popularity contest, wherein marketing spend stands equivalent to political campaigning outlay.

          Except, whereas political campaigns pay off electorate loyalty with promises of better lives in material terms, the most successful technology campaigns tend to do the opposite: pay off users for network loyalty with the promises of better digital returns, at the same time as transferring a greater share of material wealth to a tiny platform owning elite.

          Indeed, because tech firms are mainly focused on redistributing existing wealth rather than creating more of it, for them to profit, some share of real economy product must be snatched from those who actually worked to produce it. That's Schumpeterian creative destruction in action, albeit at the cost of producers who tend to share their profits with workforces through wages.

          The lowest cost producer will always be the one with smallest human workforce.

          All of which then sparks a dangerous race to the bottom focused on cutting out the most expensive material input: the human.

          What's worse, once that race starts, there's little to no incentive for anyone to invest in any business which ever involves human capital again.

          The irony is, without any beneficiary workforce within the new business structure, it's only capital owners (or lucky billionaire charity cases) who get to benefit from the dividends created by the system. Demand for products and services is destroyed. To wit, a vicious deflationary cycle begins, which shrinks the pie rather than grows it.

          Regarding the labour-destroying digital/tech trend, Frey and Berger's paper says specifically:

          Relative to major corporations of the early computer revolution, the companies leading the digital revolution have created few employment opportunities: while IBM and Dell still employed 431,212 and 108,800 workers respectively, Facebook's headcount reached only 7,185 in 2013.

          To be blunt, that arguably means it's not looking good for three of the core Schumpeterian presumptions, namely:

          • Technological disruption will eventually create jobs of equal merit elsewhere in the system (i.e. unemployment is temporary).
          • Recessions lead to efficiency gains that create social well-being for all.
          • Successful innovation must be rewarded with a temporary monopoly if it's to continue incentivising anyone to bear the risks of entrepreneurship.
          It is, however, looking better for the Schumpeterian conclusion that eventually capitalism must give way to socialism if it's to create a widespread commonwealth.

          Why? Because, whilst it's never been easier, cheaper or less risky to grab yourself a ticket for the 'monopoly reward' lottery - and thus more profitable when you do win - these cheap tickets are only available to businesses redistributing existing wealth that's focused on contracting consumer surplus as a whole.

          In the digital tech era, that's at best an exercise in political-populism (marketing spend to get consumers to support this platform rather than another, for as low a consumer surplus cost as possible to the platform leader) and at worst an exercise in total utter randomness. Neither, consequently, really justifies outsized rewards to any winning party.

          To the contrary, if you're in the business of creating new value utilising real human workforces or focused on creating new areas of demand, it's arguably never been more difficult, expensive or risky to take a punt on success - and thus less profitable if you do win. And that's because the very concept of rewarding a large workforce or consumer base with a steady, dependable and secure consumer surplus is considered to be a fundamental competitive disadvantage.

          Related links:

          Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

          [Dec 04, 2015] Turkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream II.

          Notable quotes:
          "... "Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term. Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020." ..."
          "... Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine . ..."
          marknesop.wordpress.com
          karl1haushofer, December 3, 2015 at 9:42 am
          Turkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream II. Hopefully the US/UK/Baltics/Poland front will not be able to stop it. Because otherwise Russia is stuck with Ukraine as a transit country.
          marknesop, December 3, 2015 at 10:45 am
          Well, I don't think they want to stop it. They want the gas the same as before – they just want it on their own terms. Brussels wants to exercise control over whose gas goes through the pipeline, so that if they are have a "spat" with Russia, they can stop orders of Russian gas and bring some at-this-moment-unknown supplier's gas through the same pipeline, probably Azerbaijan.

          Read this 2011 press conference with Gazprom; I found it while looking for a layman's explanation of what the Third Energy Package actually entails. Because it appears what is most unappealing to it from Gazprom's point of view is that it limits vital investment in gas futures, considering it would substantially restrict long-term contracts. They could be happy with you today, buying off your competitors tomorrow. According to Brussels, that's healthy competition which ensures the customer gets the best price, while Gazprom naturally prefers to deal in long-term contracts which lock the customer in, although they are usually willing to talk out a deal if it looks like the customer is really unhappy because unhappy customers are bad for business, even in the gas industry.

          Right away, you notice that Europe accepts long-term contracts, but nonetheless takes the position that long-term capacity supply orders upset the market. As Gazprom correctly points out, these two views cannot reasonably coexist.

          In 2011, Gazprom was still considering a joint venture with NaftoGaz Ukraine, and intended to actually increase gas transit through Ukraine while simultaneously building South Stream. They were also considering a merger, and Miller said if that came about, Ukrainian gas consumers would pay the same prices as Russia. Look how far they are away from that now – funny old world, innit? Here was Miller's vision, at the time, for a Gazprom-NaftoGaz merger:

          "Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term.
          Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020."

          You can see, I'm sure, why Brussels didn't like it. Under the Third Energy Package, the operator of the gas transit system will be elected by the European Union on a tender basis. You can see, I'm sure, why Gazprom didn't like that. If the merger between Gazprom and NaftoGaz Ukraine had come about, Ukrainians would have paid Russian domestic prices, in a word, forever.

          What Europe's position boils down to is it wants a system whereby its suppliers do not own anything of the transit system, and the operator could be anyone depending on who sucks up to Europe the most, so that it can make its suppliers fight with one another and be assured of the cheapest prices. Until that magical sugar-daddy supplier appears that can provide steady and sustained competition to Russia, Europe is not in a very good bargaining position. But you bet that would change fast if the western alliance could get rid of Assad, partition Syria and get a Qatari gas pipeline laid across it.

          Here's a poignant reminder of what might have been, which serves to point up who are the real troublemakers:

          "Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine."

          kirill , December 3, 2015 at 2:17 pm
          See above. It is time for Russia to lay down the law. Russia can go without the $25 billion per year of lost revenues. But whole EU economies will crash into epic depressions without this energy supply. In other words, the EU is looking at TRILLIONS of DOLLARS in economic damage. The Brussels Uncle Scam cocksuckers will have to justify their actions. Russia does not have to since it is the vendor. If you are not happy, then shop the fuck elsewhere, idiots.

          [Dec 03, 2015] GDP and energy

          Notable quotes:
          "... A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. ..."
          "... GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass. ..."
          "... I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling. ..."
          "... Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP. ..."
          peakoilbarrel.com

          VK, 11/30/2015 at 4:10 pm

          So much for decoupling…

          http://www.theguardian.com/commentisfree/2015/nov/24/consume-conserve-economic-growth-sustainability

          "A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. It points out that governments and economists have measured our impacts in a way that seems irrational.

          Here's how the false accounting works. It takes the raw materials we extract in our own countries, adds them to our imports of stuff from other countries, then subtracts our exports, to end up with something called "domestic material consumption". But by measuring only the products shifted from one nation to another, rather than the raw materials needed to create those products, it greatly underestimates the total use of resources by the rich nations.

          For instance, if ores are mined and processed at home, these raw materials, as well as the machinery and infrastructure used to make finished metal, are included in the domestic material consumption accounts. But if we buy a metal product from abroad, only the weight of the metal is counted. So as mining and manufacturing shift from countries such as the UK and the US to countries like China and India, the rich nations appear to be using fewer resources. A more rational measure, called the material footprint, includes all the raw materials an economy uses, wherever they happen to be extracted. When these are taken into account, the apparent improvements in efficiency disappear."

          BC, 11/30/2015 at 4:37 pm
          VK, precisely. The US has been in a net-exergetic deficit in debt-money-based terms per capita since the mid- to late 1960s to mid-1970s to mid-1980s, having compensated by increasing to an unprecedented level to date debt to wages and GDP.

          Moreover, the BEA-determined industry requirement costs as the basis of estimated gross and real value-added output (what we refer to as GDP), adjusted for our net-exergetic deficit in debt-money terms, the US has been in recession/"slow-motion depression" since Q4 2000-Q1 2001, and the world since 2005-08.

          Senior BEA, BLS, Commerce, White House economic advisors, CIA, NSA, military intelligence, and Pentagon planners all know this in varying degrees as it relates to their imperatives and prerogatives.

          However, the mass public and most political leaders are utterly unaware, or in the case of the latter, have no incentive to know or to share with the public what they know because they will not be able to raise a nickel thereafter for reelection if they do share.

          And so it goes . . .

          Ron Patterson, 11/30/2015 at 5:02 pm
          Thanks VK, I suspected as much.

          He told me that he and his colleagues had conducted a similar analysis, in this case of the UK's energy use and greenhouse gas emissions, "and we find a similar pattern". One of his papers reveals that while the UK's carbon dioxide emissions officially fell by 194m tonnes between 1990 and 2012, this apparent reduction is more than cancelled out by the CO2 we commission through buying stuff from abroad. This rose by 280m tonnes in the same period.

          GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass.

          Jimmy, 12/02/2015 at 11:38 am
          I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling.

          Only a divergence due to more units of GDP produced per unit of energy consumed. When somebody can create units of GDP and consume no energy at all then we will have decoupling. Coupling and decoupling are all or none terms/states of being. You're either coupled or your decoupled. Any arguments to the contrary are pedantic and uninformed.

          Ron Patterson, 12/02/2015 at 11:58 am
          Thanks Jimmy, with all the Pollyannas on this site I need all the support I can get.
          Dennis Coyne, 12/02/2015 at 1:56 pm
          Hi Jimmy,

          Look up the meaning of decouple it is reduce or eliminate the effect of one part of a circuit on another. In this context the appropriate meaning is reduce.

          Doesn't really matter, nobody thinks that energy inputs can be eliminated, that would be absurd.

          Dennis Coyne, 12/01/2015 at 8:07 am
          Hi VK,

          The problem is solved by looking at World output and World primary energy use.

          Energy intensity for the World has improved, though during the Chinese rapid expansion from 2000-2010, the progress stopped for a decade as energy was not used very efficiently in China over that period, since 2010 the progress has continued. Energy intensity is energy per unit of GDP produced.
          Chart below for 1965 to 2014 using World Bank(from FRED), UN, and BP data.

          Left vertical axis is in metric tons of oil equivalent (toe) per millions of 2005$ of real GDP (M2005$).

          Javier, 12/01/2015 at 9:23 am
          Hi Dennis,

          That graph shows several things mixed that have co-evolved independently, so not many conclusions can be extracted.

          • -It reflects improvements in energy usage, meaning we are able to extract more economic yield per unit of energy. This is the only real efficiency improvement.
          • -It reflects increase in debt, that is reflected in GDP but does not use energy. If I borrow money GDP increases yet no energy is used.
          • -It reflects increase in tertiary economy at the expense of primary and secondary economies. We pay more for services and less for resources and goods.

          We don't know the contribution of each to that graph (at least I don't), but given the magnitudes involved I would guess that the real efficiency improvement is small. This is supported by how the graph reacts to recessions (not the Chinese expansion as you claim), indicating that the main factor is economic, not energetic.

          Now we know that debt has a limit, and once debt saturation is reached the economy, and specially the tertiary sector would be very badly affected. If that happens we might very well see that graph turn around and energy intensity increase.

          Dennis Coyne, 12/01/2015 at 1:56 pm
          Hi Javier,

          GDP only increases if your money is spent on goods or services. It is output of goods and services. On a World level the debts and liabilities balance, so if I save my money and lend it to you, I spend less and you spend more. You should review your economics. At a World level, the debt has no effect, assuming we don't have ant interstellar debts. There was a World recession from 2000 to 2010? I hadn't heard about that.

          Yes services might have increased, if that is what people want to spend their money on, then the share of services in the economy will increase. I don't have figures on the "non-service economy". Part of this increase reflects women entering the labor pool in greater numbers, some of the work cleaning the house or taking care of the garden are now part of GDP when before they were taken care of by the family. We may not have good data for the World on this effect.

          Javier, 12/01/2015 at 2:21 pm
          Dennis,

          I think I do understand. If I go to the bank and ask for a 200,000 $ mortgage loan, that money is created from thin air, and when I go and pay for the house, GDP jumps by 200,000 $, so yes, increasing debt increases GDP as soon as the debt money is used. Since no oil was used to create the money, it counts as a reduction in oil intensity. Of course if I return the money to the bank the operation is reversed (they do keep the interests), but since on average debt is always expanding, except during crisis periods, oil intensity is always decreasing, except during crisis periods. Debt that is used to buy stocks or companies or to extract oil from the ground is the same.

          Dennis Coyne, 12/01/2015 at 3:16 pm
          Hi Javier,

          The point is that you purchased a $200,000 house. That house was not created from thin air, not my house anyway. :)

          It is not the debt, it is building a house that creates the GDP.

          Rune Likvern, 12/01/2015 at 3:26 pm
          So what comes first; The debt that allows for building the house, or first building the house and then creating the debt?
          Dennis Coyne , 12/01/2015 at 3:47 pm
          Hi Rune,

          In most cases the debt will come first if the home is purchased with financing. It is possible to build a home using savings, in which case there would be no debt.

          So the debt is not a requirement for GDP, just creating a new house, car, or other good or service.

          Would GDP be lower if there were no debt, of course!

          As long as debt grows at reasonable rates (similar to GDP growth at full employment), when there is a recession debt will initially grow faster than GDP and then will slow down until GDP growth catches up and surpasses the debt rate of growth.

          Dennis Coyne, 12/01/2015 at 4:25 pm
          Hi Rune,

          I am curious. Do you think what Javier is saying is correct? Energy intensity has decreased because Debt to GDP ratios have increased? I am pretty sure Javier is not right, but you are very knowledgeable about economics. Perhaps you can explain it to me, if I am mistaken.

          If all GDP was created with no debt (all of it was based on savings and income with no new borrowing) in year 1. And in year 2 50% of income was borrowed from banks to create the same level of GDP, would that mean in year 2 we have 150% of the first year because of the debt?

          I don't think so, but I may be missing something.

          Nick G, 12/02/2015 at 2:14 pm
          Dennis,

          Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP.

          Let's say there two houses on an island, and 2 residents, 1 in each house. One owns both houses, the other rents from the 1st. Then the renter borrows from the owner, and buys the house he/she lives in. Their monthly payment was rent, now it's a mortgage payment. The renter is now leveraged.

          But, has anything "real" changed? No. Same amount of wealth, same amount of income, with different kinds of ownership, and different obligations (the renter now has to fix his own roof!).

          Dennis Coyne, 12/01/2015 at 4:16 pm
          Hi Javier,

          You should read up on national income accounting. Debt does not really come into play, and more or less debt says absolutely nothing about the energy intensity of GDP. The chart I created is primary energy in metric tons of oil equivalent divided by real GDP in millions of 2005$. Debt plays no role.

          Try the following link for a detailed introduction to national income accounting:

          http://grizzly.la.psu.edu/~bickes/nia.pdf

          Javier, 12/01/2015 at 7:06 pm
          Dennis,

          I still disagree. It is well known that the increase in debt has a positive effect on GDP, while the total outstanding debt can become a drag on GDP if too high. It is difficult to sustain that debt plays no role in GDP in light of the evidence.

          For example China has had a phenomenal rate of growth accompanied by the highest rate of debt growth that the world has seen.

          I think it is easy to understand.

          • Country A finances everything with savings and profits without increasing debt and sees an increase in GDP of 2%.
          • Country B finances half of the goods and services with an increase in debt and sees an increase in GDP of 2%.

          Both countries use the same oil so both report the same oil intensity. However country B has brought half of the wealth used to increase the GDP from the future without bringing any future oil. That wealth will have to be repaid eventually, detracting from future GDP but at that point no oil will be recovered.

          So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

          Net effect is that debt reduces oil intensity when it is created and it increases oil intensity when it is payed. We have not seen that yet because we have not paid any debt yet. Debt is always increasing.

          Dennis Coyne, 12/01/2015 at 10:17 pm
          Hi Javier,

          Many problems with your example.

          First we need the GDP level of countries A and B, not just their growth rate. If we only talk about the incremental increases in GDP and energy use for each country it makes a little more sense.

          So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

          What you say above is incorrect.

          For simplicity I will assume if output grows by 2%, that energy use also grows by 2%, I will further assume each country has the same GDP, we will say it is $100 million before the 2% growth in your example.

          If country B does not take on any debt and its GDP grows by 1%, then its energy use will also grow by 1% (not by 2%) as the energy use is proportional to GDP. So the energy intensity would remain the same. There is no reason for it to change, it depends on technology and the structural features of the economy (proportion of agriculture, manufacturing, and services).

          Another basic fact of economics is that the loans taken out by a business are to take advantage of a business opportunity and they will tend to lead to higher growth, so your example is flawed.

          If countries A and B are of similar size and similar levels of development (twins as it were), then if country A and country B both shunned any borrowing they will both grow at the same rate, say 2% and have the same energy intensity (energy use also grows by 2%). Let's now assume both countries are the same except that country A's culture is such that they think debt is bad, but country B does not have the same aversion to debt.
          Country B borrows at 2% interest to take advantage of an investment opportunity which will have a rate of return of 4%, so country B grows faster than country A at 3% and its energy use also grows at 3% (energy intensity remains the same). The extra income earned is used to pay back the debt and the individual businesses come out ahead earning a net profit of 2% after paying back the interest. This is how rational businesses operate, they borrow money to make money.

          Javier, 12/02/2015 at 8:54 am
          Dennis,

          I also have lots of problems with your example, so let's take a step back to look at the big picture.

          That an increase on debt increases GDP is not in doubt. It is not only supported by evidence, but the basis for an entire economic theory that supports fighting recessions with debt-based stimulus.

          So the question is if an increase in debt increases also GDP without oil consumption as to reduce oil-intensity. The answer is a resounding yes. Financial services are proportional to debt increase. Net interest expenses in the financial sector are seen as production and value added and are added to GDP. Any service charged by financial companies also increases GDP, and none of this economic activities uses oil, and very little energy.

          I believe that a significant part of oil intensity reduction has come from the financialization of the economy linked to debt-increase, and therefore oil intensity is a fake measure of oil decoupling. If you look at energy-intensity you see the same phenomenon as with oil. It seems that we are decoupling from energy because we are moving towards a fake economy based on financial instruments. Finanzialization also appears linked to raising inequality as it effect is to increase the wealth only of owners of financial instruments.

          I do not doubt that some oil and energy efficiency is real, after all it is a process that has been going on forever since the first oven was built to cook. But I seriously doubt that it is a process significant enough to solve an energy deficit problem which is what peak oil is going to bring. And to me oil intensity is a fake measure of increases in oil efficiency, that I do not doubt are real but much overstated.

          Gail Tverberg has a lot more to say about decoupling GDP growth from energy growth in her article at TOD for anybody interested in the matter:

          http://www.theoildrum.com/node/8615

          Javier, 12/02/2015 at 9:23 am
          Or to put it more clearly:
          • These two things are related. And decoupling is largely a myth.
          • In blue US energy intensity inverted

          Dennis Coyne, 12/02/2015 at 10:43 am
          Hi Javier,

          Yes the financial sector has increased to a small degree from 4% of GDP to 8% based on the chart you posted (which is only for the United States rather than the World).

          This has probably increased to some degree (more or less than the US is unknown) at the World level as well. This might explain a very small slice of the decrease in energy intensity, but I doubt it accounts for most of the change.

          I agree with you that changes in the structure of the World economy (higher proportion of services) has probably decreased energy intensity, but I doubt that accounts for all of the change. The bottom line is that the World economic system is becoming more service oriented with services accounting for a larger share of GDP. At some point, services may reach some maximum level, in percentage terms, beyond which they cannot go. I don't know where that level is, debt levels will also reach some maximum level (in percentage terms) beyond which they cannot rise (maybe total debt of 300% to 350% of GDP at a World level as a potential maximum).

          When those points are reached growth may be limited by how much more efficiently we can use energy and how quickly we can ramp up alternative energy as fossil fuel output declines. There is much that is unknown about the future.

          Dennis Coyne, 12/02/2015 at 10:51 am
          Hi Javier,

          Note that you keep talking about oil, the chart shows primary energy (all forms of energy used by the economic system.)

          Can you explain why country B in your example uses the same amount of energy whether it grows at 1% or 2%. One would expect that the energy use would be proportional to GDP, as that is what the World data shows.

          Javier, 12/02/2015 at 11:55 am
          Dennis,

          That is not what I said or meant. Country B by increasing GDP 1% through an increase in debt is in essence bringing GDP from the future to the present. That borrowed GDP is using present energy.

          The financial sector has increased from 2% to 8%, a 4x increase. This is not small peanuts. Specially considering that only a minor part of the financial transactions are considered towards GDP. Probably only Luxembourg and perhaps Switzerland and other banking paradises have a bigger share.

          Dennis Coyne, 12/02/2015 at 2:01 pm
          Hi Javier,

          You said:

          So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

          You say above without the borrowing country B would grow by 1% (why does it grow less than country A?) but it uses the same amount of oil as country A, why if it grows more slowly?

          Dennis Coyne, 12/02/2015 at 5:57 pm
          Hi Javier,

          Look closely at your chart in 1970 (when energy intensity started to decline) it was 4% and the most recent points on the chart are about 8.4%. I used the data from your chart (even though it is for the US rather than the World) and did an exponential trend from 1970 to 2010 for 4% to 8% and then extended to 2014 (8.5%) for financial GDP of World economy (probably not correct, but this is an illustration). Then I found the Energy intensity of the non-financial sector by assuming the financial sector has zero energy inputs (I expect they are low, this is an approximation). The Non-Financial Energy intensity is in the chart below.

          Finally, Aggregate Demand is increased when there is more debt, but consider the Aggregate supply of goods produced to meet that demand. Whether the aggregate demand is because of private or public debt or not does not change the amount of energy needed to produce the supply of goods and services, it only changes how much demand there will be for those goods and services. I really cannot make it any simpler than that. Oh one more thing, do you think the energy needed to build a car (total energy embodied in all processes used to create the car and its components) changes if someone pays cash for the car vs financing the car?

          Rune Likvern, 12/01/2015 at 2:23 pm
          Dennis,

          Bank of England has a different take on this;

          " This article explains how the majority of money in the modern economy is created by commercial banks making loans.

          Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits."

          http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

          Dennis Coyne, 12/01/2015 at 3:37 pm
          Hi Rune,

          Yes that is correct. The banks create money by lending and borrowers destroy money as they pay back their loans. The money supply is controlled by the Central Bank buying and selling bonds.

          The debt is only a problem if it grows too quickly. If the rate of debt growth slows or the rate of GDP growth increases there will not be a problem. There are differing views on how much debt is too much.

          For public debt there is:

          http://www.economist.com/blogs/freeexchange/2015/06/public-debt

          http://www.forbes.com/sites/michaellingenheld/2015/10/22/the-world-needs-more-debt/

          Rune Likvern, 12/01/2015 at 5:45 pm
          Dennis,

          Did you read the document from Bank of England?

          Dennis Coyne, 12/02/2015 at 8:30 am
          Hi Rune,

          Yes I did. Under normal circumstances the supply of money is primarily influenced by the interest rate that is paid by commercial banks for money borrowed from the central bank. When the economy is in a severe recession and this interest rate falls to the "effective lower bound" (about 0.5%), the central bank loses its ability to increase the supply of money through lower interest rates.

          Under these circumstances the central bank will buy assets (government bonds) to increase the money supply, it does not sell assets to reduce the money supply, it simply raises the interest rate it charges the commercial banks.

          Dennis Coyne, 12/02/2015 at 8:18 am
          Hi Rune,

          Thanks for that link, it is a nice review of how central banks influence the supply of money by setting the interest rate which banks must pay on money borrowed from the central bank, which feeds through to interest rates throughout the economy and affects saving and borrowing through market interest rates set by banks.

          I would encourage Javier to read that link as it addresses many misconceptions about money.

          Glenn Stehle, 12/01/2015 at 10:00 am
          Dennis,

          You are comparing apples to oranges. GDP is determined using a price, or market, theory of value. So you are comparing a value determined using a market theory of value to a value determined using an intrinsic theory of value - the toe of energy.

          If you want to compare apples to apples, then you have to compare GDP to the market value of the energy used.

          Dennis Coyne, 12/01/2015 at 1:41 pm
          Hi Glenn,

          If we are concerned the energy constraints will limit real GDP, then the amount of energy consumed per unit of GDP produced is very relevant in my view.

          It is not a comparison, it is a measure of energy intensity and how it has changed over time. See

          https://en.wikipedia.org/wiki/Energy_intensity

          I have simply charted the World Energy Intensity from 1965 to 2014.

          Glenn Stehle, 12/01/2015 at 10:17 pm
          Well again, Dennis, a valid comparison is one which compares dollars and cents to dollars and cents, not dollars and cents to toe.

          There was a time (1970 to 2010) when the EIA published the total amount spent in the United States on energy. I have plotted the ratio of total spent on energy to total nominal GDP for those years. This is a true measure of "energy intensity," as it compares apples to apples, and does not omit the price of energy as your graph does.

          I have added YOY growth in real GDP (calculated using constant 2009 dollars).

          I don't want to draw too many conclusions from the graph, but it paints a far bleaker picture than your graph does. When energy intensity goes over .08 - as it did in 1974 and 2008 - then the economy began having convulsions.

          The period from 1983 to 2006 is what is known as "the Great Moderation." It is also a period of low and generally declining energy intensity. When energy intensity began increasing again, as it did in 1999, surpassing .08 in 2006, then this marked the end of the Great Moderation. Is this mere coincidence?

          Botton line: In my opinion not only is the quantity of energy (measured in toe) important to the performance of the economy, but the price of that energy is also important.

          Using your graph, which makes no allowance for the price of energy, it is easy to see how you have come to believe that the economy is decoupling from energy.

          Dennis Coyne, 12/02/2015 at 8:52 am
          Hi Glenn,

          It is not a comparison of money spent, energy intensity is defined as energy consumed per unit of output (measured in dollars) as there are many different goods and services and their monetary value is measured in constant dollars.

          The difficulty with using price is that there are many different forms of energy (oil, coal, natural gas, nuclear, hydro, solar, wind, geothermal, and biofuels) which are included in the "primary energy" category. Note that your chart shows only one country not the world. I would present a chart for the World if I had it, I am using the data I have for primary energy divided by real GDP. I think it is useful because it is energy contraints we are concerned about, currently some forms of energy (fossil fuels especially) have very low prices so in monetary terms money spent on Energy divided by real GDP would be quite low.

          Energy prices are quite volatile so I like the Energy intensity measure better as it shows energy needed to produce a unit of GDP, which has in fact declined since 1970 by about 30%(or an average annual decrease of about 0.8% per year).

          Glenn Stehle, 12/02/2015 at 12:28 pm
          Dennis,

          I suppose price doesn't matter as long as one can get somebody else to pick up the tab.

          For instance, we can compare a new $40,000 Chevy Bolt ev to a new $20,000 Honda HRV. There's no way the Bolt can compete on price. But if you can get somebody else to pick up the tab for the Bolt? Well then, no sweat!

          As part of its COP21 coverage, CBS did a puff piece on their Evening News last night about how EVs are sweeping Norway.

          http://www.cbsnews.com/videos/how-electric-cars-are-taking-over-norways-roads/

          They interviewed one fellow who said he "had done the math" and will be able to drive his new EV "for free."

          So I did a little bit more digging, and sure 'nuf, it looks like he's right.

          According to the Wall Street Journal, Norway currently has 54,000 EVs on the road. Last year their owners received $540,000 in various forms of rebates, tax breaks and other perks from the Norwegian state. That's a cool $10,000 per car per year. So at that clip, it would only take 4 years to recover the cost of a $40,000 EV. And then after that one can enjoy almost free driving, all on the government's tab.

          http://www.wsj.com/articles/electric-car-perks-put-norway-in-a-pinch-1442601936

          But it looks like there's trouble in paradise. The WSJ says the government give-a-ways are set to end. The day of reckoning is still up in the air, but the latest date for phasing out the government largess is 2020. So the Norwegian government is taking the punch bowl away. The EV crowd, of course, isn't taking this horrible injustice lying down:

          Christina Bu, secretary-general of the lobbying group Norwegian Electric Vehicle Association, said the 25,000-member association has been stalking political parties and government officials to ensure the main incentives remain in place, at least until 2020.

          "If you cut all the incentives overnight, sales will plummet," she said.

          Weaning buyers from such purchase incentives could add new headwinds to sales of vehicles already undercut by cheap fuel prices in some markets. In the U.S., the state of Georgia halted its $5,000 tax credit on July 1. Electric cars were about 2% of purchases in the state in 2014, estimates Washington-based think tank Keybridge Research LLC. It forecasts a 90% decline, or 8,700 fewer sales annually, as a result of the loss.

          Glenn Stehle, 12/02/2015 at 1:06 pm
          Edit

          Last year their owners received $540 million in various forms of rebates, tax breaks and other perks from the Norwegian state.

          Dennis Coyne, 12/02/2015 at 2:06 pm
          Hi Glenn,

          Do you have the price of primary energy from 1965 to 2014? I would be happy to do the chart you would like, but I don't know the appropriate price of energy, which has many different forms and prices throughout the World.

          I agree price matters, as does the amount of energy available to purchase (which is what is in my chart).

          Nick G, 12/02/2015 at 2:32 pm
          Glenn,

          You're looking at something different.

          The original study in question was asking about whether an economy can grow without increasing it's inputs of oil, steel, etc.*

          That's a very different question than whether an economy will be hurt by a sudden increase in the price of a key commodity, like oil. If the price of oil spikes, that can create a shock for the economy (e.g., people wait to see what happens with prices before they buy their next vehicle, and that delay causes a recession), but an increase in prices doesn't mean energy consumption has gone up.

          -----------------
          * (it can, of course, but that's separate issue from whether our societies have chosen to do so).

          Ralph, 12/02/2015 at 8:46 am
          I am far from convinced that GDP growth is a good way of measuring progress in a society. Let's take an example from the UK economy. (btw I am not worried about the genders here, I would happily be a house husband if my wife's earning potential was close to mine).

          Today, nearly 70% of women of working age work. Families need both incomes to meet a reasonable standard of living. As a result, a large majority of UK children grow up in families with both parents working. Many parents end up sending young children to child minders and crčches so that they can work. This employs a lot of people, mostly women. More wealthy families then employ house cleaners and gardeners and handymen etc. to clean, garden and repair their homes that they don't have time to do themselves. Poorer people do without. This employs a lot more people. All the working women and the people employed by the working women pay taxes which means that people end up working more hours to afford to pay someone else to do these jobs than it would take to do the jobs themselves. Unless your own rate of pay is significantly higher than the people you pay to do the jobs, you would be financially better off doing it yourself. The government and the economists are delighted because tax take and GDP rise. All these extra people in useful employment driving around from low skilled job to to low skilled job, consuming extra resources, especially fossil fuels, when they would be a lot less stressed, more free time and financially better off, just doing all these activities for themselves.

          It is a major mistake to professionalise low skilled domestic work. All it does is free up time for the rich and increases government tax take. Society as a whole is worse off.

          Dennis Coyne, 12/02/2015 at 10:14 am
          Hi Ralph,

          I agree GDP is by no means a perfect measure, just a measure that is available at the World level. There are other measures such as the social progress index, but this is not available at the World level. There is also the United Nations Human Development Index(HDI), but again these measures are not published at the World level (or I couldn't find it). Actually I found some World data for the HDI from 1980 to 2013. The measure is not perfect see link below for data:

          http://hdr.undp.org/en/content/table-2-human-development-index-trends-1980-2013
          Discussion of HDI at

          https://en.wikipedia.org/wiki/Human_Development_Index

          Also from UN document:

          Human Development Index (HDI): A composite index measuring average achievement in three basic dimensions of human development-a long and healthy life, knowledge and a decent standard of living. See Technical note 1 (http://hdr.undp.org/en) for details on how the HDI is calculated.

          Chart below with World Primary energy (ktoe) divided by World HDI from 1980 to 2013. Based on the HDI, more energy is needed to improve well being and GDP is not a good measure of human welfare.

          There is also an index for HDI that takes account of inequality, but the index (called IHDI) is only available from 2010 to 2013.

          [Dec 03, 2015] MOOCs and similar approaches to online learning can exacerbate rather than reduce disparities in educational outcomes related to socioeconomic status

          www.nakedcapitalism.com
          allan

          Another disruptive innovation turns out not to work out as advertised.

          Democratizing education? Examining access and usage patterns in massive open online courses [Science]

          Massive open online courses (MOOCs) are often characterized as remedies to educational disparities related to social class. Using data from 68 MOOCs offered by Harvard and MIT between 2012 and 2014, we found that course participants from the United States tended to live in more-affluent and better-educated neighborhoods than the average U.S. resident. Among those who did register for courses, students with greater socioeconomic resources were more likely to earn a certificate. Furthermore, these differences in MOOC access and completion were larger for adolescents and young adults, the traditional ages where people find on-ramps into science, technology, engineering, and mathematics (STEM) coursework and careers. Our findings raise concerns that MOOCs and similar approaches to online learning can exacerbate rather than reduce disparities in educational outcomes related to socioeconomic status.

          Lambert Strether, December 3, 2015 at 3:17 pm

          That's not a bug. It's a feature.

          jrs, December 3, 2015 at 5:40 pm

          Well that's pretty much the same charge that could be leveled against most higher education. It makes disparities worse, maybe less so community colleges, I don't know.

          cwaltz, December 3, 2015 at 6:16 pm

          I wonder how much of that is due to inability to access the web in neighborhoods that are less affluent?

          An online course isn't going to help me if mom or dad can't afford to pay for internet.

          Bob Haugen, December 3, 2015 at 8:06 pm

          Most education in the world now, whether in classrooms or MOOCs, is oriented toward improving the personal capital of the upwardly striving. There is no "make yourself a better citizen" or "improve your community" curriculum.

          likbez, December 3, 2015 at 10:47 pm

          "Most education in the world now, whether in classrooms or MOOCs, is oriented toward improving the personal capital of the upwardly striving."

          Very true. Thank you !

          This is the essence of neoliberal transformation of the university education.

          [Dec 02, 2015] An introduction to the geography of student debt

          Notable quotes:
          "... ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets. ..."
          Equitable Growth

          The geography of student debt is very different than the geography of delinquency. Take the Washington, D.C. metro region. In zip codes with high average loan balances (western and central Washington, D.C.), delinquency rates are lower. Within the District of Columbia, median income is highest in these parts of the city. Similar results–low delinquency rates in high-debt areas–can be seen for Chicago, as well. (See Figure 1.)

          ...What explains this relationship? There appear to be two possible, and mutually consistent, theories. First, although graduate students take out the largest student loans, they are able to carry large debt burdens thanks to their higher salaries post-graduation. Second, the rise in the number of students borrowing relatively small amounts for for-profit colleges has augmented the cumulative debt load, but because these borrowers face poor labor market outcomes and lower earnings upon graduation (if they do in fact graduate), their delinquency rates are much higher. This is further complicated by the fact that these for-profit college attendees generally come from lower-income families who may not be able to help with loan repayments.

          The inverse relationship between delinquency and income is not surprising, especially when considering that problems of credit access have disproportionately affected poor and minority populations in the past.

          ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets.

          ...For user-friendliness, we assign each of these student debt scale variables a qualitative category. If average loan balance on the map is "somewhat high," for example, then it means that a zip code's average loan balance is between 25 and 35 percent higher than the national average of $24,271. Similarly, if the delinquency reads "very low," it corresponds to a scale level between 0.067 and 0.091.

          Figure 6 summarizes the relationship between each of the scale variables' levels and their qualitative description.

          [Dec 02, 2015] The False Promise of Meritocracy

          Dec 02, 2015 | The Atlantic
          Americans are, compared with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system that rewards merit (ability + effort) with success. Americans are more likely to believe that people are rewarded for their intelligence and skills and are less likely to believe that family wealth plays a key role in getting ahead. And Americans' support for meritocratic principles has remained stable over the last two decades despite growing economic inequality, recessions, and the fact that there is less mobility in the United States than in most other industrialized countries.

          This strong commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular demographic groups. For example, initiatives designed to recruit or provide development opportunities to under-represented groups often come under attack as "reverse discrimination." Some companies even justify not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates people on their skills, abilities, and merit, without consideration of their gender, race, sexuality etc., and managers are objective in their assessments then there is no need for diversity policies, the thinking goes.

          But is this true? Do commitments to meritocracy and objectivity lead to more fair workplaces?

          Emilio J. Castilla, a professor at MIT's Sloan School of Management, has explored how meritocratic ideals and HR practices like pay-for-performance play out in organizations, and he's come to some unexpected conclusions.

          In one company study, Castilla examined almost 9,000 employees who worked as support-staff at a large service-sector company. The company was committed to diversity and had implemented a merit-driven compensation system intended to reward high-level performance and to reward all employees equitably.

          But Castilla's analysis revealed some very non-meritocratic outcomes. Women, ethnic minorities, and non-U.S.-born employees received a smaller increase in compensation compared with white men, despite holding the same jobs, working in the same units, having the same supervisors, the same human capital, and importantly, receiving the same performance score. Despite stating that "performance is the primary bases for all salary increases," the reality was that women, minorities, and those born outside the U.S. needed "to work harder and obtain higher performance scores in order to receive similar salary increases to white men."

          [Dec 02, 2015] An introduction to the geography of student debt

          Notable quotes:
          "... ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets. ..."
          Equitable Growth

          The geography of student debt is very different than the geography of delinquency. Take the Washington, D.C. metro region. In zip codes with high average loan balances (western and central Washington, D.C.), delinquency rates are lower. Within the District of Columbia, median income is highest in these parts of the city. Similar results–low delinquency rates in high-debt areas–can be seen for Chicago, as well. (See Figure 1.)

          ...What explains this relationship? There appear to be two possible, and mutually consistent, theories. First, although graduate students take out the largest student loans, they are able to carry large debt burdens thanks to their higher salaries post-graduation. Second, the rise in the number of students borrowing relatively small amounts for for-profit colleges has augmented the cumulative debt load, but because these borrowers face poor labor market outcomes and lower earnings upon graduation (if they do in fact graduate), their delinquency rates are much higher. This is further complicated by the fact that these for-profit college attendees generally come from lower-income families who may not be able to help with loan repayments.

          The inverse relationship between delinquency and income is not surprising, especially when considering that problems of credit access have disproportionately affected poor and minority populations in the past.

          ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets.

          ...For user-friendliness, we assign each of these student debt scale variables a qualitative category. If average loan balance on the map is "somewhat high," for example, then it means that a zip code's average loan balance is between 25 and 35 percent higher than the national average of $24,271. Similarly, if the delinquency reads "very low," it corresponds to a scale level between 0.067 and 0.091.

          Figure 6 summarizes the relationship between each of the scale variables' levels and their qualitative description.

          [Dec 02, 2015] The False Promise of Meritocracy

          Dec 02, 2015 | The Atlantic
          Americans are, compared with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system that rewards merit (ability + effort) with success. Americans are more likely to believe that people are rewarded for their intelligence and skills and are less likely to believe that family wealth plays a key role in getting ahead. And Americans' support for meritocratic principles has remained stable over the last two decades despite growing economic inequality, recessions, and the fact that there is less mobility in the United States than in most other industrialized countries.

          This strong commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular demographic groups. For example, initiatives designed to recruit or provide development opportunities to under-represented groups often come under attack as "reverse discrimination." Some companies even justify not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates people on their skills, abilities, and merit, without consideration of their gender, race, sexuality etc., and managers are objective in their assessments then there is no need for diversity policies, the thinking goes.

          But is this true? Do commitments to meritocracy and objectivity lead to more fair workplaces?

          Emilio J. Castilla, a professor at MIT's Sloan School of Management, has explored how meritocratic ideals and HR practices like pay-for-performance play out in organizations, and he's come to some unexpected conclusions.

          In one company study, Castilla examined almost 9,000 employees who worked as support-staff at a large service-sector company. The company was committed to diversity and had implemented a merit-driven compensation system intended to reward high-level performance and to reward all employees equitably.

          But Castilla's analysis revealed some very non-meritocratic outcomes. Women, ethnic minorities, and non-U.S.-born employees received a smaller increase in compensation compared with white men, despite holding the same jobs, working in the same units, having the same supervisors, the same human capital, and importantly, receiving the same performance score. Despite stating that "performance is the primary bases for all salary increases," the reality was that women, minorities, and those born outside the U.S. needed "to work harder and obtain higher performance scores in order to receive similar salary increases to white men."

          [Dec 02, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

          All this neoliberal talk about "maximizing shareholder value" is designed to hide a redistribution mechanism of wealth up. Which is the essence of neoliberalism. It's all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Stock buybacks is a form of asset-stripping, similar to one practiced by buyout sharks, but practiced by internal management team. Who cares if the company will be destroyed if you have a golden parachute ?
          Notable quotes:
          "... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street . ..."
          "... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
          "... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
          "... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
          "... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
          "... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
          "... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
          "... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
          "... Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse? ..."
          "... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
          "... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
          "... buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities. ..."
          "... Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad. ..."
          "... One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock? ..."
          "... Dumping money into R D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R D cash is hidden inside M A. M A is up 2-3 years in a row. ..."
          November 21, 2015 | naked capitalism

          By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

          Magic trick turns into toxic mix.

          Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

          And there's a reason.

          IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

          Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

          "Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

          In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

          DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

          In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

          And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

          CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

          "None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

          Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

          This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

          Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

          Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

          "Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

          But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

          Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

          Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned:

          Mbuna, November 21, 2015 at 7:31 am

          Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

          ng, November 21, 2015 at 8:58 am

          probably, in some or most cases, but the effect on the stock is the same.

          Alejandro, November 21, 2015 at 9:19 am

          Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

          On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

          Jim, November 21, 2015 at 10:42 am

          More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

          "Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

          Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

          Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

          John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

          Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

          NeqNeq, November 21, 2015 at 11:44 am

          One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r&d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock?

          Dumping cash into plants only makes sense in the places where the market is growing. For many years that has meant Asia (China). For example, Apple gets 66% (iirc) of revenue from Asia, and that is where they have continued investing in growth. If demand is slowing and costs are rising, and it looks like both are true, why would you put even more money in?

          Dumping money into R&D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R&D cash is hidden inside M&A. M&A is up 2-3 years in a row.

          [Dec 02, 2015] Larry Summers and the Subversion of Economics

          Notable quotes:
          "... As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws. ..."
          "... Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.) ..."
          "... In 2005, at the annual Jackson Hole, Wyo., conference of the worlds leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other peoples money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a full-blown financial crisis and a catastrophic meltdown. When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a Luddite, dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.) ..."
          "... Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And its due not just to ideology; its also about straightforward, old-fashioned money. ..."
          "... Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Departments Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates. ..."
          "... I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics. ..."
          "... It is difficult to get a man to understand something when his salary depends upon his not understanding it. ..."
          economistsview.typepad.com

          RGC, December 02, 2015 at 06:09 AM

          Larry Summers and the Subversion of Economics

          By Charles Ferguson October 03, 2010

          The Obama administration recently announced that Larry Summers is resigning as director of the National Economic Council and will return to Harvard early next year. His imminent departure raises several questions: Who will replace him? What will he do next? But more important, it's a chance to consider the hugely damaging conflicts of interest of the senior academic economists who move among universities, government, and banking.

          Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy. For the past two years, I have immersed myself in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial crisis. And I found Summers everywhere I turned.

          Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.

          After Summers left the Clinton administration, his candidacy for president of Harvard was championed by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as treasury secretary. Rubin, after leaving the Treasury Department-where he championed the law that made Citigroup's creation legal-became both vice chairman of Citigroup and a powerful member of Harvard's governing board.

          Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.)

          Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve. When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a "full-blown financial crisis" and a "catastrophic meltdown."

          When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a "Luddite," dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)

          Soon after that, Summers lost his job as president of Harvard after suggesting that women might be innately inferior to men at scientific work. In another part of the same speech, he had used laissez-faire economic theory to argue that discrimination was unlikely to be a major cause of women's underrepresentation in either science or business. After all, he argued, if discrimination existed, then others, seeking a competitive advantage, would have access to a superior work force, causing those who discriminate to fail in the marketplace. It appeared that Summers had denied even the possibility of decades, indeed centuries, of racial, gender, and other discrimination in America and other societies. After the resulting outcry forced him to resign, Summers remained at Harvard as a faculty member, and he accelerated his financial-sector activities, receiving $135,000 for one speech at Goldman Sachs.

          Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations-quite a feat. Never once has Summers publicly apologized or admitted any responsibility for causing the crisis. And now Harvard is welcoming him back.

          Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers's career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.

          Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States began deregulating financial services. Shortly thereafter, America began to experience financial crises for the first time since the Great Depression. The first one arose from the savings-and-loan and junk-bond scandals of the 1980s; then came the dot-com bubble of the late 1990s, the Asian financial crisis; the collapse of Long Term Capital Management, in 1998; Enron; and then the housing bubble, which led to the global financial crisis. Yet through the entire period, the U.S. financial sector grew larger, more powerful, and enormously more profitable. By 2006, financial services accounted for 40 percent of total American corporate profits. In large part, this was because the financial sector was corrupting the political system. But it was also subverting economics.

          Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money.

          Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates.

          In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from:

          • Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.
          • Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.
          • Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million.
          • Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.
          • Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed.
          • And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.

          But could he be right? Are these professors simply being paid to say what they would otherwise say anyway? Unlikely. Mishkin and Portes showed no interest whatever in Iceland until they were paid to do so, and they got it totally wrong. Nor do all these professors seem to make policy statements contrary to the financial interests of their clients. Even more telling, they uniformly oppose disclosure of their financial relationships.

          The universities avert their eyes and deliberately don't require faculty members either to disclose their conflicts of interest or to report their outside income. As you can imagine, when Larry Summers was president of Harvard, he didn't work too hard to change this.

          Now, however, as the national recovery is faltering, Summers is being eased out while Harvard is welcoming him back. How will the academic world receive him? The simple answer: Better than he deserves.

          While making my film, we wrote to the presidents and provosts of Harvard, Columbia, and other universities with detailed questions about their conflict-of-interest policies, requesting interviews about the subject. None of them replied, except to refer us to their Web sites.

          Academe, heal thyself.

          http://chronicle.com/article/Larry-Summersthe/124790/

          EMichael said in reply to RGC...
          Yeah, after an economist has had one job in the government; one job in the banking system; and one teaching job he should be required to stop working as an economist.
          RGC said in reply to EMichael...
          I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics.
          EMichael said in reply to RGC...
          Of course it should.

          At the same time this is not taking anything into account, this is about "subverting" economics.

          Can you make a case that the only reason Summers made a "bundle" working on Wall Street is because of the financial deregulation efforts he made? Last time I looked he did not have a vote on the legislation.

          RGC said in reply to EMichael...
          I think this is especially troubling for the economics profession:

          "Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money."

          EMichael said in reply to RGC...
          Cause no economists actually believed in any of the policies that caused all of those things nor did any economist fail to vote for the policies adopted.
          RGC said in reply to EMichael...
          Upton Sinclair:

          "It is difficult to get a man to understand something when his salary depends upon his not understanding it."

          Tom aka Rusty said in reply to RGC...

          As Hemingway and F. SCott Fitzgerald exchanged in their writings (the reputed face-to-face conversation may not have happened):

          The rich are different.

          Yes, they have more money.

          Combine elite and rich and you get a toxic combination.

          [Dec 01, 2015] The New Supply-Side Economics

          Economist's View
          reason: December 01, 2015 at 07:27 AM

          Sanjait

          I think it is perfectly clear that a secular policy of increasing private indebtedness is not indefinitely extendable. Sure, if we had printed money in the past and kept monetary policy relatively tight (or otherwise managed the international financial system so that large persistent balance of payments deficits were not tolerated) we wouldn't have got in the mess we are in. But once we are there just trying to get over-indebted people to take on more debt doesn't seem like a winning strategy.

          http://crookedtimber.org/2015/11/29/secular-stagnation-and-the-financial-sector/comment-page-3/#comment-650710

          EMichael said in reply to reason... December 01, 2015 at 07:34 AM

          I see no real increase in private indebtedness.

          The problem with the financial system is what lies behind lending.

          reason: December 01, 2015 at 07:36 AM

          Avraam Jack Dectis
          Not bad.
          But

          1. asset taxes are tricky things to run (many assets aren't traded and the prices of other assets are very volatile). And there is the problem of offshore ownership and offshore assets, so it requires international co-operation.

          2. This takes a very closed economy view of things - the trade deficit might end up affecting the trade balance and hence the flow of assets into and out of the country, and eventually also the terms of trade. You should think through how such a policy would work in say - Luxembourg.

          reason:

          EMichael

          You see no increase in private indebtedness - when do you mean? If you mean now - then yes - that is exactly why the economy is so sluggish. Where is the increase in demand going to come from if the country is running a trade deficit, is not increasing its borrowing and is committed to reducing its government deficit?

          [Nov 30, 2015] Is Balanced Growth Really the Answer

          Notable quotes:
          "... I can only add, that our economic system already redistributes income upward to capital and management, whose contribution to productivity is far below what they are paid. ..."
          "... That's the idea of neoliberal transformation of society that happened since 80th or even earlier. Like John Kenneth Galbraith noted "Trickle-down theory is the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows" ..."
          "... "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith, The Great Crash of 1929 ..."
          "... Just as was the case with his work on financial instability, Hyman Minsky's analysis of the problems of poverty and inequality in a capitalist economy, as well as his understanding of the political dysfunctions that would result from treating these problems in the wrong way, were prophetic. See this piece by Minksy's student L. Randall Wray, especially Section 2: http://www.levyinstitute.org/pubs/wp_515.pdf ..."
          "... it is unjust to tell the poor that they must change before they will be entitled to work-whether it is their skills set or their character that is the barrier to work... Minsky always argued that it is preferable to "take workers as they are," providing jobs tailored to the characteristics of workers, rather than trying to tailor workers to the jobs available before they are allowed to work ..."
          "... Further, NIT (and other welfare programs) would create a dependent class, which is not conducive to social cohesion (Minsky 1968). Most importantly, Minsky argued that any antipoverty program must be consistent with the underlying behavioral rules of a capitalist economy (Minsky no date, 1968, 1975a). One of those rules is that earned income is in some sense deserved. ..."
          "... This misreads the politics. People who are disconnected from the job market very easily get disconnected from the political process. They don't vote. ..."
          "... The problem in thinking here is the equilibrium paradigm. Equilibrium NEVER exists. If there is a glut the price falls below the marginal cost/revenue point, if the seller is desperate enough it falls to zero! Ignoring disequilibrium dynamics means this obvious (it should be obvious) point is simply ignored. The assumption of general equilibrium leads to the assumption of marginal productivity driving wages. You are not worth what you produce, you are worth precisely what somewhat else would accept to do your job. ..."
          "... Never say never. There some stationary points at which equilibrium probably exists for a short period of time. But as the whole system has positive feedback loop built-in and is unstable by definition. So you are right in a sense that disequilibrium is the "normal" state of such a system and equilibrium is an exception. ..."
          "... And the problem is more growth, is more growth is a trick we cannot always do in a finite resource technologically sophisticated world. (At least not growth as it is currently seen.) We need to start thinking in much longer term time scales. Saying that we have enough oil for 30 years, is not optimistic - it is an imminent crisis - or do we want our grandchildren to see the end of the world? ..."
          Nov 30, 2015 | Economist's View

          DrDick said...

          "then more growth will simply lead to even more inequality."

          Which is exactly what we have seen for the past 40 years, Great analysis here. I can only add, that our economic system already redistributes income upward to capital and management, whose contribution to productivity is far below what they are paid.

          ikbez -> DrDick...

          "then more growth will simply lead to even more inequality."

          That's the idea of neoliberal transformation of society that happened since 80th or even earlier. Like John Kenneth Galbraith noted "Trickle-down theory is the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows"

          And another relevant quote:

          "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith, The Great Crash of 1929

          anne -> likbez...

          "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith, The Great Crash of 1929

          [ Perfect. ]

          Dan Kervick, November 30, 2015 at 11:12 AM

          Just as was the case with his work on financial instability, Hyman Minsky's analysis of the problems of poverty and inequality in a capitalist economy, as well as his understanding of the political dysfunctions that would result from treating these problems in the wrong way, were prophetic. See this piece by Minksy's student L. Randall Wray, especially Section 2: http://www.levyinstitute.org/pubs/wp_515.pdf

          The centerpiece of Minsky's preferred approach was based on a government commitment to "tight full employment". He believed that neither human capital investment, economic growth, nor redistribution would be sufficient on their own to address the problem.

          As part of the critique of the human capital approach, Minsky argued that:

          "it is unjust to tell the poor that they must change before they will be entitled to work-whether it is their skills set or their character that is the barrier to work... Minsky always argued that it is preferable to "take workers as they are," providing jobs tailored to the characteristics of workers, rather than trying to tailor workers to the jobs available before they are allowed to work (Minsky 1965, 1968, 1973)."

          Minsky accurately foresaw the way in which a welfare approach to poverty, as opposed to a full employment approach, would politically divide working people among themselves:

          "Further, NIT (and other welfare programs) would create a dependent class, which is not conducive to social cohesion (Minsky 1968). Most importantly, Minsky argued that any antipoverty program must be consistent with the underlying behavioral rules of a capitalist economy (Minsky no date, 1968, 1975a). One of those rules is that earned income is in some sense deserved."

          "With the perspective of the 1980s and 1990s now behind us, it is hard to deny Minsky's arguments-President Reagan successfully turned most Americans against welfare programs and President Clinton finally "eliminated welfare as we know it." According to Minsky, a successful antipoverty program will need to provide visible benefits to the average taxpayer."

          We can note that this political problem has only gotten worse, as can be seen from the deepening ugliness of our domestic politics, and the poll results that MacGillis cites.

          Minsky also understood the unhealthy political and economic dynamics of an undirected aggregate demand approach to poverty, and promoted, following ideas of Keynes, a measure of socialized investment and direct job creation:

          "Minsky feared that using demand stimulus to reduce poverty would necessarily lead to "stop-go" policy. Expansion would fuel inflation, causing policy makers to reverse course to slow growth in order to fight inflation (Minsky 1965, 1968). Because wages (and prices) in leading sectors would rise in expansion, but could resist deflationary pressures in recession, there would be an upward bias to rising wages in those sectors. However, in the lagging sectors, wage increases would come slowly-only with adequate tightening of labor markets -- and could be reversed in recession. Hence, Minsky argued that a directed demand policy would be required-to raise demand in the lagging sectors and for low wage and unemployed workers. For this reason, he concluded that a direct job creation program would be required."

          All this adds up to a more activist role for the government sector.

          likbez -> Dan Kervick...

          My impression is that "human capital" is one of the most fundamental neoliberal myths. See, for example What Exactly Is Neoliberalism by Wendy Brown https://www.dissentmagazine.org/blog/booked-3-what-exactly-is-neoliberalism-wendy-brown-undoing-the-demos

          As for people betraying their own economic interests, this phenomenon was aptly described in "What's the matter with Kansas" which can actually be reformulated as "What's the matter with the USA?". And the answer he gave is that neoliberalism converted the USA into a bizarre high demand cult. There are several characteristics of a high demand cult that are applicable. Among them:

          • "The group is preoccupied with making money."
          • "Questioning, doubt, and dissent are discouraged or even punished."
          • "Mind-numbing techniques (for example: meditation, chanting, speaking in tongues, debilitating work routines) are used to suppress doubts about the group or its leader(s)." Entertainment and, especially sport events in the US society serves the same role.
          • "The group's leadership dictates – sometimes in great detail – how members should think, act, and feel." Looks like this part of brainwashing is outsourced to economy departments ;-)
          • "The group is elitist, claiming a special, exalted status for itself, its leader(s), and members (for example the group and/or the leader has a special mission to save humanity)."
          • "The group has a polarized, "we-they" mentality that causes conflict with the wider society."
          • "The group's leader is not accountable to any authorities (as are, for example, clergy with mainstream denominations)."
          • "The group teaches or implies that its supposedly exalted ends justify means (for example: collecting money for bogus charities) that members would have considered unethical before joining."
          • "The group's leadership induces guilt feelings in lower members for the lack of achievement in order to control them."
          • "Members are expected to devote inordinate amounts of time to the group."
          • "Members are encouraged or required to live and/or socialize only with other group members."

          It is very difficult to get rid of this neoliberal sect mentality like is the case with other high demand cults.

          cm -> likbez...

          What has any of this to do with human capital? "Capital" is basically a synonym for productive capacity, with regard to what "productive" means in the socioeconomic system or otherwise the context that is being discussed.

          E.g. social or political capital designates the ability (i.e. capacity) to exert influence in social networks or societal decision making at the respective scales (organization, city, regional, national etc.), where "productive" means "achieving desired or favored outcomes for the person(s) possessing the capital or for those on whose behalf it is used".

          Human capital, in the economic domain, is then the combined capacity of the human population in the domain under consideration that is available for productive endeavors of any kind. This includes BTW e.g. housewives and other household workers whose work is generally not paid, but you better believe it is socially productive.

          likbez -> cm...

          "Human capital, in the economic domain, is then the combined capacity of the human population in the domain under consideration that is available for productive endeavors of any kind. This includes BTW e.g. housewives and other household workers whose work is generally not paid, but you better believe it is socially productive."

          This is not true. The term "human capital" under neoliberalism has different semantic meaning: it presuppose viewing a person as a market actor.

          See the discussion of the term in http://www.jceps.com/wp-content/uploads/PDFs/10-1-07.pdf

          kthomas

          "...it's driven be resentment..."

          No, its driven by racism. White trash will take with one hand, then walk right into a voting both and screw themselves because they think they sticking it to blacks, mexicans, gays, etc.

          Syaloch -> kthomas...

          Racism is certainly part of it, but it's really more fundamental than that.

          "This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages."

          Adam Smith, The Theory of Moral Sentiments

          http://knarf.english.upenn.edu/Smith/tms133.html

          cm -> kthomas...

          What is racism if not an expression of resentment?

          bakho said...

          This misreads the politics. People who are disconnected from the job market very easily get disconnected from the political process. They don't vote. The people who do have jobs and are worried about keeping them and being paid too little are voting against the "losers" who they see as parasites. Never mind that the Malefactors of Great Wealth are the true parasites. Elections in the US are won or lost on voter turnout.

          The Rage said...

          I guess it depends on what kind of economy you want.

          Growth of all kinds is not good. The 2001-2007 "growth" was badly constructed. I think America itself is in a bad rut....and has been since 1974. That itself will not be popular. The consensus belief was everything was rosy up until 2001. That is lie. They used to have a saying "nothing really happens on the X-files anymore". It really applies to America since 1974. It goes beyond "inequality".

          I mean, we could have 3% wage growth in 2016 and 4% wage growth in 2017. That doesn't mean a damn thing for a economy's health. The infrastructure is bad. It shows up in pop culture apathy.

          pgl -> The Rage...

          "The 2001-2007 "growth" was badly constructed."

          Glenn Hubbard might quarrel with this. He was well constructed for George W. Bush's base - rich people.

          On the whole - great comment!!!

          cm -> The Rage...

          The Y2K/dotcom boom unraveled in 2000, but not all at once. It is difficult to impossible to disentagle the boundary between dotcom bust, 9/11 and the prolonged reaction to it, and the start of the Bush presidency (and the top policymaking figures that came with that, I don't want to necessarily tie it to Bush himself).

          At the same time, the global rollout of the internet, telecommunication, (start of) commodity videoconferencing, broadband and realtime data exchange, etc. enabled the outsourcing and offshoring of large and growing segments of blue and white collar jobs, and much increased fungibility of variously skilled labor altogether.

          On that foundation, a lot of things will appear as badly constructed. Or from a different angle, given that foundation, how would you arrange for things to be well constructed?

          likbez -> cm...

          I would view 9/11 as a perfect cure for dot-com bust. Soon after invasion of Iraq stock market returned to almost precrash levels. War is the health of stock market. And since probably 1998 nobody cared about real economy anyway.

          Also housing boom started around this period as conscious, deliberate effort of Fed to blow the bubble to cure the consequences of the crash at all costs and face the day of reckoning later (without Mr. Greenspan at the helm)

          reason said...

          The problem in thinking here is the equilibrium paradigm. Equilibrium NEVER exists. If there is a glut the price falls below the marginal cost/revenue point, if the seller is desperate enough it falls to zero! Ignoring disequilibrium dynamics means this obvious (it should be obvious) point is simply ignored. The assumption of general equilibrium leads to the assumption of marginal productivity driving wages. You are not worth what you produce, you are worth precisely what somewhat else would accept to do your job.

          Lafayette -> reason...

          I could not agree more. A Market-Economy is a dynamic in constant disequilibrium, changing positively and negatively around a mean. The mean is very rarely an "equilibrium".

          likbez -> reason...

          Never say never. There some stationary points at which equilibrium probably exists for a short period of time. But as the whole system has positive feedback loop built-in and is unstable by definition. So you are right in a sense that disequilibrium is the "normal" state of such a system and equilibrium is an exception.

          reason said...

          And the problem is more growth, is more growth is a trick we cannot always do in a finite resource technologically sophisticated world. (At least not growth as it is currently seen.) We need to start thinking in much longer term time scales. Saying that we have enough oil for 30 years, is not optimistic - it is an imminent crisis - or do we want our grandchildren to see the end of the world?

          [Nov 30, 2015] Corporate and Sovereign Bond Defaults to Send Shock Waves into Currency Markets

          Nov 28, 2015 | Safehaven.com

          Mr. Long stated that the credit cycle is now changing, taking its signals from the business cycle. This was agreed upon by Mr. Laggner who in his own words said:

          "We're at the end of the credit cycle, the whole mal-investment in shale oil...tens of billions of dollars in lost wealth"

          For the future, Mr. Laggner anticipates a massive series of defaults, resulting from huge deflationary pressures and a tightening by the market place, which is basically an unintended result of constant intervention. We are looking at corporate bond defaults, sovereign defaults which will send shockwaves into the currency system.

          [Nov 30, 2015] Secular stagnation and the financial sector

          Notable quotes:
          "... Surely the answer is "risk transfer" ..."
          "... Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree. ..."
          "... the FIRE sector in particular, are parasitic on the economy. ..."
          "... Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth? ..."
          "... As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts." ..."
          "... Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)? ..."
          "... The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary. ..."
          "... "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision." ..."
          "... My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it. ..."
          November 29, 2015 | Crooked Timber

          In my last post on private infrastructure finance and secular stagnation, I suggested a bigger argument that

          The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn't produce much in the way of new private investment.
          This isn't an original idea. The Bank of International Settlements put out a paper earlier this year arguing that financial sector growth crowds out real growth. But how does this work and what can be done about it? I'm still organizing my thoughts on this, so what I have are some ideas rather than a fully formed argument.

          First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?

          There are a few possible explanations

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

          (b) Tax evasion: the global financial sector allows corporations to greatly reduce their tax liabilities. Most of the savings in tax is captured in the financial sector itself, but the amount flowing to corporations is sufficient to offset the high costs of the modern financial sector, relative to (for example) old-style bank finance and simple corporate structures financed by debt and equity

          (c) Volatility: the financialization of the economy has produced greatly increased volatility (in exchange rates, asset prices and so on). The financial sector amplifies and profits from this volatility, partly through regulatory arbitrage, and partly through entrenched and systematic fraud as in the LIBOR and Forex scandals.

          (d) Political capture: The financial sector controls political outcomes in both traditional ways (political donations, highly revolving door jobs for future and former politicians) and through the ideology of market liberalism, which is perfectly designed to support policies supporting the financial sector, while discrediting policies traditionally sought by other parts of the corporate sector, such as protection for manufacturing industry. The shift to private finance for infrastructure, discussed in the previous post is part of this. The construction part of the infrastructure sector (which was always private) has suffered from the reduced flow of projects, but the finance part (previously managed through government bonds) has benefited massively.

          The result of all this is that the financial sector benefits from an evolutionary strategy similar to that of an Australian eucalypt forest. Eucalypts are both highly flammable (they generate lots of combustible oil) and highly fire resistant. So eucalypt forests are subject to frequent fires which kill competing species, and allow the eucalypts to extend their range.

          dsquared 11.29.15 at 1:24 pm

          Surely the answer is "risk transfer". The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision. Their role is to provide insurance to the rest of society and this is what they did – in fact, they provided too much of it, with too little capital which is why they went bust, and why their bankruptcy was so disastrous (there's nothing worse than an insurer bankruptcy, because it hits you with a big loss at exactly the worst time). I think c) above is particularly unconvincing, as the biggest stylised feature of the period of financialisation was the Great Moderation – in fact, the financial sector stored up volatility that would otherwise have been experienced by other people, including the intermediation of some genuinely historically massive imbalances associated with the industrialisation of China, and stored it up until it couldn't hold any more and exploded.

          I also don't think LIBOR and FX fit into that pattern at all very well either. Financial systems have two kinds of problem, which is why they often have two kinds of regulators. They have prudential problems and conduct problems. Both LIBOR and FX were old-fashioned profiteering and cartel arrangements, which could happen in any industry (hey let's talk about drug pricing and indeed university tuition some time). In actual fact, as I wrote a while ago, it's only LIBOR that can really be considered a scandal – FX was very much more a case of customers who wanted the benefits of tight regulation but didn't want to pay for them, and were lucky enough to find a political moment in which the time was right for an otherwise very unpromising case.

          In other words, the answer to all your questions is "leverage". That's why financial systems grew so fast, that's why they're associated with poor economic performance, and that's why they tend to show up in periods of secular stagnation – a secular stagnation is almost defined as a period during which people try to maintain their standard of living by borrowing. Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment.

          [1] I am never going to shut up about this. The real estate bubble was a policy-created bubble. It was blown up in real time and intentionally, by a Federal Reserve which wanted to cushion the blow of the tech bust. If the financial sector had refused to finance it, the financial sector would have been trying to run a monetary policy directly opposed to that of the central bank.

          John Quiggin 11.29.15 at 1:55 pm 2

          I agree that risk transfer is a big deal. On the other hand, it's not obvious that the financial sector did a lot to insure households against most of the additional risk, or that the Great Moderation corresponded to a reduction in the volatility faced by households. On the first point, despite massive financial innovation since 1980, the set of financial instruments easily available to households hasn't changed all that much. Most obviously, there's no insurance against bad employment and wage outcomes and home equity insurance hasn't really happened either.

          Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree.

          The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

          Eggplant 11.29.15 at 2:04 pm, 3

          (e) Principle-agent problem.
          (f) Implicit government backing allowing the underpricing of risk.

          dsquared 11.29.15 at 2:32 pm. 4

          Yeah, that's my point – the massive extension of credit to households was the financial sector's role in the big policy shift. At the end of the day, although we might with the benefit of hindsight agree that "subprime mortgages with no income verification at teaser rates" were a pretty stupid product that should never have been offered, they were a brand new financial product that had never been offered to households before! Even the example you mention – "insurance against bad employment and wage outcomes" – was sort of sold, albeit that what I'm referring to here is Payment Protection Insurance in the UK, which sort of underlines that it wasn't done well or responsibly.

          I guess my argument here is that it's the combination of deregulation and stagnation that was necessary to create the 2000s policy disaster. But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector. Because the high debt levels were a policy goal (or at least, were the inevitable and forseeable consequence of trying to do demand management without fiscal policy), and as I keep saying in different contexts, you can't get to a stupid debt ratio by only doing sensible things.

          The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

          Isn't the answer to this just the definition of a Keynesian recession? Investment hasn't responded to monetary policy because there's no interest rate at which it makes sense to produce goods that can't be sold.

          DrDick 11.29.15 at 2:32 pm 5

          Capital generally, and the FIRE sector in particular, are parasitic on the economy. They provide some minimal benefits if kept strongly in check, but quickly become destructive if allowed to grow unchecked, as they have now.

          Eggplant 11.29.15 at 2:37 pm 6

          (g) Rising inequality leading to an ever increasing savings glut, providing the financial industry with a target-rich environment.

          yastreblyansky 11.29.15 at 3:22 pm, 7

          Dumb outsider thought, turning Eggplant @6 upside down: What about r > g? Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth?

          T 11.29.15 at 3:31 pm, 8

          "But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector."

          A more sophisticated version of the widely debunked theory that Fannie and Freddie blew up the housing sector by giving loans to poor people. Rule 1: It's never ever the bankers' fault. Rule 2: see Rule 1. At least d-squared has been consistent…

          Or maybe there has been a systematic continuous effort to use political influence to garner rents by gutting both the regulatory and judicial constraints on their behavior. http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

          yastreblyansky 11.29.15 at 3:35 pm, 9

          Or rather through which rent-claimers concentrate wealth (@t) bringing long-term low growth.

          bjk 11.29.15 at 3:43 pm, 10

          Which direction is financialization heading? It looks to be decreasing. The mutual fund industry is in terminal decline, losing market share to ETFs. There are fewer financial advisors today than in 2008, yet the number of millionaires has increased. Stock trading has broken a 40 year trend of increasing volumes. Electronic and exchange trading of bonds and derivatives is increasing, driving down margins. Bots have driven human traders out of jobs (Dark Pools has a good account of this). Banks are earnings low single digit returns in their trading divisions, which suggests they will be shut down if things don't improve. It looks like finance is doing a good job of shrinking itself, with a little help from Elizabeth Warren.

          T 11.29.15 at 4:50 pm, 16

          There were several issues and arguments posed in the OP. I'm addressing this:

          "First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?
          There are a few possible explanations

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts."

          D-squared response is of course it's the risk transfer. That flat out contradicts JQ, but d-squared is a master of the straight face. And then he proceeds - "there has been a decision to desocilaize"; "the financial sector was obviously the conduit for this policy decision"; and "the real estate bubble was a policy-created bubble."

          So JQ, here's your answer of FIRE's ascendancy from an insider: You know me and my friends were standing around just doing nothin' and then these policy guys come around. Next thing ya know, we've doubled our share of GDP and put our bosses in the top 0.01%. Who woulda known? Crazy shit, huh? Hey and if anyone asks, tell 'um "risk transfer." And if they press, tell 'um "secular stagnation." In fact, tell 'um frickin' anything. It just wasn't our fault.

          Rakesh Bhandari 11.29.15 at 4:51 pm, 17

          I know that I shall have to read John Kay's Other People's Money at some point. I am wondering what people make of the old the then Marxist Hilferding's concept of promoters' profit as a way to understand some financial sector activity. I posted this here a few years back.

          Here's his example, and I am trying to figure out to the extent that it throws light on the recent activity of Wall Street.

          Start with an industrial firm with a capital of 1,000,000 marks that makes a profit of 150,000 marks with the average profit of 15 percent.

          With an interest rate of 5% straight capitalization of income of 150,000 marks will have an estimated price of 3,000,000 marks (150,000/.05=3,000,000 marks)

          A deduction of 20,000 marks for the various administration costs and directors fees would make the actual payment to shareholders 130,000 rather 150,000 marks

          A risk premium of, say, 2% would be added to a fixed safe rate of interest of 5% in estimating the actual stock price

          So what, then, is the stock price (130,000/.07)? 1,857,143 or roughly 1,900.000 marks

          This 900,000 is free after deducting the initial investment of 1,000,000 marks

          The balance of 900, 000 marks appears as promoters' profit which arises from the conversion of profit-bearing capital into interest bearing capital.

          In 1910, Hilferding called this promoters profit, an economic category sui generis; it is earned by the promoter by selling of stocks or the securitizing of income on the capital market.

          For Hilferding the investment bank, which promotes the conversion of profit-bearing to interest-bearing capital, claims the promoters profit.

          The analysis seems pertinent to the securitization process today, and I would love to hear Henwood's and others' thoughts about this.

          As Roubini and Mihm have pointed out, we have seen the securitization of mortgages, consumer loans, student loans, auto loans, airplane leases, revenues from forests and mines, delinquent tax liens, radio tower loans, boat loans, state revenues, the royalties of rock bands!

          We have seen, in their words, an explosion in the selling of future income of dependable projected revenue streams such as rents or interest payments on mortgage payments as securities.

          That securitization been driven by investors' quest for yield lift given the low rate of interest, itself the result of the global savings glut and Fed policy.

          And it seems that Wall Street, with the connivance of the credit agencies, was able to appropriate value from the purchasers of securities by understating the risk premia.

          The risk premium and promoters' profit are inversely correlated so there is a strong incentive to understate the former. This is what Hilferding did not say, but seems worth emphasizing today.

          Aaron Brown 11.29.15 at 5:43 pm. 18
          I sincerely do not understand your point here. I'm not arguing, just asking for clarification:

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

          For one thing, I don't see that the two bubbles and one bust of 1996 – 2015 are self-evidently worse than the more numerous bubbles and busts of 1976 – 1995. You might say the 2008 brush with Great Depression outweighs the hyperinflation and multiple deep recessions of the earlier era, but certainly the Internet and housing bubbles were more productive and less threatening than the commodity, Japan, emerging debt and other bubbles. Anyway, it's a close enough comparison that someone could certainly keep a straight face while saying that in the last 20 years financial volatility inflicted less real economic damage than in the preceding 20 years.

          But the bigger issue is no one claims the financial system encourages steady growth. Creative (bubble) destruction (bust) is the rule. It is command economies that outlaw bubbles and busts–and inflation and unemployment–at the cost of unproductive employment, empty shelves, stifled innovation, loss of freedom and other consequences.

          If you want to argue that the financial system did not earn its profits in the last 20 years, it seems to me you have to argue that economic growth was slow, or that more people in the world are in poverty today, or that there was not enough innovation; not that the ride was too volatile. Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)?

          It is certainly possible to argue that we could have had more growth and innovation and poverty reduction; and less volatility; with some third way that's better than both our current financial system and the alternatives practiced in the world today. But that point is not so obvious that any defender of the global financial system must be joking.

          Why do you think the booms and busts of the last 20 years are such a clear and damning indictment of the financial system that the point needs no further elaboration?

          Bruce Wilder 11.29.15 at 6:11 pm, 19

          The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary.

          There are really complicated ways of doing this: derivatives, for example, which blow up (and as an added bonus, undermine the informational efficiency of financial markets).

          I keep thinking of Piketty's r > g: the ever-accumulating pile of money rising like a slow, but unstoppable tide. It has to be invested or "invested" - that is, it can buy the assembly of resources into productive capital assets that represent financial claims on the additional income generated by business innovation and expansion . . . OR . . . it can be used to finance the parasitic and predatory manipulations of an emergent neo-feudalism.

          Where the secular stagnation thesis is not pure apologetic fraud, I would interpret it as saying, there are currently few opportunities to invest in additional productive "real" capital stock. For technological reasons, the new systems require much less capital than the old systems, so when an old telephone company replaces its expensive copper wire with fiber optics and cellphone towers, it may be able to fund a large part of the transition out of current cash-flow, even while maintaining the value of the bonds that once represented investment in a mountain of copper, but are now just rentier claims on an obsolete world.

          In the brave new world, a handful of companies, who have lucked into commercial positions with high rents, throw off a lot of cash. So, the Apples and Intels do not need to be allocated new capital, but their distribution of cash to people who don't need it, is generating a lot of demand for "financial product". The rest of the business world is just trying to manage a slow decline, able to throw off modest amounts of cash, desperate to find sources of political power that might yield reliable rents, but without opportunities to innovate that would actually require net investment in excess of current cashflows from operations.

          So, the financial system is just responding to this enlarged demand for non-productive investment in financial products that generate return from parasitic extraction.

          In the interest of parasitic extraction, the financial system pursues the politics of neoliberal privatization as a means of generating financial products to satisfy demand.

          Does that sound like a plausible narrative?

          Dipper 11.29.15 at 6:30 pm, 20

          re volatility, the thing you really want to worry about is liquidity. Pre-crash banks could warehouse risk and so provide liquidity. One consequence was volatility was recorded because liquid markets allowed prices to be observed.

          Regulators have observed the conflict of interest caused by banks providing a financial service but also participating in the markets with their own money, and have acted to restrict banks from holding risk for proprietary trading (the Volcker rule). This is fine, but there has been a noticeable decrease in liquidity in what were once deep markets. The EURCHF un-pegging in Jan this year is a good example of reduced liquidity resulting in a massive move. There may well be more of this to come.

          Sebastian H 11.29.15 at 6:34 pm, 21
          "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision."

          I can't tell if you are arguing with John or agreeing with him. Is this agreement with his d) [the political capture explanation]? I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns. Is it possible that the financial sector was the obvious conduit because they were among the important authors of the ideas?

          MisterMr 11.29.15 at 6:50 pm, 22

          Previously commented here as Random Lurker.

          In my opinion, finance had a passive role in the build up of the crisis.
          Others have said similar things uptread, however this is my opinion:

          1) the wage share of GDP depends largely on political choices; since the late seventies there has been a trend of a falling wage share more or less everywhere, as countries with a lower wage share are more competitive on the world market.
          2) a falling wage share means a rising profit share, and "capitalists" tend to reinvest part of their profits, so a falling wage share caused a worldwide saving glut.
          3) this worldwide saving glut caused an increased financialisation and a bubbling up of the price of some assets, particularly those assets whose supply is inelastic (for example, the value of distribution chains or of famous consumer brands).
          4) this in turn causes an increased volatility of financial markets, and worse financial crises.

          This situation is what we perceive as a secular stagnation, and IMHO depends mostly on a low worldwide wage share.
          Unfortunately, I have no idea of how to reach an higher wage share, and I don't think "the market" has any mechanism to push up said wage share.

          Rakesh Bhandari 11.29.15 at 7:08 pm, 23

          Bruce,
          What you are saying makes sense to me. Steven Pressman has also raised the question of how r is to be maintained with "an abundance of capital and its need for high rates of return." (Understanding Piketty's Capital in the Twenty First Century).

          It's almost as if Piketty in his criticism of the rentier has a rentier's disregard for how the returns are actually to be made. To the extent that he considers production it is through marginal productivity theory. Piketty claims that marginal rate of substitution of capital for labor will remain above unity (and too bad Piketty dismissed the Cambridge Capital critique because Ian Steedman has used Sraffian theory to show the possibilities of high profits in even a fully automated economy).

          Of course as Pressman implies, this "technical" view may blind us to the higher exploitation that may be necessary for returns to continue to remain high as capital becomes more abundant. Pressman also implies that Piketty also does not consider how finance can make higher rates of return by making higher-interest loans to weaker parties while having them absorb most of the risk (this would be your second kind of investment).

          Search for the several paragraphs on the rentier in this section. It is remarkable that no one has yet compared Piketty's criticism of the rentier to this.
          https://www.marxists.org/archive/bukharin/works/1927/leisure-economics/introduction.htm

          felwith 11.29.15 at 8:31 pm, 24

          " I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns."

          Of course not, but there are actors here other than "the public" and "the banks". In this case, I'm pretty sure Daniel is referring to the destruction of unionized middle class jobs with pensions and cheap-to-the-worker health insurance, which was carried out by their employers. While I doubt I could pick a bank owner out of a lineup filled out with captains of industry, they aren't actually interchangeable.

          Peter K. 11.29.15 at 9:43 pm, 25

          @1 Dsquared:

          "Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment."

          Secular stagnation to me just means not enough macro (monetary/fiscal) policy to keep up aggregate demand for full employment and target inflation.

          Monetary and fiscal policy is being blocked by politics partly because filthy rich financiers are buying their way into politics:

          http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html

          The question about Dsquare's alternate history I would have is: what is the response of fiscal and monetary policy to the "domestication" of the financial sector via higher capital requirements and leverage regulations, etc.?

          If fiscal and monetary policy keeps the economy at a high-pressure level with full employment and rising wages, I don't see why secular stagnation is a problem.

          But politics is blocking fiscal and monetary policy. Professor Quiggin talks of "massive" monetary policy, but it wasn't massive given the need. (It was massive compared to past recoveries.) It was big enough to avoid deflation despite unprecedented fiscal austerity. It wasn't big enough to hit their inflation target in a timely matter.

          Ze K 11.29.15 at 9:53 pm, 27

          My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it.

          [Nov 29, 2015] A Brief Word to Forecasters: STFU!

          Notable quotes:
          "... Washington Post Business Section ..."
          "... Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future? ..."
          "... This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. ..."
          "... Course some of these 'predictions' are just some ones ideology. Course none of then ever seem to be punished when they fail. ..."
          www.ritholtz.com
          My Sunday Washington Post Business Section column is out. This morning, we look at the annual forecasting foolishness so prevalent in the media.

          By now, you know the drill: A bunch of analysts make their annual predictions, and of course, they are utterly useless. Here's an excerpt from the column:

          "It's that time of year again when the mystics peer deep into their tea leaves, entrails and crystal balls to divine what's ahead.

          Which means it's also time for my annual reminder: These folks cannot tell the future. Ignore them.

          Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future?

          This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. The odd person gets these forecasts about the economy and stock markets right each year, but the lack of any sort of consistent winners and losers means that, mathematically, it is a random outcome."

          I speak with numerous experts about the subject, including:

          • -James O'Shaughnessy (author of the classic "What Works on Wall Street," and CIO of O'Shaughnessy Asset Management

          • -Morgan Housel, a columnist for the Motley Fool

          • -Michael Johnston (Poseidon Financial. author of "A Visual History of Market Crash Predictions" and "The Not-So-Surprising Truth About Gold Bugs.")

          • -Laszlo Birinyi (researcher and market historian)

          • -David Rosenberg (chief economist and strategist at Gluskin Sheff)

          They name names and dates and forecasts; hilarity ensues . . . Source:
          Would you let a mystic manage your investment portfolio?
          Barry Ritholtz
          Washington Post, November 29, 2015

          http://wapo.st/1PQDCVz

          willid3, November 29, 2015 at 11:15 am

          Course some of these 'predictions' are just some ones ideology. Course none of then ever seem to be punished when they fail. Like the folks who predicted the end of the US economy that was supposed to happen back in September, you will notice they now predict it will be in 2016 (which of course means they will just keep changing the year when that doesnt happen) eithe

          [Nov 29, 2015] neoclassical economics is involved in circular reasoning, and without a meaningful concept of capital, the rest of the system collapses.

          Notable quotes:
          "... neoclassical economics cannot establish the definition/measurement of "capital" without first knowing marginal productivity of capital; but they cannot establish the definition/measurement of marginal productivity of capital without first establishing "capital". ..."
          "... ironically, it is conceivable that the entire neoclassical case for invisible hand can be reconstructed based on labor theory of value; after all, Ricardo did that ..."
          "... But since then there has been lots of development among the more enlightened mainstream economists that have basically established that market failures are both devastating and universal. This is serious, because this means, in fact, in their heart, they know the invisible hand argument is invalid. Stiglitz came close to admit it in some interviews. ..."
          "... Whatever is/was their internal system, both the Soviet Union and China are a part of the capitalist world system and therefore both of them are obligated to pursue economic growth. ..."
          "... What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are. ..."
          "... Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or "sustainability" if we will (which you seem to be wishing/suggesting). They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they ALWAYS and without exception collapse (hint: A.Bartlet)! Indeed, if physics and mathematics is to be trusted, they must collapse! ..."
          peakoilbarrel.com
          Political Economist, 11/13/2015 at 3:55 pm
          Hi Dennis, I wrote a long reply to your question on labor theory of value. But somehow after I posted it, it appears to have disappeared. I am trying to re-post it here

          Dennis:

          Hi Dennis, thanks for bringing this up. This is definitely not about energy. But since you mentioned this here, let me give you some of my thought.

          First, regarding neoclassical economics, the debate between two Cambridges pretty much destroyed the logical foundation of neoclassical economics. Because neoclassical economics cannot establish the definition/measurement of "capital" without first knowing marginal productivity of capital; but they cannot establish the definition/measurement of marginal productivity of capital without first establishing "capital".

          So neoclassical economics is involved in circular reasoning, and without a meaningful concept of capital, the rest of the system collapses.

          The above is mostly theoretical. It does not necessarily undermine one's faith in the efficiency of a market economy (ironically, it is conceivable that the entire neoclassical case for invisible hand can be reconstructed based on labor theory of value; after all, Ricardo did that)

          But since then there has been lots of development among the more enlightened mainstream economists that have basically established that market failures are both devastating and universal. This is serious, because this means, in fact, in their heart, they know the invisible hand argument is invalid. Stiglitz came close to admit it in some interviews.

          Why does it matter? Consider the current environmental crisis. It is conceivable that we will fail to stop climate change and the emerging climate catastrophes will bring down human civilization. From the neoclassical perspective, this is because the market prices for fossil fuels are wrong. Can this be corrected by government intervention? From the neoclassical perspective, to do this, the government needs to know the correct prices and even if the government does know the correct prices, there is still the implementation problem (principal-agent problem, people will find ways to outmaneuver government, etc). If the government does not know the correct prices or cannot implement, then we cannot correct market failures. If, on the other hand, the government does know the correct prices and can implement, why not have socialist planning?

          Compare this to socialism. Of course one needs to be reminded of the Soviet environmental disasters. But the Soviet environmental failures were almost nothing compared to the contemporary Chinese environmental crisis (and I need to remind people that China's current environmental crisis has happened after China's capitalist transition). Whatever is/was their internal system, both the Soviet Union and China are a part of the capitalist world system and therefore both of them are obligated to pursue economic growth.

          Although this has not happened in history, but it is definitely conceivable that a socialist economy can be structured to be based on zero or negative growth. But this cannot be said of capitalism.

          In fact the strongest economic argument against socialism is that the socialist economies did not grow rapidly enough (even though Cuba succeeded in delivering higher life expectancy than the United States and for some years Cuba was considered the only country that met the principle of sustainable development by the living planet report). Therefore, the question is, if it turns out that capitalism cannot provide sustainability for human civilization, what social system can deliver sustainability while meeting population's basic needs?

          Now, about labor theory of value. There are two different questions here. One has to do with the labor theory of value as a theory to explain the long-term equilibrium prices in a competitive market economy and the other has to do with what Marx called the theory of surplus value.

          About the theory of surplus value, it needs to be reminded that Marx's theory of surplus value or exploitation is not moralistic but based on observed economic facts (although it could be used for moralistic purposes). All it says is no more than this: in a capitalist economy, a workers has to work longer than the social labor time embodied in the commodities consumed by the worker himself (or the worker's family) and in this sense, the capitalist profit (surplus value) derives from the worker's surplus labor. This is factually true.

          Of course, as you said, a similar quantitative relationship can be established for other production inputs. Say, the total energy consumed in a society will have to be greater than the energy input used for energy production (people here are of course familiar with EROEI, which has to be greater than 1 for society to function). Based on this, one could argue that not only the workers are exploited but energy is also "exploited".

          But if one really wants to extend the concept of "exploitation" here (which I don't think makes sense), what is being "exploited" is energy BUT NOT energy owners (even less the owners of capital goods consuming energy).

          In any case, the concept of "exploitation" or surplus value has to be used in a context of social relations. It makes sense that the workers can take over the means of production and appropriate their own surplus value (or products of their surplus labor). But it is obviously nonsense to say that the energy input can somehow appropriate the "surplus energy" consumed in other energy consumption processes.

          Finally, about the long-term equilibrium prices. It can be easily established that in "simple commodity production" (pre-capitalist market economy, where the producers own their means of production), market prices tend to fluctuate around ratios that are in proportion to the total labor embodied in commodities (including both direct labor and indirect labor embodied in means of production).

          The problem has to do with "prices of production" or the equilibrium prices in capitalism (you are probably aware that this is known as the "transformation problem" in the Marxist literature). All the difficulty comes from the fact that in capitalism, the direct labor time ("live labor") is further divided into necessary labor (the labor time it takes for the worker to replace his value of labor power) and surplus labor. In fact, knowing the production coefficients, a unique set of equilibrium prices and the equilibrium profit rate can be solved from a set of past labor (indirect labor), necessary labor, and surplus labor for each commodity. Thus, a definite set of mathematical relations can be established between the prices and the labor variables (although it's no longer simple proportionality; but I think it does not matter)

          Of course the Neo-Sraffians would like to emphasize that you can take any other important input (say, energy) and establish a similar set of relationship between prices and say, past energy, necessary energy, and surplus energy. But, as I said, energy cannot be a player in social relations.

          In any case, labor theory of value plays an insignificant role in modern Marxist economics (I personally still think labor theory of value is valid but it no longer provides important insights).

          You will not find labor theory of value in my book. But I hope you will still find it intellectually interesting (and a little provocative).

          Minqi Li, 11/13/2015 at 4:02 pm
          Hi Ron, I prepared a long reply to Dennis's question. But each time when I posted it, it was marked as SPAM.

          I saved the response to Dennis here:

          http://redchinacn.net/portal.php?mod=view&aid=28599#comment

          Can you help me to post it? Thank you

          Fred Magyar, 11/13/2015 at 5:24 pm
          Hi Minqi Li,
          I read your reply to Dennis and found it cogent, however I do have a problem with the standard neoclassical economic viewpoint and as I have stated many times I find the standard capitalist and communist economic models to be less than useful systems with which to address our current global dilemmas. I am of the school of thought that we have to invent completely new ways of thinking and acting. There are some people who have embarked on this journey. I think this group best embodies my current thinking about what kinds of systems we need to develop. Some of these ideas are already taking hold in China too.

          循环经济

          http://www.ellenmacarthurfoundation.org/

          Cheers!

          Political Economist, 11/13/2015 at 8:07 pm
          Fred, thanks for commenting.

          The concept of 循环经济 or recycling economy is actually what China borrowed from the West. Chinese economists started talking about it in the 1990s. The practice is not as radical as it sounds. The primary intention has not been so much about saving the environment as accelerating capital accumulation by saving costs.

          Although in some cases it has had some beneficial "side effects"

          I agree that we need completely new thinking and practice that go beyond the 20th century. I am of the school that zero (if not negative) economic growth is necessary for sustainability. The question is what kind of economic system can deliver it.

          Petro, 11/14/2015 at 1:15 am
          "…I am of the school that zero (if not negative) economic growth is necessary for sustainability. The question is what kind of economic system can deliver it…."

          What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are.

          Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or "sustainability" if we will (which you seem to be wishing/suggesting).
          They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they ALWAYS and without exception collapse (hint: A.Bartlet)!
          Indeed, if physics and mathematics is to be trusted, they must collapse!

          -So, when you say:
          "…The question is what kind of economic system can deliver it…", you are looking for the wrong, non-existing thing.

          Consider that before your book is published…

          Be well,

          Petro

          Political Economist, 11/14/2015 at 2:56 am
          Unfortuantely, the book is already published.

          Keynes said: "In the long run, we are all dead"

          Petro, 11/14/2015 at 9:17 pm
          "Unfortunately, the book is already published"

          Unfortunately indeed!

          Be well.

          Petro

          Javier, 11/14/2015 at 10:36 am
          Hi Petro,

          I agree in principle, but it is clear that societies can be built that are stable for hundreds to thousands of years until conditions diverge too much from those that allowed their formation. Hunter-gatherer societies were economically and socially stable in many parts of the world for most of the Holocene, so in principle it is theoretically possible to build a stable society that takes from the environment not much more than what can be renewed or recycled or last for a very long time. Animals and plants do it all the time, but of course their numbers are checked by the environment. And of course it would have little to do with current industrial civilization that is completely unsustainable.

          Petro, 11/14/2015 at 9:24 pm
          Hunter-Gatherers were stable ONLY for nature kept a "big stick" over their head every time they multiplied more than they should have…but as Ron has said multiple times: we are clever and have bypassed that (or so we think…).

          Theoretically- as you say- yes!
          Practically: NO!

          "…We will kill them all…"
          ~ Ron Patterson

          -And lastly, all this is mute for we ALREADY have passed the tipping point, or the point of no return- if you will.

          Be well,

          Petro

          Fred Magyar, 11/14/2015 at 4:23 am
          I agree with the idea that trying to achieve a zero growth economy is the only path towards sustainability.

          Two points:

          First the concept of the 'Circular Economy' goes far beyond simple recycling.

          It incorporates systems and design thinking at a fundamental level in all aspects of the economy, government,and social systems. It thinks of the economy as an ecosystem. It borrows heavily from how nature builds sustainable systems. It is also very important to understand that it is not just a greenwashing. It is about a deep and fundamental process change.

          Second: At our current juncture 'Perfect' is the enemy of good enough!
          We need to move forward with all aspects of the 'Circular Economy' We don't have time to design and build a perfect system, We are in a situation where we know that our current ways of doing things are not sustainable so we have to push ahead with imperfect solutions and learn as we go.

          Best Hopes!

          BTW, Petro is only technically correct here:

          -What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are.

          Without throwing the baby of ecosystem thermodynamics 101 out with the bath water, I repeat my point 'Perfect' is the enemy of good enough. Ecosystems are relatively speaking stable and have been for long periods of time. Nature has been tweaking them for 3.8 billion years. We on the other hand have managed to really screw things up in just a few thousand years.

          We need to go back and learn how nature does design
          https://goo.gl/tu3kPj

          Ron Patterson, 11/14/2015 at 5:57 am
          We need to go back and learn how nature does design

          If we went back to when nature was in balance, to the point to where we were no longer destroying the ecosystem, then we would be back to only a few million Homo sapiens on earth.

          While it is true that humans are a part of nature, it is also true that cancer is a part of nature.

          Fred Magyar, 11/14/2015 at 7:30 am
          We need to go back and learn how nature does design

          If we went back to when nature was in balance,

          Ron, that totally misses the point!

          Yes, the ultimate goal would be to have sustainable systems in place. However, we are not in a position to go back to anything. We need to go forward. The point I was making is that we can learn from the way nature creates sustainable ecosystems and apply those lessons to our own systems. This is why I wanted to make crystal clear that I'm not talking about greenwashing or anything 'Green' in the old hippie commune model.

          Basically nature uses multiple interconnected circular systems simultaneously on various scales from the microscopic to gigantic. Think of the multiple ecosystems on a single tree in a rainforest. The mosses and lichens fungi living on the bark of the tree. All the insect communities, ants, beetles, arachnids, etc, that depend on that. The tree itself using sunlight through photosynthesis, breathing, producing O2,transporting water and recycling nutrients, the carbon and nitrogen cycles and so on. The top of the tree is colonized with with completely different specialized ecosystems covered with epiphytes. Tree frogs and lizards living in the water filled pools created in the base of bromeliads. The birds and snakes living in the canopy. The large and small mammals living in various niches within all those ecosystems, the detrivores and bacteria and fungi that recycle all the nutrients from the organisms that die, etc… etc… and we are talking just one tree in a forest. This is the kind of integrated systems design that we need to emulate in our cities and businesses.

          We humans, on the other hand, have built linear consumptive nonintegrated systems. These systems are extremely wasteful. Linear systems only work when resources limits are nonexistent. We no longer have the luxury of continuing with such systems. We need to learn how nature practically eliminates waste by emulating a model where waste streams are resource inputs and everything is reused there is practically no waste in a functioning stable ecosystem.

          Ron Patterson, 11/14/2015 at 8:00 am
          We need to learn how nature practically eliminates waste by emulating a model where waste streams are resource inputs and everything is reused there is practically no waste in a functioning stable ecosystem.

          I totally understand your point Fred, but you are simply missing the big picture. When you say "we" just who are you talking about? Obviously if you are talking about fixing the terrible mess we find ourselves in, then "we" has to mean "we humans", all of us. And when you do that you are talking absolute nonsense.

          Individuals can change but human nature cannot change. "We" will go on behaving in the future exactly as we have behaved in the past. The mass of humanity is consuming the natural resources like a drunken sailor going through his rich uncle's inheritance. And I don't mean just fossil resources, I mean all resources, all nature's bounty. And we are taking it from all the other creatures who are less clever than we are.

          And "we" will continue to do so until it is gone, and all the other creatures are gone also.

          wimbi, 11/13/2015 at 10:50 pm

          A simple engineer's suggestion for basis of new economics, based on conversation with wiser ones elsewhere.

          Proper economic structure is that which maximizes the number of options available for future choices.

          Same as, minimize irreversibility; same as second law of thermo. Or, don't mess things up for the next guy.

          Examples of violations of basic rule- kill the coral, next guy has less fish ; burn the oil, next guy has a smaller hunk of planet at bearable temps.

          Example of application of basic rule – go to solar for energy, and stick within bounds of activity thereby set.

          NB- another fundamental flaw of capitalism– like stars growing in a dust cloud where more massive ones grab mass faster than littler ones, ending up with big one gobbling it all. Bigger capitalists grab more resources faster than smaller ones, ending up with big ones getting it all.
          And, very serious consequence – gross maldistribution of resource relative to individual ability to use resource wisely.

          Above observations not to be attributed to me.

          [Nov 26, 2015] WSJ Goes Long on the Hard to Get Good Help Story

          Notable quotes:
          "... those of us who warned of the housing bubble and predicted that the resulting downturn would be hard to reverse saw the weak growth as a 100 percent predictable problem from a shortfall in aggregate demand. There was no source of demand to replace the construction and consumption demand driven by the bubble. ..."
          "... We later get the strange statement: Simply put, companies are running out of workers, customers or both. In either case, economic growth suffers. ..."
          "... Actually, these are two very different stories that need to be considered separately. Suppose companies dont have enough customers. This is a story of inadequate demand. How do we solve it? Spend money. The private sector can do it, the government can do it, counterfeiters can do it. In this story, more demand will create more supply. The only obstacle to generating the demand is our own stupidity. (We can also all decide to work fewer hours, since we are producing more than we need, we should be able to all work less and still meet our needs.) ..."
          "... The story of too few workers is a story of inadequate supply. We have needs that we just cant meet because there is no one to do them. The problem with this story is that it only focuses on half of the equation, and by far the less important half. The ability of the working population to meet the needs of the total population depends on both the size of the workforce relative to the whole population and also its productivity. The productivity portion of the story swamps the population portion of the story. ..."
          www.cepr.net

          Peter K. said...

          http://www.cepr.net/blogs/beat-the-press/wsj-goes-long-on-the-hard-to-get-good-help-story

          WSJ Goes Long on the Hard to Get Good Help Story
          by Dean Baker
          Published: 23 November 2015

          The usually astute Greg Ip gets derailed in a high production values piece that tries to tell us that our problems stem from not having enough kids. For those left scratching their heads while sitting in traffic jams or standing in over-crowded subway cars, the basic story is that we somehow don't have enough workers to do all the work. (Where are those damn robots when we need them?)

          Anyhow, the piece starts out quickly on the wrong foot:

          "Ever since the global financial crisis, economists have groped for reasons to explain why growth in the U.S. and abroad has repeatedly disappointed, citing everything from fiscal austerity to the euro meltdown. They are now coming to realize that one of the stiffest headwinds is also one of the hardest to overcome: demographics."

          Umm no, those of us who warned of the housing bubble and predicted that the resulting downturn would be hard to reverse saw the weak growth as a 100 percent predictable problem from a shortfall in aggregate demand. There was no source of demand to replace the construction and consumption demand driven by the bubble.

          And, I don't recall being at all troubled by slower aggregate growth, the issue was that we were seeing insufficient growth to fully employ the population. The United States and many other wealthy countries have seen a sharp decline in the employment to population ratio. This is true even when we look at the employment to population ratio for prime age (ages 25-54) workers. This is down by three full percentage points from its pre-recession peak and by more than four percentage points from its 2000 peak. It is pretty hard to explain the drop in the percentage of people working by demographics.

          We later get the strange statement: "Simply put, companies are running out of workers, customers or both. In either case, economic growth suffers."

          Actually, these are two very different stories that need to be considered separately. Suppose companies don't have enough customers. This is a story of inadequate demand. How do we solve it? Spend money. The private sector can do it, the government can do it, counterfeiters can do it. In this story, more demand will create more supply. The only obstacle to generating the demand is our own stupidity. (We can also all decide to work fewer hours, since we are producing more than we need, we should be able to all work less and still meet our needs.)

          The story of too few workers is a story of inadequate supply. We have needs that we just can't meet because there is no one to do them. The problem with this story is that it only focuses on half of the equation, and by far the less important half. The ability of the working population to meet the needs of the total population depends on both the size of the workforce relative to the whole population and also its productivity. The productivity portion of the story swamps the population portion of the story.

          Here's what I wrote in response to a Washington Post piece on China earlier in the month.

          "To see why this is not true, we will take a very simple story where we contrast a country with moderate productivity growth and no demographic change with a country rapid productivity growth and a rapid aging of its population. The figure below shows the basic story.

          [graph]

          "We assume that in 1985 there are five workers to every retiree in both the Washington Post and China story. If we set output per worker in 1985 equal to 100, then the amount of output per worker and retiree in 1985 is 83.3 (five sixths of the output per worker). We then allow for different rates of productivity growth and population growth over the next three decades.

          "In the China scenario, we have 5.0 percent annual productivity growth. This is somewhat slower than the actual rate of growth of output per worker over the last three decades, but it is still sufficient to make the point. The calculation assumes the ratio of workers to retirees falls to just two to one, a sharper decline than has actually been the case.

          "In the Washington Post scenario, we assume a moderate 2.0 percent rate of productivity growth, roughly the average rate for the U.S. economy over the last three decades. To make the case extreme in the other direction, it is assumed there is no change in the ratio of workers to retirees so that in 2015 the ratio is still five to one.

          "As should be obvious, in the high productivity case output per worker is far higher in 2015 than in the Washington Post scenario. Output per worker reaches 432.2 in 2015 in the China scenario, compared to just 181.1 in the Washington Post scenario.

          "Because of the extraordinary differences in output per worker, China is still much better capable of supporting its retired population in 2015 than a country following the Washington Post scenario. Its output per person is equal to 288.1 in 2015. This means that both its workers and retirees can enjoy an income that is 188.1 percent higher in 2015 than it was in 1985. By contrast, in the Washington Post scenario output per person in 2015 is just 150.9 in 2015, meaning that its workers and retirees can only enjoy an income that is on average 50.9 percent higher than in 1985.

          "In this case, it should be evident that China will have a much easier time supporting its retirees than a country that had enjoyed just moderate productivity growth and no demographic change. It is also worth noting that some demographic change was inevitable. Regardless of what policies China had pursued it was going to see an aging of its population, which would have meant a decline in the ratio of workers to retirees.

          "These numbers also overstate the benefits of the Washington Post scenario for two other reasons. The numbers treat retirees as the only dependents. Of course there are also children. The ratio of children to workers would be far larger in the Washington Post scenario than in the China scenario. Incorporating children into the calculation would further increase the gap in the change in output per person between the two scenarios.

          "The other difference is that the Washington Post scenario of more rapid population growth would imply much greater strains on China's natural resources. The country would require much more food and water and emit a much larger amount of greenhouse gases into the atmosphere. This would further reduce the standard of living in the Washington Post scenario relative to the China scenario shown here.

          In short, China is actually extraodinarily well-prepared for the aging of its population. It should in principle have no problem generating enough output so that both its workers and retirees can enjoy much higher standards of living in ten years than they do today. (This does require setting up a good public pension system.) Countries with a slower rate of aging but worker productivity growth will find this more difficult.

          In keeping with the confusion throughout the piece we also get the complaint that builders are suffering from a shortage of labor:

          "For example, home builders are simultaneously suffering from shrinking demand since the homeownership rate is declining, and from labor shortages as the baby boomers retire."

          A shortage of labor would imply construction workers' wages are rising rapidly. They aren't.

          [graph]

          There is some uptick in the rate of nominal wage growth, but it remains below 3.0 percent annually, which is well below pre-recession levels. In short, not much evidence of a shortage here.

          Just to repeat, the question we have to ask is whether the problem is a shortage of demand or supply. If the problem is demand, then we can easily deal with it. If the problem is supply then we have to explain why in the era of computerization and robots we aren't seeing productivity growth. If the economy is broken and unable to sustain productivity growth, this is the real problem. Getting more people to make our cities and natural spaces more crowded is not the solution.

          [Nov 26, 2015] Incorporating the Rentier Sectors into a Financial Model

          Notable quotes:
          "... Finance is not The economy ..."
          "... In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. ..."
          "... Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. ..."
          "... even government tax revenue is diverted to pay debt service ..."
          "... Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy. ..."
          economistsview.typepad.com

          RGC said in reply to JF... November 25, 2015 at 08:34 AM

          Incorporating the Rentier Sectors into a Financial Model

          Wednesday, September 12, 2012

          by Dirk Bezemer and Michael Hudson

          As published in the World Economic Association's World Economic Review Vol #1.

          .......

          2. Finance is not The economy

          In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. Banks lend to buyers of real estate, corporate raiders, ambitious financial empire-builders, and to management for debt-leveraged buyouts. A first approximation of this trend is to chart the share of bank lending that goes to the 'Fire, Insurance and Real Estate' sector, aka the nonbank financial sector. Graph 1 shows that its ratio to GDP has quadrupled since the 1950s. The contrast is with lending to the real sector, which has remained about constant relative to GDP. This is how our debt burden has grown.

          Graph 1: Private debt growth is due to lending to the FIRE sector: the US, 1952-2007

          Source: Bezemer (2012) based on US flow of fund data, BEA 'Z' tables.

          What is true for America is true for many other countries: mortgage lending and other household debt have been 'the final stage in an artificially extended Ponzi Bubble' as Keen (2009) shows for Australia. Extending credit to purchase assets already in place bids up their price. Prospective homebuyers need to take on larger mortgages to obtain a home. The effect is to turn property rents into a flow of mortgage interest. These payments divert the revenue of consumers and businesses from being spent on consumption or new capital investment. The effect is deflationary for the economy's product markets, and hence consumer prices and employment, and therefore wages. This is why we had a long period of low cpi inflation but skyrocketing asset price inflation. The two trends are linked.

          Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. As creditors recycle their receipts of interest and amortization (and capital gains) into new lending to buyers of real estate, stocks and bonds, a rising share of employee income, real estate rent, business revenue and even government tax revenue is diverted to pay debt service. By leaving less to spend on goods and services, the effect is to reduce new investment and employment.

          Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy.

          It is especially the case since 1991 in the post-Soviet economies, where neoliberal (that is, pro-financial) policy makers have had a free hand to shape tax and financial policy in favor of banks (mainly foreign bank branches). Latvia is cited as a neoliberal success story, but it would be hard to find an example where rentier income and prices have diverged more sharply from wages and the "real" production economy.

          The more credit creation takes the form of inflating asset prices – rather than financing purchases of goods and services or direct investment employing labor – the more deflationary its effects are on the "real" economy of production and consumption. Housing and other asset prices crash, causing negative equity. Yet homeowners and businesses still have to pay off their debts. The national income accounts classify this pay-down as "saving," although the revenue is not available to the debtors doing the "saving" by "deleveraging."

          The moral is that using homes as what Alan Greenspan referred to as "piggy banks", to take out home-equity loans, was not really like drawing down a bank account at all. When a bank account is drawn down there is less money available, but no residual obligation to pay. New income can be spent at the discretion of its recipient. But borrowing against a home implies an obligation to set aside future income to pay the banker – and hence a loss of future discretionary spending.

          3. Towards a model of financialized economies

          Creating a more realistic model of today's financialized economies to trace this phenomenon requires a breakdown of the national income and product accounts (NIPA) to see the economy as a set of distinct sectors interacting with each other. These accounts juxtapose the private and public sectors as far as current spending, saving and taxation is concerned. But the implication is that government budget deficits inflate the private-sector economy as a whole.

          http://michael-hudson.com/2012/09/incorporating-the-rentier-sectors-into-a-financial-model-3/

          pgl said in reply to anne...

          Peter Dorman's excellent rebuttal of John Harwood:

          http://econospeak.blogspot.com/2015/11/tax-policy-and-magic-investment-channel.html

          [Nov 25, 2015] Antonio Fatas on the Global Economy Counting backwards to the next recession

          fatasmihov.blogspot.com

          In the case of the US (using the NBER business cycle dates), in the post-WWII period expansions have lasted from 12 months in the expansion ending in 1981to 120 months in the expansion ending in 2001. The current expansion is already 77 months long, longer than the previous expansion of 2001-2007.

          ... ... ...

          And this second reading the chart reminds us of the risk that we are facing if the next recession is somewhere in the near future and monetary policy has not had the time to go back to normal, to go back to levels of short term rates that allow for a decrease in these rates that is consistent with what we have seen in previous recession. And entering the next recession in Europe or the U.S. with interest rates that are too close to zero does not sound like a good idea and in addition there is a lot of uncertainty given that we have not seen such a case in the recent business cycles.

          [Nov 23, 2015] An Unforgiving Musical-Chairs Economy

          Notable quotes:
          "... Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs. ..."
          "... Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal, New Keynesian models of the economy which I think paint a very inadequate picture of the way our economy actually functions and is woefully inadequate as a guide for policy action - especially of the kinds that are urgently needed in 2015. ..."
          "... I dont think Krugman and DeLong are the forces of evil. I just think the United States is in much worse shape then they seem prepared to come to grips with, and is in need of much more radical social and economic change then they seem willing to propose or entertain. They are stuck in the past and weighed down by defunct orthodoxies and theoretical abstractions. ..."
          "... Most of my general criticisms of economists, by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other day about his new book, and thought it sounded like great stuff. I think there is lots of great empirical work going on based on nuanced and up-to-date theories of human behavior. The macro guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform economic theories of everything can float free of any foundation in theories of the actual behavior of actual human beings. But the theories are in practice based on analogies from individual or firm behavior to macro behavior, and the behavioral models on which they are based are extremely crude. ..."
          "... But basically, I think my main axe to grind is that these economists are just not sufficiently appalled by the moral horrors of the social world we live in. There is a general lack of zeal. ..."
          "... Sadly, it is also the case that the Democrats have backed way off economic issues since the late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract big money donors (still Hillarys position). ..."
          November 22, 2015 | Economist's View '

          Harold Pollack (the beginning of the post talks about a recent column in the NY Times noting that "The people who most rely on the safety-net programs secured by Democrats are, by and large, not voting against their own interests by electing Republicans. Rather, they are not voting, period," and how that has turned blues states red):

          What's the matter with Kentucky?: ...Viewed from afar, one might think that categories such as "deserving poor" or "disabled" are reasonably clear-cut. Viewed up-close, things seem much more fuzzy. Many people who rely on public aid straddle the boundaries between deserving and undeserving, disabled and able-bodied. Many of us know people who receive various public benefits, and who might not need to rely on these programs if they made better choices, if they learned how to not talk back at work, if they had a better handle on various self-destructive behaviors, if they were more willing to take that crappy job and forego disability benefits, etc.

          It's easy, even viewing our own friends and relatives, to confuse cause and effect regarding more intimate barriers. A sad reality of psychiatric disorders is that the very symptoms which inflict mental pain on the sufferer can make themselves felt to others in ways that undermine empathy and personal relationships.

          Across the Thanksgiving dinner table, you see these human frailties and failures more intensely and with greater granularity than the labor economist could possibly see running cold data at the Census Bureau. But operating at high altitude, the labor economist sees structural issues you can't see from eye level.

          There have always been vulnerable people, whose troubles arise from an impossible-to-untangle mixture of bad luck, destructive behaviors, and difficult personal circumstance. That economist can't see why your imperfect cousin can't seem to get it together to hold a basic job. She can see that your cousin is being squeezed out by an unforgiving musical-chairs economy. Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs.

          Posted by Mark Thoma on Sunday, November 22, 2015 at 12:10 PM in Economics | Permalink Comments (26)

          pgl said...

          "Supporters of expanded social provision must find better ways to engage poor people, to get out their votes."

          Of course Republicans are doing everything they can to keep poor people from voting.

          cm -> pgl...
          Also in the US, elections seem to always (?) take place on work days, whereas e.g. in Germany the happen on Sundays as a rule. Of course one can vote by mail, but that requires a pretty stable and reliable mailing address ...
          pgl -> cm...
          In the South the Republicans loathe the idea that voting might occur on Sundays. Seems they fear those black mega churches turning out the vote.
          cm -> pgl...
          I was thinking more of people being unable to (or "preferring" not to) miss work, and not being able to show up for work as well as vote on the same day.

          Do you think that people don't have enough willpower to sustain their decision to vote from Sunday to Tuesday? Or that they would vote only under the social pressure from the church group?

          pgl -> cm...

          I'm just saying let them vote when they can. As in your first sentence here.

          Number 6 said...

          The US is a militarist-imperialist, rentier-socialist, friendly fascist (for now) corporate-state for the top 0.001-1% to ~10% (the best gov't the money of the top 0.001-1% can buy) and a moronocracy for the rest of us, i.e., "no representation without taxation".

          What is needed is 'Merikans for Moronocracy (or Morons for a New 'Merika) for us morons in red AND blue states to write in our own names for CEO of the fascist corporate-state. Imagine tens of millions of us unaffiliated morons writing in Joe Moron for POTUS and Jane Moron for Veep (or switch for your gender-specific or non-specific preference, or not).

          Surely, none of us could do any worse for the bottom 90%+ than the Establishmet top 0.001%'s "choices" over the past 30-40+ years, or the current lot of Dame Hilbillary, The Donald, Crazy Carson, et al. (Of course, Bernie Sanders speaks to the values and objectives of the vast majority of 'Merikans who are actually democratic socialists but have been propagandized for at least a century or more not to know it.)

          Morons of the world unite!!!

          anne said...

          http://krugman.blogs.nytimes.com/2015/11/22/thinking-about-the-trumpthinkable/

          November 22, 2015

          Thinking About the Trumpthinkable
          By Paul Krugman

          Alan Abramowitz * reads the latest Washington Post poll and emails:

          "Read these results ** and tell me how Trump doesn't win the Republican nomination? I've been very skeptical about this all along, but I'm starting to change my mind. I think there's at least a pretty decent chance that Trump will be the nominee.

          "Here's why I think Trump could very well end up as the nominee:

          "1. He's way ahead of every other candidate now and has been in the lead or tied for the lead for a long time.

          "2. The only one even giving him any competition right now is Carson who is even less plausible and whose support is heavily concentrated among one (large) segment of the base-evangelicals.

          "3. Rubio, the great establishment hope now, is deep in third place, barely in double digits and nowhere close to Trump or Carson.

          "4. By far the most important thing GOP voters are looking for in a candidate is someone to 'bring needed change to Washington.'

          "5. He is favored on almost every major issue by Republican voters including immigration and terrorism by wide margins. The current terrorism scare only helps him with Republicans. They want someone who will "bomb the shit" out of the Muslim terrorists.

          "6. There is clearly strong support among Republicans for deporting 11 million illegal immigrants. They don't provide party breakdown here, but support for this is at about 40 percent among all voters so it's got to be a lot higher than that, maybe 60 percent, among Republicans.

          "7. If none of the totally crazy things he's said up until now have hurt him among Republican voters, why would any crazy things he says in the next few months hurt him?

          "8. He's very strong in several of the early states right now including NH, NV and SC. And he could do very well on 'Super Tuesday' with all those southern states voting. I can't see anyone but Trump or Carson winning in Georgia right now, for example, most likely Trump.

          "9. And as for the idea of the GOP establishment ganging up on him and/or uniting behind another candidate like Rubio, that's at least as likely to backfire as to work. And even if it works, what's to stop Trump from then running as an independent?"

          Indeed. You have a party whose domestic policy agenda consists of shouting "death panels!," whose foreign policy agenda consists of shouting "Benghazi!," and which now expects its base to realize that Trump isn't serious. Or to put it a bit differently, the definition of a GOP establishment candidate these days is someone who is in on the con, and knows that his colleagues have been talking nonsense. Primary voters are expected to respect that?

          * http://polisci.emory.edu/home/people/faculty/abramowitz-alan.html

          ** http://apps.washingtonpost.com/g/page/politics/washington-post-abc-news-poll-nov-15-19-2015/1880/

          gunste -> anne...
          The reason may well be that there is a vast group of voters who consistently vote against their better interests, because their mindset is conservative, though they are actually middle class or lower. - Kansas appears to be a great example. These people do not think things through but vote on their gut (conservative they think) instincts. Education has a great deal to do with that voting decision. Thus we seem to see a blue collar worker with a median income take positions similar to that of the 1%. Curious but educational level is the likely answer. Such voters are also much more susceptible to propaganda based on tainted or false information which is circulated freely by many of the talking heads on radio and TV. Note that the Republicans work assiduously to discourage and restrict voting by gerrymandering, rules, voting days and sometimes requiting ID. - Democracy in America is a theoretical concept now.
          cm said...
          The Musical Chairs happens not only in the backwaters. It happens in and around the major job centers too. Nor is it only a matter of no job vs. some job, also how well the job is paid, working conditions, full time vs. part time, predictable work hours or on call (and only on-premises hours paid), etc.

          It also doesn't just affect people with various "problems". There is the meme that when you are good you will always find a job, but that only works when employers are actually hiring. And the unstated part is that the job will be at your level of skill/ability. In "tech", and probably most "high skilled" fields, employers have a rather strong preference for an unbroken career in the field, you are basically defined by the "lowest" work you have done recently.

          Dan Kervick -> Peter K....
          "Kervick on the other hand tells us everyday that Krugman and DeLong are trying to pull the wool over our eyes on behalf of an evil neoliberal consensus."

          Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal, New Keynesian models of the economy which I think paint a very inadequate picture of the way our economy actually functions and is woefully inadequate as a guide for policy action - especially of the kinds that are urgently needed in 2015.

          I don't think Krugman and DeLong are the forces of evil. I just think the United States is in much worse shape then they seem prepared to come to grips with, and is in need of much more radical social and economic change then they seem willing to propose or entertain. They are stuck in the past and weighed down by defunct orthodoxies and theoretical abstractions.

          Maybe in their hearts they really do grasp the magnitude of the problems, but just think the political environment is not hospitable to an honest airing of the alternatives. Maybe they are scared like everyone else.

          But until prominent, established intellectuals with high profiles begin to come forward with bolder alternatives to late 20th century thinking, the America that is being crushed underfoot by an out-of-control capitalist leviathan is going to have to face a lot of unwelcome headwinds in their drive for liberating progressive change.

          Syaloc -> Dan Kervick...
          So basically you're calling for a return to a more institutional form of economics led by figures like John Kenneth Galbraith?
          Dan Kervick -> Syaloc...
          Yes, a more concrete, detailed, institution-based picture of the economic world, with more attention to history, other branches of social science, moral philosophy, cultural criticism, etc. - as well as just a bit more street smarts. Macroeconomists seem to have siloed themselves in self-contained theoretical world, where engagement with the human sciences of power and control, and the moral implications of those fields of study, are ignored.

          Most of my general criticisms of economists, by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other day about his new book, and thought it sounded like great stuff. I think there is lot's of great empirical work going on based on nuanced and up-to-date theories of human behavior. The macro guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform economic theories of everything can float free of any foundation in theories of the actual behavior of actual human beings. But the theories are in practice based on analogies from individual or firm behavior to macro behavior, and the behavioral models on which they are based are extremely crude.

          But basically, I think my main axe to grind is that these economists are just not sufficiently appalled by the moral horrors of the social world we live in. There is a general lack of zeal.

          djb said...
          a lot of it , I am sure, has to do with the "there is no difference between democrats and republicans" constant brainwashing

          which helps the republicans big time

          DrDick -> djb...
          Sadly, it is also the case that the Democrats have backed way off economic issues since the late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract big money donors (still Hillary's position).
          djb -> DrDick...
          still republicans are way worse especially now

          DrDick said in reply to djb...

          True, but for the poor, it is quite obvious that no one really gives a damn about them. Why should they vote when all they get is bailouts for banksters and the TPP? Right now, Sanders is the only one talking about programs that would really help them and he is a long shot (and I am a Sanders supporter).

          Avraam Jack Dectis said...
          .
          A good economy compensates for much social dysfunction.

          A bad economy moves people toward the margins, afflicts those near the margins and kills those at the margins.

          This is what policy makers should consider as they pursue policies that do not put the citizen above all else.

          cm -> Avraam Jack Dectis...
          "A good economy compensates for much social dysfunction."

          More than that, it prevents the worst of behaviors that are considered an expression of dysfunction from occurring, as people across all social strata have other things to worry about or keep them busy. Happy people don't bear grudges, or at least they are not on top of their consciousness as long as things are going well.

          This could be seen time and again in societies with deep and sometimes violent divisions between ethnic groups where in times of relative prosperity (or at least a broadly shared vision for a better future) the conflicts are not removed but put on a backburner, or there is even "finally" reconciliation, and then when the economy turns south, the old grudges and conflicts come back (often not on their own, but fanned by groups who stand to gain from the divisions, or as a way of scapegoating).

          [Nov 22, 2015] The Political Aftermath of Financial Crises Going to Extremes

          Notable quotes:
          "... The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. ..."
          "... In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster. ..."
          "... If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them. ..."
          "... The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce. ..."
          "... Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate. ..."
          "... So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization". ..."
          Nov 22, 2015 | Economist's View

          mrrunangun:

          Given that honesty in politics and government is relative, I wonder if relatively honest politics and relatively honest regulation of financial systems prevents financial crises.

          pgl

          Hillary Clinton hedges on a key issue:

          http://talkingpointsmemo.com/news/hillary-clinton-break-up-big-banks

          She says she would break up the mega banks ... if needed. It is needed - so no hedging on this issue.

          JohnH -> pgl...

          Once again pgl shows how gullible he is...believing what Hillary says not what she has done. What has she done? Well, Wall Street made her a millionaire.

          http://money.cnn.com/2015/10/13/investing/hillary-clinton-wall-street/

          Second, she announced her run for Senator from New York (Wall Street) immediately after Bill did Wall Street the mother of all favors...ending Glass-Steagall. In his naivete, pgl certainly believes that there was no quid pro quo!!!

          Third, lots of people doubt whether she can be trusted to rein in Wall Street.
          http://www.nytimes.com/2015/11/22/us/politics/wall-st-ties-linger-as-image-issue-for-hillary-clinton.html?_r=0

          Of course, pgl believes lots of silly things...like his claim that Obama never proposed and signed off on austerity in 2011...or that he has proposed cutting Social Security...or that trickle down monetary policy hasn't overwhelmingly benefited the 1%.

          I wonder when somebody will finally get to sell him the Brooklyn Bridge [better act now, pgl, get a really cheap loan while you still can!!!]

          JohnH -> JohnH...

          pgl thinks that Obama NEVER proposed cutting Social Security's! What a rube!

          anne:

          http://www.voxeu.org/article/political-aftermath-financial-crises-going-extremes

          November 21, 2015

          The political aftermath of financial crises: Going to extremes
          By Manuel Funke, Moritz Schularick, and Christoph Trebesch

          Implications

          The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. These developments likely hinder crisis resolution and contribute to political gridlock. The resulting policy uncertainty may contribute to the much-debated slow economic recoveries from financial crises.

          In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster.

          anne -> anne...

          What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries. Leadership changes struck me as moderate, even moderate in beset Greece as the political stance of Syriza which looked to be confrontational with regard to the other eurozone countries quickly became accepting.

          European developed country governments have been and are remarkably stable. Japan has been stable. There is political division in the United States, but I do not attribute that to the financial crisis or recession but rather to social divisions.

          The essay is just not convincing.

          likbez said...

          "What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries"

          If you mean that the goal of the state is providing unconditional welfare for financial oligarchy (which actually is true for neoliberalism), then I would agree.

          But if you use any common sense definition of "restrained" this is a joke. Instead of sending criminals to jail they were awarded with oversized bonuses.

          I think the authors are way too late to the show. There is no much left of the New Deal anyway, so radicalization of the US society was a fait accompli long before crisis of 2008.

          If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them.

          The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce.

          Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate.

          So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization".

          [Nov 21, 2015] Global Trade Just Snapped Container Freight Rates Plummet 70% In 3 Weeks

          Notable quotes:
          "... Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with. ..."
          "... Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum.. ..."
          Zero Hedge
          In fact, as the chart above shows, growth in global trade has been slowing down for some time, as Acting-Man's Pater Tenebrarum notes,

          But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy's narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation. Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with.

          Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all.

          More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum...

          [Nov 21, 2015] O'Malley best debate line: I think it may be time for us to quit taking advice from economists

          Notable quotes:
          "... I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by noting he appointed a former hedge-fund manager to some state regulatory position when given the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton family pal and mega-donor in 2006. ..."
          "... I thought O'Malley had one of the best lines of the night when he said "I think it may be time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and unappreciated. ..."
          "... Sanders did a relatively good job of deflecting and not getting zinged by the 'gotcha' question but a full-frontal assault would have been much better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie turned her 'gotcha' question that she had spent so much time and thought crafting into the home-run answer of the evening. Perhaps it could happen in a debate in the near future. ..."
          November 16, 2015 | naked capitalism

          Hillary Clinton Appeal to 9-11 to Defend Wall Street Donations Was Bad, But This Was Worse

          Jerry Denim, November 16, 2015 at 11:46 am

          I couldn't believe my eyes and ears during the debate when Sanders impugned Clinton's integrity for taking Wall Street super PAC money and she seemed to successfully deflect the accusation by going full-bore star-spangled sparkle eagle. She played the vagina card then quickly blurted out "9/11 New York" for applause while attempting conflate aiding and abetting Wall Street with the 9/11 attacks and patriotism. I couldn't believe people were clapping and I couldn't believe Clinton had the audacity to pull such a illogical and juvenile stunt on live television, but yet CBS reported her highest approval scores of the debate were registered during her confusing but emotionally rousing (for some people apparently) "vagina, 9/11" defense.

          I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by noting he appointed a former hedge-fund manager to some state regulatory position when given the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton family pal and mega-donor in 2006. Neither candidate mentioned that her son-in-law and the father of her grandchild who she is so fond of mentioning, just so happens to be an extremely rich hedge fund manager who benefits handsomely from the Clinton's political connections and prestige. This isn't mud, this is extremely germane, factual material already on the public record. It gets to the core of who Hillary is and where her loyalties lie. Hillary herself chose to identify unregulated derivatives and the repeal of Glass-Steagall as the primary causes of the financial crisis. She either claimed directly or insinuated that she would address these issues as President, but surprisingly no one pointed out that it was her husband's administration that blocked Brooksley Born from regulating derivatives in the 1990's and it was her husband's administration that effectively repealed Glass-Steagal with the signing of Gramm-Leach-Billey act in 1999. It's not a stretch to say the Clinton's deregulation of Wall Street paved the way for the crisis of 2008 and the extreme income inequality of today. Wall Street is deeply unpopular and Bernie Sanders has built a candidacy on two main issues: attacking Wall Street and addressing income inequality. These are punches he can't afford not to throw at his rival when she holds a commanding lead in the polls plus the support of the DNC and media establishment. Clinton is deeply corrupt and beholden to Wall Street. She needs to be beaten with this stick hard and often. Attempting to deflect this very accurate, very damaging criticism by wrapping herself in the flag and invoking feminism is a cheap stunt that will only work so many times before people notice what she is doing. Bernie needs to swing harder and keep at it, he already has the right message and Clinton is highly vulnerable on his pet topics.

          I thought O'Malley had one of the best lines of the night when he said "I think it may be time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and unappreciated. I would have loved a frontal assault on the validity and integrity of economists when the bespectacled lady in blue attempted to nail down Sanders with a 'gotcha' question implying raising the minimum wage would be catastrophic for the economy because "such-and-such economist" said so. There is so much disdain for science and academic credentials in the heartland right now, it seems crazy not to harness this anti-academic populist energy and redirect it to a deserving target like neo-liberal economists instead of climate scientists. " How's that Laffer curve working out for ya Iowa? Are you feeling the prosperity 'trickle down' yet?" Sanders did a relatively good job of deflecting and not getting zinged by the 'gotcha' question but a full-frontal assault would have been much better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie turned her 'gotcha' question that she had spent so much time and thought crafting into the home-run answer of the evening. Perhaps it could happen in a debate in the near future.

          [Nov 21, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

          All this neoliberal talk about "maximizing shareholder value" and hidden redistribution mechanism of wealth up. It;s all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Who cares if the company will be destroyed if you have a golden parachute ?
          Notable quotes:
          "... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
          "... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
          "... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
          "... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
          "... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
          "... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
          "... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
          "... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
          "... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
          "... "Results of all this financial engineering? Revenues of the S P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis." ..."
          November 21, 2015 | naked capitalism

          By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

          Magic trick turns into toxic mix.

          Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

          And there's a reason.

          IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

          Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

          "Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

          In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

          DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

          In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

          And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

          CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

          "None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

          Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

          This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

          Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

          Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

          "Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

          But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

          Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

          Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned...

          ... ... ...

          Selected Skeptical Comments

          Mbuna, November 21, 2015 at 7:31 am

          Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

          ng, November 21, 2015 at 8:58 am

          probably, in some or most cases, but the effect on the stock is the same.

          Alejandro, November 21, 2015 at 9:19 am

          Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

          On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

          Jim, November 21, 2015 at 10:42 am

          More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

          "Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

          Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

          Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

          John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

          Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

          [Nov 21, 2015] On the Lack of Courage in Regulators

          Notable quotes:
          "... Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along. ..."
          "... It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment. ..."
          Nov 21, 2015 | naked capitalism
          I'm embedding the text of a short but must-read speech by Robert Jenkins, a former banker, hedge fund manager, and regulator (Bank of England) who is now a Senior Fellow at Better Markets. If nothing else, be sure to look at the partial list of bank misconduct and activities currently under investigation.

          Jenkins points out that regulatory reform has fallen short on multiple fronts, and perhaps the most important is courage. Readers may understandably object to him giving lip service to the idea that Bernanke acted courageously during the crisis (serving the needs of banks via unconventional means is not tantamount to courage), but he is a Serious Person, and making a case against Bernanke would detract from his bigger message about the lack of guts post-crisis.

          Now there have been exceptions, like Benjamin Lawsky, Sheila Bair, Gary Gensler, Kara Stein, and in a more insider capacity, Danny Tarullo. Contrast their examples with the typical cronyism and lame rationalizations for inaction, particularly by the Department of Justice and the SEC. It's not obvious how to reverse the corrosion of our collective values. But it is important to remember than norms can shift much faster than most people think possible, with, for instance, the 1950s followed by the radicalism and shifts in social values of the 1960s, which conservative elements are still fighting to roll back.

          Michael G

          A link to a text version of the speech for those with uncooperative computers
          http://www.ianfraser.org/why-well-all-end-up-paying-for-the-feeble-response-to-the-banking-crisis/
          Worth reading

          James Levy

          We do not live in an economy or a polity that breeds or rewards the kind of public-mindedness and civic virtue that gives you courage. The author thinks the system needs courageous people, but posits no conception of where they would come from and how they would thrive in the current system (news flash: they won't). So this is a classic "I see the problem clearly but can't see that the solution is impossible under the current system" piece.

          TMock

          Agreed.

          For those who desire real solutions, try this…

          The Universal Principles of Sustainable Development

          http://www.triplepundit.com/2011/02/universal-principles-sustainable-development/

          Norb

          In Tavis Smiley's book, My Journey with Maya Angelou, he recounts an ongoing discussion the two of them entertained throughout the years concerning which trait, Love or Courage, was more important in realizing a full life. Angelou argued that acting courageously was the most important. Smiley saw love as the moving force. While important and moving, the discussion has the dead-end quality of not being able to move past the current system of injustice. I say this because in the end, both support incremental change to the existing system as the means to bring about social justice. The powerful elite have perfected the manipulation of incremental change to render it powerless.

          When trying to change a social system, courage is needed. Courage to form a vision of the future that is based on public-mindedness and civic virtues that bring justice into the world. Our current leaders are delivering the exact opposite of civic justice. Its time to call them out on their duplicity, and ignore their vision of the future.

          The courage that is needed today is not the courage to stand up to the criminals running things and somehow make them change. It is the courage to make them irrelevant. Change will come from the bottom up, one person at a time.

          cnchal

          And when one shows up, look what happens.

          The disturbing fact is that laws have been broken but law breaking has not touched senior management.

          If they knew, then they were complicit. If they did not, then they were incompetent. Alternatively, if the deserving dozens have indeed been banned from the field let the list be known – that we might see some of that "professional ostracism" of which Governor Carney speaks. One person who did lose his position and quite publicly at that was Martin Wheatley, the UK's courageous conduct enforcer.

          Meanwhile the chairman of Europe's largest bank, Douglas Flint at HSBC, remains in situ – despite having been on the board since 1995; despite having signed off on the acquisition of Household Finance; and despite having had oversight of tax entangled subsidiaries in Switzerland and money laundering units in Mexico. Oh, and you'll love this: the recently retired CEO of Standard Chartered is reportedly an advisor to Her Majesty's Government. Standard Chartered was among the first to be investigated for violations of rogue regime sanctions. The bank was fined heavily and may be so again.

          Courageous people get fired, which leads to no courageous people left.

          GlassHammer

          Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along.

          susan the other

          By extreme necessity (created by total dysfunction) we will probably wind up with planned and coordinated economies that do not rely on speculation & credit to come up with the next great idea. Those ideas will be forced to come from the top down. And the problems of unregulated capitalism frantically chumming for inspiration and extreme profits will shrink back down from a world-eating monster to just a fox or two.

          Oliver Budde

          It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment.

          Malcolm MacLeod, MD

          Oliver: I believe that you hit the nail on the head, and
          I wholeheartedly agree.

          [Nov 21, 2015] Ilargi The Great Fall Of China Started At Least 4 Years Ago

          Notable quotes:
          "... The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today. ..."
          "... "When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything." ..."
          "... This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure. ..."
          "... The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold. ..."
          "... In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom! ..."
          "... China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign. ..."
          "... They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China. ..."
          "... Except that China ain't Iowa, they can create a middle class as big as Europe and US combined. ..."
          "... It's just anathema for the ruling class to give the little guys a break. ..."
          "... The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like. ..."
          "... We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it. ..."
          "... It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market. ..."
          "... Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman? ..."
          Nov 20, 2015 | naked capitalism
          Keith, November 20, 2015 at 7:41 am

          We shouldn't be too surprised at falling commodity prices.

          Using raw materials to make real things is all very 20th Century, financial engineering is the stuff of the 21st Century.

          When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.

          Central Bank inflated asset bubbles will provide for all.

          The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today.

          We are nearly there.

          fresno dan, November 20, 2015 at 10:59 am

          "When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything."

          +1000
          Ah, that glorious day when we're all rich, rich, RICHer than Midas from interest, dividends, and rents!!!
          Just to amuse myself, I intend to be a dog poop scooper – and pick up some pocket change of 1 million dollars a poop…

          MyLessThanPrimeBeef, November 20, 2015 at 12:37 pm

          Money making money.

          Be careful.

          It's like 'light seeking light doth light of light beguile.'

          Money seeking money and money will be of money beguiled.

          skippy, November 20, 2015 at 8:29 am

          Who cares about Brent when transport is going poof….

          financial matters, November 20, 2015 at 8:45 am

          This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure.

          I liked how Wray and Mazzucato linked the two in their Mack the Turtle analogy.

          "Underlying all of this financialization was the homeowner's income-something like Dr. Seuss's King Yertle the Turtle-with layer upon layer of financial instruments, all of which were supported by Mack the turtle's mortgage payments. The system collapsed because Mack fell delinquent on payments he could not possibly have met: the house was overpriced (and the mortgage could have been for more than 100% of the price!), the mortgage terms were too unfavorable, the fees collected by all the links in the home mortgage finance food chain were too large, Mack had to take a cut of pay and hours as the economy slowed, and the late fees piled up (fraudulently, in many cases as mortgage servicers "lost" payments).

          The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold."

          Mission Oriented Finance

          Carlos, November 20, 2015 at 9:34 am

          Interesting, the supposition here is that China is heading for a depression similar to the Great Depression.

          In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom!

          China could well be headed down that road, there isn't enough money getting into the pockets of ordinary Chinese that's for sure. Elites everywhere just can't bring themselves to give a break for those at the bottom.

          China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign.

          Then again they may just realize in time, someone needs to be paid to buy all the junk.

          James Levy, November 20, 2015 at 12:51 pm

          They were counting on us and the Europeans, but we've let them down. The race to the bottom erased the global middle class that could buy Chinese consumer products.

          They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China.

          Carlos, November 21, 2015 at 1:54 am

          So the corn growers need to eat more corn, that's my logic.

          Except that China ain't Iowa, they can create a middle class as big as Europe and US combined.

          It's just anathema for the ruling class to give the little guys a break.

          James Levy, November 20, 2015 at 12:56 pm

          The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like.

          susan the other, November 20, 2015 at 2:22 pm

          Where were you in 2011? I was here reading NC. One of the Links posted was a graph of the abrupt shutdown of China's economy – It was a cliffscape.

          Very long vertical drop off. So dramatic I could hardly believe it and I said I was having trouble catching my breath. Another commenter said it looked like a tsunami. Of exported deflation as it turns out.

          Things have been extreme since 2007 when the banksters began to fall; 2008 when Lehman crashed (just after the Beijing Olympics, how convenient for China…) and credit shut down. China was doin' just fine until then. In spite of the irrational mess in global capitalist eonomix.

          The only way to remedy it was to shut it down I guess. That's really not very fine-tuned for a system the whole world relies on, is it?

          ewmayer, November 20, 2015 at 6:09 pm

          Related, this Pollyanna-ish laff-riot op-ed from Ross Gittins, the economics editor of the Sydney Morning Herald:

          Don't buy the China doom and gloom stories just yet

          Proceeds from the laughable assumption that official China economic numbers 'may not be as reliable as we'd like' rather than being 'persistently and hugely faked,' (especially during slowdowns) and ignores that the housing-market slowdown and huge unsold-RE-overhang will also necessarily be accompanied by a price crash, hence a huge amount of toxic debt being exposed – really basic boom/bust dynamics.

          And no demographic boom coming to the rescue, either. (But he does repeatedly invoke the magic 'service economy boom' mantra mentioned by Ilargi.) Thankfully most of the commenters rightly take the author to task.

          MyLessThanPrimeBeef, November 20, 2015 at 6:32 pm

          Not too long ago, some here were still not buying the doom and gloom stories.

          I don't have if they have been persuaded otherwise since.

          RBHoughton, November 20, 2015 at 7:50 pm

          Couple of thoughts:

          Firstly, its only China's buying that stops oil falling even further Sr Ilargi.

          Secondly its a Peoples' Republic – employment must be maintained.

          We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it.

          Don't worry, be happy. It will be OK.

          ewmayer, November 21, 2015 at 2:29 am

          Tangential Friday night funny: What's in a name?

          Received a small airmail parcel today containing some replacement attachments for my Dremel moto-tool … package was addressed from Shenzen, specifically the "Fuming Manufacturing Park".

          Wade Riddick, November 21, 2015 at 4:57 am

          It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market.

          Ggg, November 21, 2015 at 6:53 am

          Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman?

          [Nov 20, 2015] Some Big Changes in Macroeconomic Thinking from Lawrence Summers

          Nov 20, 2015 | Economist's View

          Adam Posen:

          Some Big Changes in Macroeconomic Thinking from Lawrence Summers: ...At a truly fascinating and intense conference on the global productivity slowdown we hosted earlier this week, Lawrence Summers put forward some newly and forcefully formulated challenges to the macroeconomic status quo in his keynote speech. [pdf] ...
          The first point Summers raised ... pointed out that a major global trend over the last few decades has been the substantial disemployment-or withdrawal from the workforce-of relatively unskilled workers. ... In other words, it is a real puzzle to observe simultaneously multi-year trends of rising non-employment of low-skilled workers and declining measured productivity growth. ...
          Another related major challenge to standard macroeconomics Summers put forward ... came in response to a question about whether he exaggerated the displacement of workers by technology. ... Summers bravely noted that if we suppose the "simple" non-economists who thought technology could destroy jobs without creating replacements in fact were right after all, then the world in some aspects would look a lot like it actually does today...
          The third challenge ... Summers raised is perhaps the most profound... In a working paper the Institute just released, Olivier Blanchard, Eugenio Cerutti, and Summers examine essentially all of the recessions in the OECD economies since the 1960s, and find strong evidence that in most cases the level of GDP is lower five to ten years afterward than any prerecession forecast or trend would have predicted. In other words, to quote Summers' speech..., "the classic model of cyclical fluctuations, that assume that they take place around the given trend is not the right model to begin the study of the business cycle. And [therefore]…the preoccupation of macroeconomics should be on lower frequency fluctuations that have consequences over long periods of time [that is, recessions and their aftermath]."
          I have a lot of sympathy for this view. ... The very language we use to speak of business cycles, of trend growth rates, of recoveries of to those perhaps non-stationary trends, and so on-which reflects the underlying mental framework of most macroeconomists-would have to be rethought.
          Productivity-based growth requires disruption in economic thinking just as it does in the real world.

          The full text explains these points in more detail (I left out one point on the measurement of productivity).

          [Nov 20, 2015] How information technology is shrinking the pie

          FT Alphaville

          An essential read from Martin Wolf this Thursday on the manner in which corporate surpluses are contributing to the savings glut problem and causing all sorts of distributive chaos in the process.

          So, whereas it used to be the sovereigns over-hoarding international claims and under-consuming/under-investing in their own infrastructure for the benefit of getting a leg up in the global hierarchal order, it's now corporates over-hoarding retained earnings for the sake of protecting their dominant positions instead (retaining earning piles being different to explicit cash piles, which can be generated with debt not just profit).

          Says Wolf:

          The observation that a structural surplus of savings over investment appears to have emerged in the corporate sectors of the big high-income countries is highly significant. It is significant for the growth of potential supply, since it reflects relatively feeble investment, but it is also significant for the shape of aggregate demand.

          If the corporate sector runs a structural surplus of savings over investment, other sectors must run offsetting structural deficits. If the government is to be in financial balance, either households or foreigners must run these deficits. In the eurozone, this logic has led to huge current-account surpluses (a financial deficit for foreigners). For the UK and US, it is likely to mean renewed household deficits - a perilously destabilising possibility.

          Why is corporate investment structurally so weak then? Wolf proposes a few reasons. One is the ageing of societies, which lowers the level of investment needed. The other is globalisation, which motivates relocation out of high-income countries. But the one we think might be most relevant is his proposition that technological innovation is quietly killing the incentive to invest. This is critical:
          Much investment today is in IT, whose price is collapsing: constant nominal investment finances rising real investment. Again, much innovation seems to reduce the need for capital: consider the substitution of warehouses for retail stores.
          We've taken for granted that "technology" is a force for good in the world. But perhaps the reality is a little different? Perhaps for every 'good' information tech creates, an equal and equivalent 'ungood' is created too? Or perhaps more so, the reason we're seeing the computer age everywhere but in the productivity statistics is precisely because information technology is and always has been another manifestation of a rent-extracting financial type of business.

          Here's a chart by way of Iren Levina at Kingston University to cement our argument that banks were the original network-based technology platform unicorns - with business models equally focused on gathering privileged data about customer behaviours for the purpose of influencing more profitable behaviours elsewhere:

          It is with good reason, then, that banks dedicate the biggest chunk of operating expenses to personnel, algorithms, IT infrastructure and hardware equipment. Banks, like information tech firms today, are and always have been information processing businesses.

          On which note, Diana Hancock, of the Fed, argued convincingly in the 1990s that the Financial Firm is a financial technology which takes input (data), processes said input, and then creates monetary goods which distribute existing capital to sectors which can draw returns more effectively than others, in exchange for a leasing fee for that matching service.

          But as Hancock says, financial profits can only be assured only if the purchase cost of one unit of the capital good less the rental received during the period is equal to the discounted depreciated value of the capital good in the rental period.

          That's another way of saying bank profits are only justifiable if the added value from redistributing leased capital more than compensates for its natural depreciation - something that's only possible if the total value add is over and above total lease fees charged by the intermediaries. If at the end of the rental period society has no more capital (or less!) than it had to begin with, fees charged on an ex-ante basis will have proven unjustified.

          The parallels between banks and technology platforms are thus uncanny.

          In the banking process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate more constructive consumption elsewhere. By the time capital is returned, enough new capital is supposed to have been created to ensure both the original investors can be paid back as well as the banking/intermediary layer compensated for. Banking crises emerge when it turns out investments have failed to compensate for the natural depreciation rate.

          Shrinking the pie?

          In the unicorn IT process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate less constructive consumption at source.

          In other words, instead of using information about long-term non-consumption to benefit value-adding industries which grow the pie for all, tech firms are focused on using information about fleeting periods of non-consumption to draw down existing capital more efficiently.

          The better tech firms are at predicting or shaping behaviours through their information processes, the less new capital investment is needed, because reduced consumer optionality allows for increased supplier predictability. To wit, those who can predict their customer's behaviours best or mould them, become the lowest cost marginal producers - deferring more risky capital investment (by way of retained earnings) to the moment they can be sure they're the last monopolists left standing.

          The pie as a whole stops growing, with only information tech providers - the modern-day rentiers of the system - benefiting from the structure.

          To conclude, some points from Hancock's book which incidentally highlight the parallels between financial firms and modern-day unicorns:

          The amount of profit generated, depends upon the strength of the banking system's monopoly position.

          And..:

          The traditional reason given for deposit rate ceilings is that bank competition for deposits allegedly leads to a high rate of bank failures. According to this view, bank competition for deposits led individual banks in the 1920′s and early 1930′s to offer higher interest rates in order to maintain or increase individual share of the market. The banks were forced to rely on higher yielding riskier assets to offset incurred deposit costs. This placed the banks in a vulnerable position. Any adverse economic developments, either national or local, would be sufficient to make these risky assets uncollectible by the bank. Deposit rate ceilings affect consumers, since they receive less for deposits than would otherwise be the case, but the accompanying increased monopoly power of financial institutions makes them allegedly more sound.

          The techies would argue they're just making the world more efficient.

          We can't help wonder if solutions based on substituting new goods for pre-existing goods (or virtual ones) are somewhat different to solutions which grow the pie for everyone. There seems to us an inherent risk in creating monopolistic systems which overstretch themselves to the point they essentially run on empty.

          Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

          Related links:
          When a man cannot choose, is he still a consumer? - FT Alphaville
          Assessing "Abenomics", again - FT Alphaville

          [Nov 18, 2015] Can Anything Stop Companies From Loading Up on Debt UBS Says No.

          Notable quotes:
          "... When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower, they wrote. ..."
          "... That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. ..."
          "... Might the rating agencies spoil the party? they asked. In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call). ..."
          "... With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor] ..."
          finance.yahoo.com

          It's no secret that companies have been taking advantage of years of low interest rates to sell cheap debt to eager investors, locking in lower funding costs that have allowed them to go on a spree of share buybacks and mergers and acquisitions.

          With fresh evidence that investors are becoming more discerning when it comes to corporate credit as they approach the first interest rate rise in the U.S. in almost a decade, it's worth asking whether anything might stop the trend of companies assuming more and more debt on their balance sheets.

          ... ... ...

          For a start, they note that higher funding costs are unlikely to dissuade companies from continuing to tap the debt market since, even after a rate hike, financing costs will remain near historic lows. "The predominant reason is the Fed[eral Reserve] is anchoring low interest rates," the analysts wrote.

          When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. "We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower," they wrote. "Several management teams have been on the road indicating higher funding costs of up to 100 to 200 basis points would not impede attractive M&A deals, in their view."

          Higher market volatility has often been cited as one factor that could knock the corporate credit market off its seat...

          That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. Here, Mish and Caprio offered some stunningly blunt words. "Might the rating agencies spoil the party?" they asked. "In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call)."

          With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor]

          "Bottom line, we struggle to envision an end to the releveraging phenomenon-absent a substantial correction in corporate earnings and/or broader risk assets," concluded the UBS analysts.

          [Nov 17, 2015] Chicagonomics and Economics Rules

          It's not about Adam Smith, it's about well paid intellectual prostitutes hired to restore the rule of financial oligarchy. The books discussed are Chicagoedonomics: The Evolution of Chicago Free Market Economics by By Lanny Ebenstein (278pp) and ECONOMICS RULES The Rights and Wrongs of the Dismal Science By Dani Rodrik (253pp)
          Notable quotes:
          "... He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich - who suffer from "indolence and vanity" - to help the poor. ..."
          "... Which leftist economist was this? None other than Adam Smith, the inventor of the "invisible hand" and the icon of ­laissez-faire economics today. Smith's modern reputation is a caricature. ... ..."
          Nov 17, 2015 | Economist's View

          David Leonhardt reviews 'Chicagonomics' and 'Economics Rules':

          'Chicagonomics' and 'Economics Rules': He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich - who suffer from "indolence and vanity" - to help the poor.

          Which leftist economist was this? None other than Adam Smith, the inventor of the "invisible hand" and the icon of ­laissez-faire economics today. Smith's modern reputation is a caricature. ...

          pgl
          "Dani Rodrik, a Harvard economics professor, has written a much less political book than Ebenstein has, titled "Economics Rules," in which he sets out to explain the discipline to outsiders (and does a nice job). Yet in surveying the larger "rights and wrongs" of economics, to quote his subtitle, Rodrik has diagnosed the central mistake that contemporary libertarians have made: They have conflated ideas that often make sense with those that always make sense."

          Dani is often under looked in these discussions which is a shame. His writings on how different societies have dealt with their local issues is some of the most informed economics out there.

          likbez -> pgl...

          I think we need to distinguish between Friedman the academic economist before writing Capitalism and Freedom (1962) and Friedman the public intellectual after.

          "After" Friedman was a dismal intellectual prostitute that promoted neoliberalism for money paid by financial oligarchy. The level of dishonesty and intellectual degradation that he displays in his public appearances that now are available in YouTube videos is simply astonishing.

          Actually Professor Wendy Brown touched the mechanics of this slick propaganda campaign in her book "Undoing the Demos". From Amazon:

          === Start of quote ===
          Neoliberal rationality -- ubiquitous today in statecraft and the workplace, in jurisprudence, education, and culture -- remakes everything and everyone in the image of homo oeconomicus. What happens when this rationality transposes the constituent elements of democracy into an economic register? In Undoing the Demos, Wendy Brown explains how democracy itself is imperiled. The demos disintegrates into bits of human capital; concerns with justice bow to the mandates of growth rates, credit ratings, and investment climates; liberty submits to the imperative of human capital appreciation; equality dissolves into market competition; and popular sovereignty grows incoherent. Liberal democratic practices may not survive these transformations. Radical democratic dreams may not either.

          In an original and compelling argument, Brown explains how and why neoliberal reason undoes the political form and political imaginary it falsely promises to secure and reinvigorate. Through meticulous analyses of neoliberalized law, political practices, governance, and education, she charts the new common sense. Undoing the Demos makes clear that for democracy to have a future, it must become an object of struggle and rethinking.

          [Nov 15, 2015] Election 2016 Democratic debate transcript Clinton, Sanders, OMalley in Iowa

          Hillary tried to play the gender card and the 9/11 card in an attempt to escape to accusation (actually a provable fact) that she is a Wall Street sheel. "Why has Wall Street been the major campaign contributor to Hillary Clinton?" Sanders asked loudly, concluding that big contributors only give because "They expect to get something. Everybody knows it."
          ...Clinton asserted that under her bank-regulation plan, if Wall Street institutions don't play by the rules "I will break them up."
          Sanders minced her defense into peaces: "Wall Street play by the rules? Who are we kidding?! The business model for Wall Street is fraud," Sanders fired back.
          A short time later, the moderators got a tweet calling her out for "invoking 9/11" to justify taking donations from Wall Street. One tweeter said they'd never seen a candidate "invoke 9/11 to champion Wall Street. What does that have to do with taking big donations," Clinton was asked.
          Sanders said that there's no getting around the fact that Wall Street has become a dominant political power and its "business model is greed and fraud, and for the sake of our economy major banks must be broken up."
          Bernie compared himself to Ike, scoring one of the few real laugh lines of the night. CBS News moderator Nancy Cordes asked Sanders how he's going to pay for expensive programs such as his tuition-free college plan. By taxing the wealthy and big corporations, he says. Asked how much of a tax hike he's planning to stick them with, he responded, "We haven't come up with an exact number yet … But it will not be as high as the number under Dwight D. Eisenhower which was 90%," Sanders said of the Republican president.
          "I'm not that much of a socialist compared to Eisenhower," Sanders concluded, to guffaws from the crowd.
          CBS News

          JOHN DICKERSON:

          Senator Sanders, let me just follow this line of thinking. You've criticized then Senator Clinton's vote. Do you have anything to criticize in the way she performed as secretary of state?

          BERNIE SANDERS:

          I think we have a disagreement. And-- the disagreement is that not only did I vote against the war in Iraq, if you look at history, John, you will find that regime change-- whether it was in the early '50s in Iran, whether it was toppling Salvador Allende in Chile or whether it was overthrowing the government Guatemala way back when-- these invasions, these-- these toppling of governments, regime changes have unintended consequences. I would say that on this issue I'm a little bit more conservative than the secretary.

          JOHN DICKERSON:

          Here, let me go--

          MARTIN O'MALLEY:

          John, may I-- may I interject here? Secretary Clinton also said that we left the h-- it was not just the invasion of Iraq which Secretary Clinton voted for and has since said was a big mistake, and indeed it was. But it was also the cascading effects that followed that.

          It was also the disbanding of-- many elements of the Iraqi army that are now showing up as part of ISIS. It was-- country after country without making the investment in human intelligence to understand who the new leaders were and the new forces were that are coming up. We need to be much more far f-- thinking in this new 21st century era of-- of nation state failures and conflict. It's not just about getting rid of a single dictator. It is about understanding the secondary and third consequences that fall next.

          JOHN DICKERSON:

          Governor O'Malley, I wanna ask you a question and you can add whatever you'd like to. But let me ask you, is the world too dangerous a place for a governor who has no foreign policy experience?

          MARTIN O'MALLEY:

          John, the world is a very dangerous place. But the world is not too dangerous of a place for the United States of America provided we act according to our principles, provided we act intelligently. I mean, let's talk about this arc of-- of instability that Secretary Clinton talked about.

          Libya is now a mess. Syria is a mess. Iraq is a mess. Afghanistan is a mess. As Americans we have shown ourselves-- to have the greatest military on the face of the planet. But we are not so very good at anticipating threats and appreciating just how difficult it is to build up stable democracies and make the investments in sustainable development that we must as the nation if we are to attack the root causes of-- of the source of-- of instability.

          And I wanted to add one other thing, John, and I think it's important for all of us on this stage. I was in Burlington, Iowa and a mom of a service member of ours who served two duties in Iraq said, "Governor O'Malley, please, when you're with your other candidates and colleagues on-- on stage, please don't use the term boots on Iraq-- on the ground. Please don't use the term boots on the ground. My son is not a pair of boots on the ground."

          These are American soldiers and we fail them when we fail to take into account what happens the day after a dictator falls. And when we fall to act with a whole of government approach with sustainable development, diplomacy and our economic power in-- alignment with our principles.

          BERNIE SANDERS:

          But when you talk about the long-term consequences of war let's talk about the men and women who came home from war. The 500,000 who came home with P.T.S.D. and traumatic brain injury. And I would hope that in the midst of all of this discussion this country makes certain that we do not turn our backs on the men and women who put their lives on the line to defend us. And that we stand with them as they have stood with us.

          JOHN DICKERSON:

          Senator Sanders, you've-- you've said that the donations to Secretary Clinton are compromising. So what did you think of her answer?

          BERNIE SANDERS:

          Not good enough. (LAUGH) Here's the story. I mean, you know, let's not be naive about it. Why do-- why over her political career has Wall Street a major-- the major-- campaign contributor to Hillary Clinton? You know, maybe they're dumb and they don't know what they're gonna get. But I don't think so.

          Here is the major issue when we talk about Wall Street, it ain't complicated. You got six financial institutions today that have assets of 56 per-- equivalent to 50-- six percent of the GDP in America. They issue two thirds of the credit cards and one third of the mortgages. If Teddy Roosevelt, the good republican, were alive today you know what he'd say? "Break them up. Reestablish (APPLAUSE) (UNINTEL) like Teddy Roosevelt (UNINTEL) that is leadership. So I am the only candidate up here that doesn't have a super PAC. I'm not asking Wall Street or the billionaires for money. I will break up these banks, support community banks and credit unions-- credit unions. That's the future of banking in America.

          JOHN DICKERSON:

          Quick follow-up because you-- you-- (APPLAUSE) Secretary Clinton, you'll get a chance to respond. You said they know what they're going to get. What are they gonna get?

          BERNIE SANDERS:

          I have never heard a candidate, never, who's received huge amounts of money from oil, from coal, from Wall Street, from the military industrial complex, not one candidate, go, "OH, these-- these campaign contributions will not influence me. I'm gonna be independent." Now, why do they make millions of dollars of campaign contributions? They expect to get something. Everybody knows that. Once again, I am running a campaign differently than any other candidate. We are relying on small campaign donors, $750,000 and $30 apiece. That's who I'm indebted to.

          BERNIE SANDERS:

          Here's-- she touches on two broad issues. It's not just Wall Street. It's campaigns, a corrupt campaign finance system. And it is easy to talk the talk about ending-- Citizens United. But what I think we need to do is show by example that we are prepared to not rely on large corporations and Wall Street for campaign contributions.

          And that's what I'm doing. In terms of Wall Street I respectfully disagree with you, Madame Secretary in the sense that the issue is when you have such incredible power and such incredible wealth, when you have Wall Street spending five billion dollars over a ten year period to get re-- to get deregulated the only answer that I know is break them up, reestablish Glass Steagall.

          JOHN DICKERSON:

          Senator, we have to get Senator O'Malley in. But no-- along with your answer how many Wall Street-- veterans would you have in your administration?

          MARTIN O'MALLEY:

          Well, I'll tell you what, I've said this before, I-- I don't-- I believe that we actually need some new economic thinking in the White House. And I would not have Robert Rubin or Larry Summers with all due respect, Secretary Clinton, to you and to them, back on my council of economic advisors.

          HILLARY CLINTON:

          Anyone (UNINTEL PHRASE).

          MARTIN O'MALLEY:

          If they were architects, sure, we'll-- we'll have-- we'll have an inclusive group. But I won't be taking my orders from Wall Street. And-- look, let me say this-- I put out a proposal-- I was on the front line when people lost their homes, when people lost their jobs.

          I was on the front lines as the governor-- fighting against-- fighting that battle. Our economy was wrecked by the big banks of Wall Street. And Secretary Clinton-- when you put out your proposal (LAUGH) on Wall Street it was greeted by many as quote/ unquote weak tea. It is weak tea. It is not what the people expect of our country. We expect that our president will protect the main street economy from excesses on Wall Street. And that's why Bernie's right. We need to reinstate a modern version of Glass Steagall and we should have done it already. (APPLAUSE)

          KATHIE OBRADOVICH:

          And I will also go after executives who are responsible for the decisions that have such bad consequences for our country. (APPLAUSE)

          BERNIE SANDERS:

          Look, I don't know-- with all due respect to the secretary, Wall Street played by the rules. Who are we kidding? The business model of Wall Street is fraud. That's what it is. And we-- we have-- (APPLAUSE) and let me make this promise, one of the problems we have had I think all-- all Americans understand it is whether it's republican administration or democratic administration we have seen Wall Street and Goldman Sachs dominate administrations. Here's my promise Wall Street representatives will not be in my cabinet. (APPLAUSE)

          BERNIE SANDERS:

          But let's-- let me hear it-- if there's any difference between the secretary and myself. I have voted time and again to-- for-- for the background checks. And I wanna see it improved and expanded. I wanna see them do away with the gun show loophole. In 1988 I lost an election because I said we should not have assault weapons on the streets of America.

          We have to do away with the strong man proposal. We need radical changes in mental health in America. So somebody who's suicidal or homicidal can get the emergency care they need. But we have-- I don't know that there's any disagreement here.

          MARTIN O'MALLEY:

          John, this is another one of those examples. Look, we have-- we have a lot of work to do. And we're the only nation on the planet that buries as many of our people from gun violence as we do in my own state after they-- the children in that Connecticut classroom were gunned down, we passed comprehensive-- gun safety legislation, background checks, ban on assault weapons.

          And senator, I think we do need to repeal that immunity that you granted to the gun industry. But Secretary Clinton, you've been on three sides of this. When you ran in 2000 you said that we needed federal robust regulations. Then in 2008 you were portraying yourself as Annie Oakley and saying that we don't need those regulation on the federal level. And now you're coming back around here. So John, there's a big difference between leading by polls and leading with principle. We got it done in my state by leading with principle. And that's what we need to do as a party, comprehensive gun--

          MARTIN O'MALLEY:

          John, there is not-- a serious economist who would disagree that the six big banks of Wall Street have taken on so much power and that all of us are still on the hook to bail them out on their bad debts. That's not capitalism, Secretary Clinton-- Clinton, that's crummy capitalism.

          That's a wonderful business model if you place that bet-- the taxpayers bail you out. But if you place good ones you pocket it. Look, I don't believe that the model-- there's lots of good people that work in finance, Secretary Sanders. But Secretary Clinton, we need to step up. And we need to protect main street from Wall Street. And you can't do that by-- by campaigning as the candidate of Wall Street. I am not the candidate of Wall Street. And I encourage--

          BERNIE SANDERS:

          No, it's not throwing-- it is an extraordinary investment for this country. In Germany, many other countries do it already. In fact, if you remember, 50, 60 years ago, University of California, City University of New York were virtually tuition-free. Here it's a new (?) story.

          It's not just that college graduates should be $50,000 or $100,000 in debt. More importantly, I want kids in Burlington, Vermont, or Baltimore, Maryland, who are in the six grade or the eighth grade who don't have a lot of money, whose parents that-- like my parents, may never have gone to college. You know what I want, Kevin? I want those kids to know that if they study hard, they do their homework, regardless of the income of their families, they will in fact be able to great a college education. Because we're gonna make public colleges and universities tuition-free. This is revolutionary for education in America. It will give hope for millions of young people.

          BERNIE SANDERS:

          It's not gonna happen tomorrow. And it's probably not gonna happen until you have real campaign finance reform and get rid of all these super PACs and the power of the insurance companies and the drug companies. But at the end of the day, Nancy, here is a question. In this great country of ours, with so much intelligence, with so much capabilities, why do we remain the only (UNINTEL) country on earth that does not guarantee healthcare to all people as a right?

          Why do we continue to get ripped off by the drug companies who can charge us any prices they want? Why is it that we are spending per capita far, far more than Canada, which is a hundred miles away from my door, that guarantees healthcare to all people? It will not happen tomorrow. But when millions of people stand up and are prepared to take on the insurance companies and the drug companies, it will happen and I will lead that effort. Medicare for all, single-payer system is the way we should go. (APPLAUSE)

          BERNIE SANDERS:

          Well-- I had the honor of being chairman of the U.S. Senate Committee on Veteran Affairs for two years. And in that capacity, I met with just an extraordinary group of people from World War II, from Korea, Vietnam, all of the wars. People who came back from Iraq and Afghanistan without legs, without arms. And I've been determined to do everything that I could to make VA healthcare the best in the world, to expand benefits to the men and women who put their lives on the line to defend (UNINTEL).

          And we brought together legislation, supported by the American Legion, the VFW, the DAV, Vietnam Vets, all of the veterans' organizations, which was comprehensive, clearly the best (UNINTEL) for veterans' legislation brought forth in decades. I could only get two Republican votes on that. And after 56 votes, we didn't get 60. So what I have to do then is go back and start working on a bill that wasn't the bill that I wanted.

          To (UNINTEL) people like John McCain, to (UNINTEL) people like Jeff Miller, the Republican chairman of the House, and work on a bill. It wasn't the bill that I wanted. But yet, it turns out to be one of the most significant pieces of veterans' legislation passed in recent history. You know, the crisis was, I lost what I wanted. But I have to stand up and come back and get the best that we could.

          JOHN DICKERSON:

          All right, Senator Sanders. We end-- (APPLAUSE) we've ended the evening on crisis, which underscores and reminds us again of what happened last night. Now let's move to closing statements, Governor O'Malley?

          MARTIN O'MALLEY:

          John, thank you. And to all of the people of Iowa, for the role that you've performed in this presidential selection process, if you believe that our country's problems and the threats that we face in this world can only be met with new thinking, new and fresh approaches, then I ask you to join my campaign. Go onto MartinOMalley.com. No hour is too short, no dollar too small.

          If you-- we will not solve our nation's problems by resorting to the divisive ideologies of our past or by returning to polarizing figures from our past. We are at the threshold of a new era of American progress. That it's going to require that we act as Americans, based on our principles. Here at home, making an economy that works for all of us.

          And also, acting according to our principles and constructing a new foreign policy of engagement and collaboration and doing a much better job of identifying threats before they back us into military corners. There is new-- no challenge too great for the United States to confront, provided we have the ability and the courage to put forward new leadership that can move us to those better and safer and more prosperous (UNINTEL). I need your help. Thank you very, very much. (APPLAUSE)

          BERNIE SANDERS:

          This country today has more income and wealth inequality than any major country on earth. We have a corrupt campaign finance system, dominated by super PACs. We're the only major country on earth that doesn't guarantee healthcare to all people. We have the highest rate of childhood poverty. And we're the only in the world, (UNINTEL) the only country that doesn't guarantee paid family and medical leave. That's not the America that I think we should be.

          But in order to bring about the changes that we need, we need a political revolution. Millions of people are gonna have to stand up, turn off the TVs, get involved in the political process, and tell the big monied interests that we are taking back our country. Please go to BernieSanders.com, please become part of the political revolution. Thank you. (CHEERING) (APPLAUSE)

          [Nov 15, 2015] The Nobel Prize winning economist who ate cat food

          Notable quotes:
          "... And the moral of this tale, he says, is that he had been phished for a phool - or manipulated into buying something. ..."
          "... we live in a constructed world thats filled with deception like this. Fools or not ..."
          "... Phishing was initially coined to describe internet fraud, but Profs Shiller and Akerlof use it more broadly to cover a world of deception, and add the term phools to describe its victims. ..."
          "... The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated into buying financial products that were ultimately destructive to them and to society. ..."
          "... Most people will pick little shortcuts, little dishonesties, says Prof Shiller. You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors, another is to your employees. And you think everybody does this. Nobodys making a stink.... of course you do it, and the ones who dont do it are failing and going out of business. Thats a phishing equilibrium. ..."
          "... Profs Shiller and Akerlof argue that the free markets persuade us to do things with results that no one could possibly want... ..."
          November13. 2015 | http://www.bbc.com/news/business-34788197

          "Once upon a time a Nobel Prize winning economist had a cat called Lightning.

          Now, Lightning appeared to like his cat food, a rather pricey gourmet dish which claimed to be a cut above the rest. But maybe, thought the Nobel Prize winning economist, I have been fooled into thinking this cat food is a cut above the rest - when it isn't. There is only one way to find out, said the economist. And that is to eat it myself. And so he did. It was, he said with a giggle, pretty much like any other cat food.

          And the moral of this tale, he says, is that he had been "phished for a phool" - or manipulated into buying something.

          Now the economist in question, Robert Shiller and his fellow Nobel laureate George Akerlof, have written Phishing for Phools, about how the sellers of cat food and thousands of other products and services "phish" us into buying things we do not want or need.

          "Of course they do it," he says. "If you had a cat food company you wouldn't say 'Dried Dead Fish' on the label...we live in a constructed world that's filled with deception like this." Fools or not

          "Phishing" was initially coined to describe internet fraud, but Profs Shiller and Akerlof use it more broadly to cover a world of deception, and add the term "phools" to describe its victims.

          Being gulled into paying more for cat food is hardly a serious affair. But the two economists see it as a microcosm of something much bigger in society.

          The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated into buying financial products that were ultimately destructive to them and to society.

          So the sale of deeply flawed mortgage-backed securities and their accompanying credit-default swaps flourished on the back of free markets and the reputations of the banks and finance house that sold them.

          ... ... ...

          Profs Shiller and Akerlof argue that if people were fooling themselves there were plenty of others happy to help them on their way. ...The two authors are behavioral economists, who inject psychology and sociology into their economics. There's nothing new about that, but this latest foray into the "dismal art" has a distinctly dismal view of human nature.

          "Most people will pick little shortcuts, little dishonesties," says Prof Shiller. "You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors, another is to your employees. And you think everybody does this. "Nobody's making a stink.... of course you do it, and the ones who don't do it are failing and going out of business. That's a phishing equilibrium."

          ... ... ...

          Profs Shiller and Akerlof argue that the free markets persuade us to do things with results that no one could possibly want..."

          [Nov 14, 2015] Students across U.S. march over debt, free public college

          Neoliberal college is not about education. It is about getting wealthy a head start to enforce and strengthen separation between the elite and the rest. Other can only complain... But that e fact is the many large companies invite for interview for open positions only of Ivy Leagues graduates. Other do not need to apply. So it is mostly about "Class A" and "Class B" citizens. Talent and hard work can buy buy a ticket for vertical mobility (see some stories below), but that was true in any society. Actually mobility in the USA is below average, despite MSM non-stop brainwashing of the USA citizens about "the land of opportunities", the "American Dream", etc. And exorbitant salaries of University brass is a norm now. you can't change that without changing the neoliberal system as a whole. they are no longer bound by academic ethics. Like Wall Streeters, want to get the most of the life, no matter by what means (the end justifies the means mentality). They are masters of the universe. Others (aka suckers) can go to hell.
          Notable quotes:
          "... Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans. ..."
          "... I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO. ..."
          "... Ever visit a university in a country that has free college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for. ..."
          "... What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college. ..."
          "... College tuition cannot be allowed to just continue to escalate. ..."
          "... If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school. ..."
          "... I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. ..."
          "... If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault! ..."
          "... College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. ..."
          "... The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like chief diversity and inclusion officer and you have expensive college. ..."
          "... These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative. What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts? ..."
          "... Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. ..."
          Nov 14, 2015 | news.yahoo.com

          Students held rallies on college campuses across the United States on Thursday to protest ballooning student loan debt for higher education and rally for tuition-free public colleges and a minimum wage hike for campus workers.

          The demonstrations, dubbed the Million Student March, were planned just two days after thousands of fast-food workers took to the streets in a nationwide day of action pushing for a $15-an-hour minimum wage and union rights for the industry.

          About 50 students from Boston-area colleges gathered at Northeastern University carrying signs that read "Degrees not receipts" and "Is this a school or a corporation?"

          "The student debt crisis is awful. Change starts when people demand it in the street. Not in the White House," said Elan Axelbank, 20, a third year student at Northeastern, who said he was a co-founder of the national action.

          ... ... ...

          "I want to graduate without debt," said Ashley Allison, a 22-year-old student at Boston's Bunker Hill Community College, at the Northeastern rally. "Community college has been kind to me, but if I want to go on, I have to take on debt."

          Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans.

          ... ... ...

          Andrew Jackson

          Free taxpayer supported public education means more college administrators earning $200,000 or more, more faculty earning $100,000 or more working 8 months a year and more $300 textbooks. Higher education costs are a direct correlation to Federal Student Loans subsiding college bureaucracies, exorbitant salaries for college administrators and faculty.

          terrance

          What fantasy world do these people live in. There is nothing for free and if you borrow tens of thousands of dollars you can't expect later that someone else will pick up your tab. Pucker up bucky, it is your responsibility.

          Furthermore, a lot of this money didn't go to education. I have read where people went back to school so they could borrow money to pay their rent, or even their car payments. As for 15 dollars an hour to sling burgers, grow up.

          sjc

          Having been out of college for a few years, I am curious. I went to a State University. Tuition was high, I had to take loans, I drove a cheap 10 yr old vehicle, but it didn't kill me. My total debt was about the price of a decent new car back then.

          Today, the average student loan debt after graduation is just under $30,000. Around the price of a new car. And these kids are trying to tell us that this is too much of a burden??? Look around any campus these days, and you will see lots of $30,000 cars in the parking lots.

          I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO.

          Meed

          Careful what you wish for, kiddies. It's simple math and simple economics (things I learned in school while studying instead of protesting). Every university has a maximum number of students it can support, based on the number and capacity of dorms, classrooms, faculty, etc.

          The tuition rates have always closely matched the amount of easily-accessed loans available - the easier the access to loans, the higher tuition is. The simple reason is that the universities raise tuition rates to manage the demand for their limited resources, and can always raise rates when there is more demand than there are openings for incoming students.

          Thanks to the windfall from that high tuition, today's universities have student unions, recreation facilities, gyms, pools, and lots of amenities to attract students. Imagine what they will offer when they can't jack up the tuition. Ever visit a university in a country that has "free" college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for.

          matthew

          Oddly enough, a majority of these students attend colleges who has sport teams sponsored by Nike, Under Armour, Adidas, or Reebok. So, should theses companies atop providing the uniforms and equipment free of charge and donate the money to make more scholarships available? Then the student athletes can purchase their own gear on their own dime. Where one group attains, another must lose. Let this be debated on college campuses and watch the students divide themselves. We will find out what is most important to them.

          JB

          What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college.

          Some junk yard dog investigative journalist needs to dig into the rising cost of college education and identify the cause. Once the cause are understood then something can be done to make college more affordable. College tuition cannot be allowed to just continue to escalate.

          just sayin'

          Seriously how do we let our children out of high school without enough information to decide if going to college is actually a good investment? If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school.

          pcs

          I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. I mean, they had enough math skills to be accepted, then graduate, from college. If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault!

          E

          College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. If you tour colleges, and I toured many in the past few years with my kids, you don't see a classroom or lab unless you ask.

          The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like "chief diversity and inclusion officer" and you have expensive college.

          If students want a cheap education, go to the junior college for general ed classes then transfer to a four-year school. It is not glamorous but it yields a quality education without a fortune in debt.

          Rich

          Getting an education is obviously the biggest scam in history!!!! Look at who controls education. Look at all the Universities presidents last names then you will know what they are. I can't say it here on Yahoo because they will take my comments out for speaking the truth. These presidents make millions of $$$$$ a year off of students and parents who are slaves and work hard to pay those tuitions. Not only that but look at the owners last names of the Loan

          50 CAL

          Universities are money munching machines with no regard for how the students will repay the loans. Universities annually raise tuition rates(much of which is unnecessary) with no regard of how these young minds full of mush are going to repay the crushing debt, nor do they care. Locally one university just opened a 15 million dollar athletic center, which brings up the question, why did they need this? With that kind of cash to throw around, what wasn't at least some used to keep tuitions affordable?

          Mike D

          These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative.

          What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts?

          How are these loans to be made 'free' if existing loans bear interest? If the student of 'free education' defaults, doesn't graduate, will he owe money-will his parent, or will the 'free school' simply become a dumping ground for the youth without direction, simply housed in college's dorm rooms?
          Lots of questions and two things to keep in mind, the Banks and Teaching institutes love the idea of 'free', the students are believing there might be a free ride.. ignoring schools and Banks don't, won't and never do anything for free.

          This is not going to turn out well for consumers. Sure, Household payments of Education may drop, but the Institution of Education cannot keep even its slim success rate it has now. I don't know how educators managed to turn education into a purely self gratifying industry, giving anything to purchasers they wished for that Education loan, but never ever ever, has underwriting by the Central improved the quality of business. Complete underwriting of the important system of education at the Fed level will be a disaster.

          There will be almost zero accountability for institutes and students, we will have a more expensive system that turns out the worst grads.

          Don't try believing that other countries abilities with free Ed can be duplicated here.. not without serious socialism, a condition where qualifying for Ed advancement is determined by the Central.

          Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. Blanket quals are almost a condition here, American Students are in for a serious surprise. They will not be so able to buy/loan their way to college and have to excel to get into college.

          The joke is on the American student.

          Jim

          i was one of seven children- i worked my way through four years of undergrad and three years of grad school with my parents only being able to pay health insurance and car insurance- i worked shelving books, busing tables, delivering pizzas and for the last five years as a parimutuel clerk at dog and horsetracks- i never got to go on spring break, do a semester at sea or take classes in europe- i graduated debt free from public universities- have no sympathy for a bunch of whiny brats who have to drive better cars than their professors and believe they are entitled to special treatment- get a job and quit acting like a bunch of welfare queens who feel they deserve entitlements

          Linda

          My son is in college. Because grandpa saved his money over the years, he volunteered to pay for college costs. We hope to continue the tradition with our grandchildren and carefully save our money as well. We don't live high or purchase new. He will graduate zero dollars in debt.

          My son's college roommate comes from a very wealthy family. They own a plane - two houses - dad works on Wall Street - mom is a Doctor. He has to pay for his own education and gets loans for everything. His parents simply don't have the cash to pay for his education.

          It's priorities people! If something is worth it, you'll make it happen.

          [Nov 13, 2015] Goldman Decline in Oil Prices boosted GDP by 0.2% in 2015

          Notable quotes:
          "... cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months. ..."
          "... Judging by the recent earnings reports from retailers, one has to question the Oil Stimulus theory. ..."
          "... Can't wait until Goldman tells us that higher oil prices lead to higher GDP. ..."
          "... Total real personal income expenditure is at the pre-97 trend. Markets keep on wanting 97-06 consumption levels. They simply don't get it. ..."
          "... This is not worthy of a post. It is just sucking up to Goldman, of all disreputable firms to quote. Ridonculous. Really. ..."
          "... Credo: Economic Beliefs in a World in Crisis ..."
          Calculated Risk

          A few excerpts from a Goldman Sachs research piece by economist Daan Struyven: Shale, States and the Shrinking Oil Stimulus

          ... ... ...

          Our state-level analysis suggests that a 50% decline in oil prices is associated with an eventual rise in aggregate output of 0.4% and 400,000 to 500,000 extra jobs. These estimates are broadly consistent with our most recent research, but below the impact implied by many earlier studies. Taking together our new state-level estimates as well as our earlier work and a few back-of-the-envelope calculations, our best estimate would be that cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months.

          sm_landlord

          Judging by the recent earnings reports from retailers, one has to question the Oil Stimulus theory.
          http://www.moneyandmarkets.com/retail-rout-take-two-heck-going-742471

          Sporkfed

          Can't wait until Goldman tells us that higher oil prices lead to higher GDP.

          JackSnap

          Total real personal income expenditure is at the pre-97 trend. Markets keep on wanting 97-06 consumption levels. They simply don't get it.

          gdd9000

          This is not worthy of a post. It is just sucking up to Goldman, of all disreputable firms to quote. Ridonculous. Really.

          The book: 'Credo: Economic Beliefs in a World in Crisis' is written by Brian Davey and published by Feasta, 2015. ISBN 9780-9540-5103-7. Ł20.

          [Nov 13, 2015] When Economics Works and When it Doesn't

          Notable quotes:
          "... model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioral aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems ..."
          "... to liberalize as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalization and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits. ..."
          "... But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing-boom and bust cycles, behavioral biases, agency problems, externalities, too-big-to-fail problems-if you applied those tools to the same facts, you'd get a very different kind of story. ..."
          "... "efficient markets hypothesis": ..."
          "... tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible ..."
          Economist's View

          Part of an interview of Dani Rodrik:

          Q. You give a couple of examples in the book of the way theoretical errors can lead to policy errors. The first example you give concerns the "efficient markets hypothesis". What role did an overestimation of the scope and explanatory power of that hypothesis play in the run-up to the global financial crisis of 2007-08?

          A. If we take as our central model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioral aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems-there's a natural tendency in the policy world to liberalize as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalization and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits.

          But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing-boom and bust cycles, behavioral biases, agency problems, externalities, too-big-to-fail problems-if you applied those tools to the same facts, you'd get a very different kind of story. I wish we'd put greater weight on stories of the second kind rather than the first. We'd have been better off if we'd done so.

          djb said...

          "efficient markets hypothesis": magical thinking

          Jerry Brown said...

          I can't get that link to open. Dani Rodrik says "there is a natural tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible". Is that in general? Or is that a part of the efficient market hypothesis?

          [Nov 13, 2015] Dani Rodrik when economics works and when it doesn't

          Notable quotes:
          "... There's a certain fetishism that comes along with the use of math. And that shows up in two ways: one is that arguments which are relatively straightforward, that can be put in a directly literary form, we feel we have mathematise them. Sometimes, there's undue mathematisation or formalisation. We get so enamoured of the math that the mathematical structure of models becomes an object of analysis. And that's one of the problems with economic theory-that it often becomes applied mathematics, where the point is the mathematical properties of the models. And so it becomes more and more peripheral to what economics should be about, which is to look at social phenomena. But there's a much better appreciation today of the role and also the limits of math in economics than there was 30 years ago. ..."
          "... it has squeezed out the space for mindless, abstract theorising or modelling for the sake of modelling. ..."
          "... Models are stylised abstractions that lay bare the relationship between cause and effect. I liken [models] to lab experiments. When you conduct an experiment in a lab, you're trying to isolate the thing you're looking at. ..."
          "... As long as we don't forget that [the model we're using] is a model, not the model. An immediate implication of what I just said, of the way I defined the usefulness of the model, is that the model captures only one of many different causal effects. And it's going to be most useful when we apply it to a real world setting where, in some sense, that causal effect is the dominant one. But [we should not] forget that there will be other settings where other causal effects or other models are more relevant. ..."
          "... model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioural aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems-there's a natural tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalisation and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits. ..."
          Nov 13, 2015 | Prospect Magazine
          The economist Dani Rodrik, a professor at Harvard, recently spent a couple of years at Princeton's Institute for Advanced Study. In his new book, "Economics Rules: Why Economics Works, When it Fails, and How to Tell the Difference," he recalls just what a "mind-stretching experience" that sojourn was. He found that many of the visitors to the Institute's School of Social Sciences, prominent academics from other disciplines, harboured a deep "suspicion toward economists." Those visitors seemed to believe, he writes, that "economists either stated the obvious or greatly overreached by applying simple frameworks to complex social phenomena." It felt, Rodrik says, as if economists were being cast as the "idiots savants of social science: good with math and statistics, but not much use otherwise."

          Part of the problem, Rodrik thinks, is "misinformation" about what it is economists do, exactly. "Economics Rules" is in part, therefore, an attempt to set the record straight-and to rebut some fairly widespread criticisms of economics in the process. But it's also aimed at his colleagues in the economics profession, who he thinks have made a sorry fist of "presenting their science to the world." When I spoke to him on the phone from the United States this week, I asked about that assumption he'd encountered at Princeton-that economists are "good with math and statistics" and not much else.

          DR: Often we take it [mathematics] too far. There's a certain fetishism that comes along with the use of math. And that shows up in two ways: one is that arguments which are relatively straightforward, that can be put in a directly literary form, we feel we have mathematise them. Sometimes, there's undue mathematisation or formalisation. We get so enamoured of the math that the mathematical structure of models becomes an object of analysis. And that's one of the problems with economic theory-that it often becomes applied mathematics, where the point is the mathematical properties of the models. And so it becomes more and more peripheral to what economics should be about, which is to look at social phenomena. But there's a much better appreciation today of the role and also the limits of math in economics than there was 30 years ago.

          JD: Right. You say in the book that one of the most significant developments in economics over the past three decades or so has been the increasingly widespread use of empirical methods.

          Yes, that has definitely been a [sign of] great progress and has forced us to be much more grounded. And it has squeezed out the space for mindless, abstract theorising or modelling for the sake of modelling. But there's a tendency in parts of the profession [today] to believe that if you're just doing empirical work, then you can do away with theory or with thinking about the models that lie behind the particular empirical application. The point that is important to realise-and I'm not sure if I make this sufficiently strongly in the book itself-is that it's impossible to interpret any empirical evidence without either an implicit or, better still, an explicit model behind it. So every time we make a causal assertion about the real world using data we are implicitly using a model.

          The idea of the economic model is one of the central concepts in the book. Where does the explanatory power of economic models come from?

          Models are stylised abstractions that lay bare the relationship between cause and effect. I liken [models] to lab experiments. When you conduct an experiment in a lab, you're trying to isolate the thing you're looking at.

          You draw an interesting comparison between models and fables. You say that models, like fables, leave out or abstract from certain aspects of the world as it is. And that, in your view, is a strength, a feature, as you put it, rather than a bug.

          As long as we don't forget that [the model we're using] is a model, not the model. An immediate implication of what I just said, of the way I defined the usefulness of the model, is that the model captures only one of many different causal effects. And it's going to be most useful when we apply it to a real world setting where, in some sense, that causal effect is the dominant one. But [we should not] forget that there will be other settings where other causal effects or other models are more relevant.

          A charge often made against economics, and which you try to rebut in the book, is that many of its assumptions, particularly about the rationality of economic actors, are unrealistic. To what extent does behavioural economics, which injects the insights of psychology into formal economic modelling, take that kind of criticism for granted? Or, to put it another way, does behavioural economics overturn or invalidate what you call the "garden-variety perfectly competitive market model"?

          Yes, but it's only the latest a stream of models that have all had the effect of overturning the central implication of the perfectly competitive model. We've known since the 19th century that a market with a few firms would not produce the efficiency consequences of the perfectly competitive model. Then, of course, in the 1970s there was the imperfect competition revolution, where it turns out that, in the presence of asymmetric information, all kinds of consequences follow. So the behavioural revolution isn't new in the sense of generating results that overturn the basic implications of the perfectly competitive model. It's new in that it directly removes an assumption that had been at the core of neoclassical theorising-the notion of individual rationality.

          There's a tendency now to interpret the behavioural models as implying that we can now forget about "rational man," that we can forget about all these optimising frameworks. And again I think that's wrong. There are going to be settings in which the behavioural model provides important insights. But it would be wrong to discard models in which rational behaviour plays an important role. The trick is to know when to apply a behavioural approach and when to apply a rational approach.

          You have a chapter entitled "When Economists Go Wrong" in which you argue that economists' biggest mistake concerns the claims they often make for the general validity of certain assumptions and models. The danger, in other words, is that of confusing a model with the model.

          Right. In policy, that's where we fall on our faces repeatedly. When we are called on for policy advice our biggest mistake is not drawing the links between the critical assumptions of a model and the real world context with the same kind of rigour and systematic thinking that we exercise when we're operating within a model.

          You give a couple of examples in the book of the way theoretical errors can lead to policy errors. The first example you give concerns the "efficient markets hypothesis". What role did an overestimation of the scope and explanatory power of that hypothesis play in the run-up to the global financial crisis of 2007-08?

          If we take as our central model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioural aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems-there's a natural tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalisation and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits.

          But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing-boom and bust cycles, behavioural biases, agency problems, externalities, too-big-to-fail problems-if you applied those tools to the same facts, you'd get a very different kind of story. I wish we'd put greater weight on stories of the second kind rather than the first. We'd have been better off if we'd done so.

          You also have a chapter on "Economics and Its Critics". To what extent does your point about economists' tendency to overestimate the scope and power of their models neutralise some fairly common criticisms of the discipline made by non-economists? Your point being, as I understand it, that the problem is not so much with the models themselves as with economists' expectations of what those models will yield.

          What I'm claiming is that if economists were actually truer to their discipline and were to project their discipline to the rest of the world as a collection of models, to a large extent it would help neutralise the criticism that economists are [wedded to] one model in particular. You don't get a reputation as a successful researcher by demonstrating that Adam Smith was right! You get a reputation by showing that there are very circumstances in which he might have been wrong. But this richness, this willingness to countenance non-free-market outcomes, is somehow rarely revealed to the outside world.

          Dani Rodrik's "Economics Rules: Why Economics Works, When It Fails, And How to Tell the Difference" is published by Oxford University Press (Ł16.99)

          [Nov 12, 2015] The Quantum of the Soulless - Trickle Down Bubble

          Notable quotes:
          "... There may be little doubt that the trickle down stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium. At least, this is what history has proven. ..."
          "... the huge increase in corporate debt that has been facilitated by the Feds easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few. ..."
          Jesse's Café Américain

          "To know and to serve God, of course, is why we're here, a clear truth, that, like the nose on your face, is near at hand and easily discernible but can make you dizzy if you try to focus on it hard. But a little faith will see you through. What else will do except faith in such a cynical, corrupt time? When the country goes temporarily to the dogs, cats must learn to be circumspect, walk on fences, sleep in trees, and have faith that all this woofing is not the last word.

          What is the last word, then? Gentleness is everywhere in daily life, a sign that faith rules through ordinary things: through cooking and small talk, through storytelling, making love, fishing, tending animals and sweet corn and flowers, through sports, music and books, raising kids - all the places where the gravy soaks in and grace shines through. Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people."

          Garrison Keillor

          The economic data continued in weakly this morning, with an oversized number of newly unemployed, and a continuing unemployment number that was higher than expected. Tra la.

          There may be little doubt that the 'trickle down' stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium. At least, this is what history has proven.

          On the right is a chart that shows how the huge increase in corporate debt that has been facilitated by the Fed's easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few.

          But such abuses of policy and regulation can go quite far. And the further it goes, the more messy the reversion to the mean may be.

          ... ... ...

          [Nov 12, 2015] A Closer Look at All Those New U.S. Jobs Elliott Wave International

          Notable quotes:
          "... In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included. ..."
          "... The labor force participation rate is at its lowest level in 38 years. ..."
          "... This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work ..."
          "... A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here. ..."
          "... the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets. ..."
          Safehaven.com

          U.S. labor force participation rate is at its lowest level in 38 years

          Editor's note: You'll find a text version of the story below the video.

          https://www.youtube.com/watch?v=B9qPHWirD9o

          In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included.

          The labor force participation rate is at its lowest level in 38 years.

          This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work:

          A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here.

          Even those who are working are struggling to make headway.

          And what about the 2.95 million new jobs that were created in 2014, and the slightly more than 2 million so far in 2015?

          The numbers sound impressive until you dig deeper. This is from the Atlantic magazine (September 4):

          According to new research, between 2009 and 2014, wage loss across all jobs averaged 4 percent. But for those in the bottom quintile, those losses averaged 5.7 percent. ... The [jobs] where declines in real wages have been the most acute -- are also the jobs that have hired the highest share of new workers during the recovery.

          It's true that average hourly earnings increased by nine cents in October. Even so, the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets.

          Also consider that in September, the U.S. Consumer Price Index fell 0.2% and that the Producer Price Index declined by 0.5%.

          All told, our stance remains that deflation is knocking at the door.

          Get the full picture of what we see as a worldwide deflationary trend in our new report, Deflation and the Devaluation Derby .

          Here's what you will learn:

          • Currency devaluation's role in the developing global crisis
          • How the self-reinforcing aspect of deflation is already apparent in commodities trading
          • Why the top 1% of earners are in for a rude awakening
          • How Europe's biggest economies are screeching to a halt
          • The hair-raising future for U.S. stocks

          Just recall how swiftly the 2007-2009 financial crisis unfolded. We anticipate that the next global financial crisis could be even more sudden and severe.

          [Nov 12, 2015] Trickle Down, Starve the Beast, Supply-Side, and Sound Money Fantasies

          Notable quotes:
          "... STUDY: During the past three years, members of the Standard Poor's 500 Index have spent more than $1.5 trillion buying back stock ... US companies issued stock equal to $1.2 trillion last year. All told the new issues in 2014 exceeded share buybacks ... The conclusion is that what looks like buybacks are actually thinly veiled management-compensation plans. ..."
          "... Looser monetary policy increases the value of existing assets but reduces the return on assets. So the impact it has on inequality is to increase it in the short run, but in the long run the first order* impact is zero. ..."
          "... I doubt that trickle down, starve the beast, supply-side, sound money fantasies are really economics at all. They look now more like the supportive myths of a new, much more hierarchical social order. As such, they should be seen as modern equivalents of the Divine Right royal myth of the Ancien Regime, or even the claim of Dark Age warlords to be descendants of Woden. ..."
          Economist's View

          JohnH said in reply to djb...

          Tim Canova on trickle down monetary policy:

          "Ben Bernanke, the Federal Reserve chairman when the QE programs were first launched, claimed that asset purchases would have a "wealth effect": by the Fed purchasing bonds in such large amounts, bond prices would rise, yields would fall, and investors would shift into riskier securities, driving up the price of corporate shares and stock markets. Everyone would feel richer, businesses would invest and consumers would spend more. This seems much like the theory of "trickle-down" fiscal policy: that tax cuts for those with high incomes would be invested, thereby leading to the hiring of additional workers and spreading the benefits to the rest of the economy. But like the Bush administration's tax cuts, the Fed's monetary trickle-down has not worked so well. The Fed's lending and asset purchase programs have effectively propped up Wall Street interests -- big banks and financial markets -- but they have also neglected the needs of Main Street, including the small community banks, small and moderate sized and family-owned businesses, unemployed and underemployed workers, and state and local governments."
          https://www.dissentmagazine.org/article/who-runs-federal-reserve-2008-crash

          Canova is one of the nationally renowned economists who advised Bernie Sanders on the Fed, and actually got the Fed audited, exposing apparent conflicts of interest with Wall Street.
          http://www.sanders.senate.gov/newsroom/press-releases/top-economists-to-advise-sanders-on-fed-reform

          What's amazing: 'liberals' can see trickle down when it comes to tax cuts but not in monetary policy. They march in lock step with Wall Street when it comes to monetary policy...which has barely trickled down at all after seven years.

          Bud Meyers said...

          Bloomberg (November 2015)

          STUDY: "During the past three years, members of the Standard & Poor's 500 Index have spent more than $1.5 trillion buying back stock ... US companies issued stock equal to $1.2 trillion last year. All told the new issues in 2014 exceeded share buybacks ... The conclusion is that what looks like buybacks are actually thinly veiled management-compensation plans."

          http://www.bloombergview.com/articles/2015-11-11/why-corporate-management-loves-share-buybacks

          Bernie! Bernie! Bernie!
          https://www.youtube.com/watch?v=6_L5e0fIkQ8

          sanjait said...

          It's apparently impossible for most to understand this ... but the most accurate way to describe the first order distributional impact of looser monetary policy would be to say:

          Looser monetary policy increases the value of existing assets but reduces the return on assets. So the impact it has on inequality is to increase it in the short run, but in the long run the first order* impact is zero.

          *Of course, second order impacts are important here. But if we're counting those, we should probably keep in mind the dynamics of the given situation, and the fact that workers in no way benefit from letting the economy slide into depression.

          Peter K. said...

          WSJ:

          "It's also notable that nearly all of the GOP candidates identify the Federal Reserve's post-crisis monetary policy as a source of rising inequality "

          I find it hard to believe that the Wall Street Journal or the GOP candidates actually think rising inequality is a bad thing.

          gordon said...

          I doubt that "trickle down, starve the beast, supply-side, sound money fantasies" are really economics at all. They look now more like the supportive myths of a new, much more hierarchical social order. As such, they should be seen as modern equivalents of the Divine Right royal myth of the Ancien Regime, or even the claim of Dark Age warlords to be descendants of Woden.

          [Nov 12, 2015] Oil price collapsing, could set new low

          www.cnbc.com

          West Texas Intermediate crude futures was down 2.75 percent at $41.75 per barrel. WTI set an intraday low of $37.75 on Aug. 24. Brent crude was down nearly 3 percent Thursday at $45.23 per barrel.

          [Nov 12, 2015] World risks 'persistently' weak growth IMF

          finance.yahoo.com

          Real gross domestic product (GDP) growth is seen averaging 3.1 percent year-on-year across the globe in 2015 and 3.6 percent next year by the IMF. This is down from the international body's July forecasts, which suggested economic expansion of 3.3 percent in 2015 and 3.8 percent in 2016. It is also marginally slower than the growth rates of 3.3 percent and 3.4 percent seen in 2013 and 2014, respectively.

          "Growth remains fragile and could be derailed if transitions are not successfully navigated. In an environment of declining commodity prices, reduced capital flows to emerging markets, and higher financial market volatility, downside risks to the outlook remain elevated, particularly for emerging economies," the IMF said.

          ... ... ...

          Overall, growth is seen declining in emerging economies for a fifth year in a row in 2015, before strengthening next year. Notably, Russia's economy is seen shrinking 3.8 percent this year and 0.6 percent next, while Brazil's economy is declining by 3.0 percent this year and 1.0 percent in 2016.

          [Nov 12, 2015] These 425 Goldman Bankers Just Hit The Jackpot

          Zero Hedge

          It's that time of year.... when the bank-that-does-God's-work chooses who to bless with mass affluence. This year 425 Goldman Sachs' employees were annointed "Managing Directors" which according to Emolumnet.com means an average annual comp of approximately $1 million.

          [Nov 12, 2015] Oil Industry Needs Half a Trillion Dollars to Endure Price Slump

          Notable quotes:
          "... I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken. ..."
          "... One thing to be careful with the fracklog, is that not all of these will be good wells. ..."
          "... I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040. ..."
          "... "Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."
          "... U.S. drillers account for 20 percent of the debt due in 2015, ..."
          peakoilbarrel.com

          ChiefEngineer , 11/09/2015 at 2:46 pm

          Saudi Arabia will not stop pumping to boost oil prices

          http://www.cnbc.com/2015/11/09/

          "Mr Falih, who is also health minister, forecast the market would come into balance in the new year, and then demand would start to suck up inventories and storage on oil tankers. "Hopefully, however, there will be enough investment to meet the needs beyond 2017."

          Other officials also estimated that it would probably take one to two years for the market to clear up the oil market glut, allowing prices to recover towards $70-$80 a barrel."

          Greenbub, 11/09/2015 at 2:54 pm

          Chief, that link went dead, this might be right:
          http://www.cnbc.com/2015/11/09/reuters-america-update-1-saudi-arabia-sees-robust-oil-fundamentals-as-rival-output-falls.html

          Ron Patterson, 11/09/2015 at 4:40 pm

          From your link, bold mine:

          "Non-OPEC supply is expected to fall in 2016, only one year after the deep cuts in investment," he said.

          "Beyond 2016, the fall in non-OPEC supply is likely to accelerate, as the cancellation and postponement of projects will start feeding into future supplies, and the impact of previous record investments on oil output starts to fade away."

          I thought just about everyone was expecting a rebound in production by 2017?

          AlexS, 11/09/2015 at 7:50 pm
          Ron, Dennis

          The EIA. IEA. OPEC and most others expect non-OPEC production, excluding the U.S. and Canada to decline in 2016 and the next few years due to the decline in investments and postponement / canceling of new projects. Production in Canada is still projected to continue to grow, but at a much slower rate than previously expected.

          Finally, U.S. C+C production is expected to rebound in the second half of 2016 due to slightly higher oil prices ($55-57/bbl WTI). Also, U.S. NGL production proved much more resilient, than C+C, despite very low NGL prices.

          Non-OPEC ex U.S. and Canada total liquids supply (mb/d)
          Source: EIA STEO October 2015

          Dennis Coyne, 11/10/2015 at 9:10 am

          Hi AlexS,

          Thanks. I don't think oil prices at $56/b is enough to increase the drilling in the LTO plays to the extent that output will increase, it may stop the decline and result in a plateau, it's hard to know.

          On the "liquids" forecast, the NGL is not adjusted for energy content as it should be, each barrel of NGL has only 70% of the energy content of an average C+C barrel and the every 10 barrels of NGL should be counted as 7 barrels so that the liquids are reported in barrels of oil equivalent (or better yet report the output in gigajoules (1E9) or exajoules(1E18)). The same conversion should be done for ethanol as well.

          AlexS, 11/10/2015 at 9:54 am

          Dennis,

          Note that not only the EIA, but also the IEA, OPEC, energy consultancies and investment banks are projecting a recovery in US oil production in the later part of next year.

          That said, I agree with you that $56 WTI projected by the EIA may not be sufficient to trigger a fast rebound in drilling activity. However there is also a backlog of drilled but uncompleted wells that could be completed and put into operation with slightly higher oil prices.

          Most shale companies have announced further cuts in investment budgets in 2016, so I think it is difficult to expect significant growth in the U.S. onshore oil production in 2H16.

          If and when oil prices reach $65-70/bbl, I think LTO may start to recover (probably in 2017 ?). I think that annual growth rates will never reach 1mb/d+ seen in 2012-14, but 0.5 mb/d annual average growth is quite possible for several years with oil prices exceeding $70.

          Dennis Coyne, 11/10/2015 at 1:33 pm

          Hi AlexS,

          I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken.

          I have no idea what the frack log looks like for the Eagle Ford. If its similar to the Bakken and they complete 130 new wells per month, with about 61 oil rigs currently turning in the EF they can drill 80 wells per month, so they would need 50 wells each month from the frack log. If there are 800 DUCs, then that would last for 16 months.

          The economics are better in the Eagle Ford because the wells are cheaper and transport costs are lower, but the EUR of the wells is also lower (230 kb vs 336 kb), the well profile has a thinner tail than the Bakken wells. I am not too confident about the EIA's DPR predictions for the Eagle Ford, output will decrease, but perhaps they(EIA) assume the frack log is zero and that only 75 new wells will be added to the Eagle Ford each month. If my guess of 150 new wells per month on average from Sept to Dec 2015 is correct, then decline from August to Dec 204 will only be about 100 kb/d and 255 kb/d from March to Dec 2015 (155 kb/d from March to August 2015).

          Toolpush, 11/11/2015 at 12:45 pm

          Dennis,

          One thing to be careful with the fracklog, is that not all of these will be good wells. It is fair enough that companies like EOG will have some good DUCs, (should there be a "k" in that?) in their fracklogs. But as the fracklog is worked through, I am sure there will be a some very ugly DUCklings, that nobody wants to admit to.
          How many fall into this category, will be anybodies guess, but not all DUC, will turn out to be beautiful swans?

          Dennis Coyne, 11/10/2015 at 1:57 pm

          Hi AlexS,

          On the predictions of the EIA and IEA, they also expect total oil supply to be quite high in 2040. For example the EIA in their International Energy Outlook reference case they have C+C output at 99 Mb/d in 2040.

          Their short term forecasts are probably better than that, but my expectation for 2040 C+C output is 62 Mb/d (which many believe is seriously optimistic, though you have never expressed an opinion as far as I remember).

          So I take many of these forecasts with a grain of salt, they are often more optimistic than me, others are far more pessimistic, the middle ground is sometimes more realistic.

          AlexS, 11/10/2015 at 9:08 pm
          Dennis,

          You said above that estimated URR of all global C+C (ex oil sands in Canada and Venezuela) is 2500 Gb. And about 1250 Gb of C+C had been produced at the end of 2014. So the remaining resources are 1250 Gb.

          BP estimates total global proved oil reserves as of 2014 at 1700 Gb, or 1313 excluding Canadian oil sands and Venezuela's extra heavy oil. Their estimate in 2000 was 1301 Gb and 1126 Gb. Hence, despite cumulative production of 419 Gb in 2001-2014, proved reserves increased by 187 Gb, or 400 Gb including oil sands and Venezuela's Orinoco oil. Note that BP's estimate is for proved (not P+P) reserves, but it includes C+C+NGLs. My very rough guess is that NGLs account for between 5% and 10% of the total.

          You may be skeptical about BP's estimates, but the fact is that proved reserves or 2P resources are not a constant number; they are increasing due to new discoveries and technological advances.

          BTW, the EIA's estimate of global C+C production increasing from 79 mb/d in 2014 to 99 mb/d in 2040 implies a cumulative output of 836 Gb, about 2/3 of your estimate of remaining 2P resources of C+C or BP's estimate of the current proved reserves. Given future discoveries and improvements in technology, I think that further growth of global oil production to about 100 mb/d by 2040 should not be constrained by resource scarcity.

          What can really make the EIA's and IEA's estimates too optimistic is not the depleting resource base, but the high cost of future supply, political factors and/or lower than expected demand.

          Dennis Coyne, 11/11/2015 at 11:05 am
          Hi AlexS,

          Thanks.

          You are quite optimistic. Note that I add 300 Gb to the 2500 Gb Hubbert Linearization estimate to account for reserve growth and discoveries.

          The oil reserves reported in the BP Statistical review are 1312 Gb. Jean Laherrere estimates that about 300 Gb of OPEC reserves are "political" to keep quotas at appropriate levels with respect to "true" reserve levels. So the actual 2P reserves are likely to be 1010 Gb. Some of the cumulative C+C output is extra heavy oil so the cumulative C+C-XH output is 1240 Gb so we have a total cumulative discovery (cumulative output plus 2P reserves) of 2250 Gb through 2014.

          My medium scenario with a URR of 2800 Gb of C+C-XH plus 600 Gb of XH oil (3400 Gb total C+C) assumes 550 Gb of discoveries plus reserve growth.

          What do you expect for a URR for C+C?

          Keep in mind that at some point oil prices rise to a level that substitutes for much of present oil use will become competitive, so oil prices above $175/b (in 2015$) are unlikely to be sustained in my view.

          In a wider format below I will present a scenario with what extraction rates would be needed for my medium scenario to reach 99 Mb/d in 2040.

          Dennis Coyne, 11/11/2015 at 4:20 pm
          Hi Alex S,

          I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040.

          Depleting resources will raise production cost to more than these prices and demand will be reduced due to high oil prices. There will be an interaction between depletion and the economics of supply and demand. It will be depletion that raises costs, which will raise prices and reduce demand.

          AlexS, 11/11/2015 at 4:41 pm
          It will be depletion of low-cost reserves that raises marginal costs and prices. High-cost reserves may be abundant, but prices will rise.
          AlexS, 11/09/2015 at 7:55 pm
          corrected chart:

          TechGuy, 11/10/2015 at 10:19 am
          Oil Industry Needs Half a Trillion Dollars to Endure Price Slump
          http://www.bloomberg.com/news/articles/2015-08-26/oil-industry-needs-to-find-half-a-trillion-dollars-to-survive

          "Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

          U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent."

          [These are just the bonds that have yields higher than 10%]

          [Its very unlikely that prices will recover in time to save many of the drillers, and even if prices recover, even $75 oil will not help since they need $90 to break even to service the debt. Also not sure who is going to buy maturing debt so it can be rolled over. Even if prices slowly recover, there is likely to be fewer people willing to loan money drillers.]

          Watcher, 11/10/2015 at 5:18 pm
          Don't bet on it. Probably be even better if the price declines more. Apocalypse will not be permitted.

          [Nov 12, 2015] MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION

          Notable quotes:
          "... "The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil." ..."
          "... Wow, thats an average decline rate of about 18% per year (since 2003). ..."
          peakoilbarrel.com

          Doug Leighton 11/08/2015 at 10:27 am

          MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION

          "The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil."

          Meanwhile Ku-Maloob-Zaap remains on a production plateau of about 850,000 bpd which is expected to continue until 2017.

          http://www.shanghaidaily.com/article/article_xinhua.aspx?id=308285

          FreddyW, 11/08/2015 at 11:45 am
          Wow, thats an average decline rate of about 18% per year (since 2003).
          Doug Leighton, 11/08/2015 at 12:01 pm
          Yeh, so much for the long fat tail theory. Mind you, there are extenuating circumstances (Aren't there always?). I.E., PEMEX started shifting resources away from Cantarell a year or so back.

          [Nov 12, 2015] OPEC countries, Russia and International Oil Companies are all losing billions

          Notable quotes:
          "... It's perhaps more so high yield paper issuance ..."
          "... We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red. ..."
          peakoilbarrel.com
          Euan Mearns, 11/08/2015 at 10:32 am

          Oil Production Vital Statistics October 2015

          The "big news" this month is that the banks granted over leveraged, loss making shale oil drillers a stay of execution by continuing to provide credit lines. Consequently, there was no major move in US oil drilling or production though both are trending down. Elsewhere, the story is one of production plateaus and stabilisation of rig counts. The modest production rises and falls detailed below are simply noise on these production baselines.

          Against this backdrop of no news, the oil price traded sideways in October. OPEC countries, Russia and International Oil Companies are all losing billions and look set to continue doing so throughout 2016 as over-supply now looks set to continue until early 2017. The situation is one of stalemate as opposed to checkmate.

          Watcher, 11/08/2015 at 12:28 pm

          I think I would modify this a bit.

          "Banks". It's perhaps more so high yield paper issuance, and we have seen at least one story indicating a bank (JP Morgan) orchestrated placement of the issuance in order to service debt JPM had actually loaned. So this would mean banks are selling debt to the public (with their powerful sales force), and doing so to protect their own loan portfolios. One might also wonder about their managed accounts (client money entrusted to in-house advisors) and if those accounts were put into this HY paper.

          There was that JPM quote in response to a question about the risks to their loan portfolio. "We have offloaded that risk to investors."

          To a certain extent it all says that I forgot my own mantra: Nothing relevant to money is going to be allowed to destroy civilization, because it can be created from nothingness.

          We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red.

          [Nov 12, 2015] Excerpts from several articles in Bloomberg and Reuters

          Notable quotes:
          "... Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said. ..."
          "... "But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said. ..."
          "... The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha. ..."
          "... "The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition." ..."
          "... "We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline." ..."
          "... "We're near the bottom at $40, and there's a potential upside that's much higher." ..."
          peakoilbarrel.com

          AlexS, 11/09/2015 at 10:48 am

          Excerpts from several articles in Bloomberg and Reuters:

          Saudi Vice Oil Minister Sees Price Surge After Cutbacks

          http://www.bloomberg.com/news/articles/2015-11-09/oil-investment-cuts-at-200-billion-as-saudi-prince-sees-rally

          The scale of the global oil and gas industry's spending cuts are making another surge in energy prices possible by diminishing future supply, Saudi Vice Minister of Petroleum & Mineral Resources Prince Abdulaziz bin Salman said.

          Investments have been cut by $200 billion this year and will drop another 3 percent to 8 percent next year, marking the first time since the mid 1980s that industry cut the spending for two consecutive years, Prince Abdulaziz said in a copy of his speech for delivery to energy ministers in Doha Monday. Nearly 5 million barrels a day of projects have been deferred or canceled, he said in the remarks.

          Just like high oil prices can't last, a prolonged period of low prices is "also unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise," the prince said in the remarks. "As a responsible and reliable producer with long-term horizon, the kingdom is committed to continue to invest in its oil and gas sector, despite the drop in the oil price."

          Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said.

          "But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said.

          "Rather than being a commodity in decline, as some would like to portray, supply and demand patterns indicate that the long-term fundamentals of the oil complex remain robust."

          -------------------------

          OPEC's Badri says oil market to be more balanced in 2016

          Nov 9, 2015
          http://www.reuters.com/article/2015/11/09/us-asia-energy-opec-idUSKCN0SY0TN20151109

          The oil market is expected to become more balanced in 2016 as demand continues to grow, OPEC Secretary-General Abdullah al-Badri said on Monday ahead of the producer group's policy meeting next month.

          "The expectation is that the market will return to more balance in 2016," he said in a speech at an Asian ministerial energy roundtable in the Qatari capital Doha.

          "We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And we see an increase in the demand for OPEC crude," Badri said, according to the text of the speech published on the OPEC website.

          Most of the oil supply increases in recent years have come from high-cost production, Badri said, in a clear reference to supply sources such as U.S. shale oil.

          "The market is now taking on board this new reality and gradually resetting itself, as we can see with falling non-OPEC supply growth and stronger demand," he said.

          ----------------------------
          Yergin Joins OPEC in Seeing Market Balanced as Soon as 2016

          http://www.bloomberg.com/news/articles/2015-11-09/yergin-joins-opec-in-seeing-oil-market-balanced-as-soon-as-2016

          Global demand for crude will bring more balance to the oil market as soon as next year, according to Pulitzer Prize-winning author and energy consultant Daniel Yergin and OPEC Secretary General Abdalla El-Badri.

          The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha.

          "The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition."

          Current market volatility was caused by oversupply, mostly from high-cost producers, and oil stocks are above the five-year average, El-Badri said. Energy industry investment in exploration and production fell 20 percent, or by about $130 billion from 2014 to 2015, he said.

          "The expectation is that the market will return to more balance in 2016," El-Badri said Monday. "We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And we see an increase in the demand for OPEC crude."

          Oil prices are unsustainable at current levels and will rise gradually as international companies defer projects and production plans, United Arab Emirates Energy Minister Suhail Al Mazrouei told reporters .

          "We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline."

          The U.S. is now the new swing producer of oil, with much room for efficiency gains, Yergin said. If U.S. law would allow it, the nation could be a major oil exporter by the end of decade, he said. Canada's oil sands production will add more than 800,000 barrels a day by the decade's end, and Iran will add 400,000 to 600,000 barrels a day to world markets within a few months of sanctions ending.

          "The market will have to deal with a very significant overhang of inventories," Yergin said. "There's more volatility in this process."
          --------------------–
          Speculators Share Andy Hall's Optimism That Oil Prices at Bottom

          http://www.bloomberg.com/news/articles/2015-11-09/speculators-share-andy-hall-s-optimism-that-oil-prices-at-bottom

          Andy Hall and Daniel Yergin think oil prices are bottoming out. Hedge funds agree.
          Money managers' net-long position in West Texas Intermediate crude rose 20 percent in the week ended Nov. 3, the most in seven months, according to data from the U.S. Commodity Futures Trading Commission. Bets on rising prices increased to the highest level since June.
          U.S. onshore oil production fell for the fifth month in a row in August and supplies grew at the slowest pace since September in the week ended Oct. 30. Inventory data don't indicate a surplus in the crude market and prices are set to rise, said Hall, one of the world's best-known oil traders. Global supply and demand will begin to move into balance by late 2016 or 2017, according to Yergin.

          "The fundamentals are starting to play out," said David Pursell, a managing director at investment bank Tudor Pickering Holt & Co. in Houston. "You've got greater recognition that U.S. supply is falling and maybe falling faster. Inventories are building, but the pace of that build is more manageable."

          Onshore production excluding Alaska fell to 7.25 million barrels a day in August, down 334,000 barrels a day from March, according to Energy Information Administration data. U.S. oil inventories grew by 2.8 million barrels a day the week ended Oct. 30, the smallest gain since Sept. 18.

          U.S. output will retreat by about 10 percent in the 12 months ending April, according to Yergin, vice chairman at IHS Inc.." Prices may rise to $70 to $80 a barrel by the end of the decade, he said in an interview.

          Hall, the crude trader, said Saudi Arabia is producing close to capacity while Iraq is struggling to maintain output, while U.S. rig counts will continue to decline.

          "We think the degree of negativity is unwarranted," Hall, who runs $2.6 billion hedge fund Astenbeck Capital Management, said Nov. 4.

          "The economy is on the rebound, China is coming out of a bear market, people are saying let's get long oil," said Carl Larry, head of oil and gas for Frost & Sullivan LP.

          "We're near the bottom at $40, and there's a potential upside that's much higher."

          [Nov 12, 2015] At the current price level some shale companies may stop completing wells and may stop drilling

          Notable quotes:
          "... I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole. ..."
          "... At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015. ..."
          "... I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up. ..."
          "... "The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d." ..."
          "... Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. ..."
          "... In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels. ..."
          "... Oil and gas debt held by US banks is over $270 billion, but that would include conventional production. ..."
          "... Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA. ..."
          "... Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."
          "... A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017 ..."
          peakoilbarrel.com
          shallow sand, 11/11/2015 at 9:52 am
          Heinrich. Your point about CAPEX v operating expense is on the money.

          I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole.

          Heinrich Leopold, 11/11/2015 at 4:49 pm
          shallow sand,

          Thank you for your reply. My point is also that many shale companies have published low operating expenses over years by moving most of their expenses into the category 'capex'. By the recent impairments they have moved a big chunk of their capex into the category expenses. So, basically they are saying to investors: sorry folks you have invested your money, but actually it is not invested anymore we have spent the money already on producing gas and oil and you will see a big part of your money never again. This is in my view a very unfair way to pretend to have low operating costs.

          Dennis Coyne, 11/11/2015 at 12:34 pm
          Hi Heinrich,

          Enno Peters posts charts each month showing the well productivity. It has not decreased.

          At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015.

          FreddyW, 11/11/2015 at 4:36 pm
          Hi,

          I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up.

          Newer wells produce more in the beginning, but has higher decline rates for at least the first year. My guess is that the earlier wells will eventually have recovered more oil than the later ones.

          New data will probably come out on Friday. Maybe I have something to show after that.

          AlexS says:
          11/10/2015 at 2:24 pm

          IEA World Energy Outlook 2015 on U.S. tight oil:

          "The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d."

          "The short investment cycle of tight oil and its ability to respond quickly to price signals is changing the way that the oil market operates, but the intensity with which the tight oil resource is developed in the United States eventually pushes up costs. US tight oil production stumbles in the short term but resumes its upward march as prices recover, helped by continued improvements in technology and efficiency improvements. But tight oil's rise is ultimately constrained by the rising costs of production, as operators deplete the "sweet spots" and move to less productive acreage. US tight oil output reaches a plateau in the early-2020s, just above 5 mb/d, before starting a gradual decline."

          Change in production (2015-2020) of US tight oil for a range of 2020 oil prices
          mb/d

          shallow sand says:
          11/10/2015 at 5:57 pm

          Anecdotal re US conventional.

          Company near us, 2012-14 drilled and completed many conventional wells. 2015 drilled no wells and completed the few remaining ones in first quarter.

          Decline from Q3 2014 to Q3 2015 14.5%. Had grown production annually 2012-14.

          Wonder how many conventional oil wells were completed 2011-14? New conventional wells may have a high decline too.

          I know dwarfed by shale, but it all adds up.

          AlexS says:
          11/11/2015 at 8:13 am

          In its short term energy outlook, the EIA sharply revised its U.S. C+C production estimates for 2H15 and forecast for 2016.

          Estimate for this year's growth was increased to 580 kb/d from a 540 kb/d in previous month STEO, due to stronger than expected performance in onshore production. The biggest upwards revisions were made for August 2015: +187 kb/d, September: +160 kb/d and October: + 108 kb/d. The new production forecast for 2015 is 9.29 mb/d vs. 9.25 mb/d in October STEO.

          Despite these revisions, the EIA still notes that "monthly crude oil production started to decrease in the second quarter of 2015, led by Lower 48 onshore production. From March 2015 through October 2015, Lower 48 onshore output has fallen from more than 7.6 million b/d to about 7.1 million b/d. EIA estimates total crude oil production has declined almost 0.5 million b/d since April, averaging 9.1 million b/d in October", down 43 kb/d from September.

          The EIA expects declines to continue through September 2016, when total production is forecast to average 8.54 mb/d. This level of production would be almost 1.1 mb/d less than the 2015 peak reached in April.

          Doug Leighton says:
          11/11/2015 at 9:35 am

          WHY THE OIL SANDS NO LONGER MAKE ECONOMIC SENSE

          "Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. OPEC, home to the world's lowest-cost oil, is pretty much producing what it always has. The market glut is from increased output from high-cost producers like the oil sands. Their existential dilemma in today's market is that it is they, not OPEC, who must cut production to clear the glut.

          http://www.theglobeandmail.com/report-on-business/rob-commentary/oil-sands-no-longer-make-economic-sense/article27170104/

          shallow sand says:
          11/11/2015 at 10:08 am

          I wish I knew more about production costs for the four Gulf OPEC members plus Iran and Iraq.

          I also wish I knew how much of KSA's increase in oil production, for example, which began in March, 2015, was oil from storage as opposed to produced.

          In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels.

          AlexS says:
          11/11/2015 at 12:58 pm

          shallow sand,

          KSA's production was increasing from March and peaked in June. Since then, it has slightly declined.
          I don't think they will (and can, and intend to) increase it further.

          Saudi Arabia's oil production
          Source: JODI, OPEC (direct communications)

          shallow sand says:
          11/11/2015 at 1:48 pm

          AlexS. Thanks. Surprisingly, KSA has really not increased oil production that much, especially in relation to the United States.

          Euan's post above indicates there is negligible spare capacity and it is almost all heavy oil with no refining capacity available for it. Given KSA interest in shale tech, would appear 10.6 may be their conventional peak.

          Russia has been able to continue to slowly increase production. Do you think Russia is nearing conventional peak? Any recent news on Russian LTO efforts?

          Will interesting to see how this plays out.

          AlexS says:
          11/11/2015 at 2:06 pm

          shallow sand,

          The IEA estimates Saudi capacity at 12.26 mb/d and sustainable spare capacity at 2.06 mb/d (in September). However these numbers can be overstated and actual capacity may not exceed 11-11.5 mb/d.

          Euan is right that most spare capacity consists of heavy oil with high sulphur content.

          3 other Gulf states have very small spare capacity of around 100 kb/d.

          Hence production increases in 2016 can be expected only from Iran and Iraq. Libya is a big unknown, which potentially can add up to 1 mb/d

          I think Russia could further increase production in the near term, but not by much. In the medium to long term it will try to maintain production at current levels, so it's probably not a peak, but a plateau.

          Russian LTO is a long-term story, similarly to the Arctic projects. No significant additions are expected until next decade.

          Among other non-OPEC, non-US sources, some growth may be expected from Canada and Brazil, but in both cases it will be slower than previously expected due to lower oil prices.

          With the declining US output and continued (albeit slower) growth in demand, the market will begin rebalancing next year.

          In 1H15, that will mean lower excess supply vs demand, and from 2H15 demand will likely exceed supply.
          This scenario implies that additional supplies from Iran do not exceed 500-700 kb/d, Libya remains in doldrums, and there is no dramatic slowdown in global economic growth.

          shallow sand says:
          11/11/2015 at 5:50 pm

          AlexS. Thanks for the post. I agree with you that Iran and Iraq appear to be able to add much more production than Saudi Arabia, Kuwait, UAE and Qatar combined.

          Iraq in particular has many areas to be developed, subject primarily to political instability.

          For example, Rumalia oil field production has ramped up significantly and it appears there is much room to run at a very low price.

          dmg555 says:
          11/11/2015 at 10:10 am

          Does anyone here have a source for how much money was loaned to the tight oil fracking industry?

          Watcher says:
          11/11/2015 at 12:19 pm

          You will find this number is fuzzy, as is true for all long term debt everywhere, because issuance rolls over on maturity and that may not be tracked.

          shallow sand says:
          11/11/2015 at 1:45 pm

          Oil and gas debt held by US banks is over $270 billion, but that would include conventional production.

          I have read in excess of $1/2 trillion, a number off the top of my head.

          John S says:
          11/11/2015 at 3:22 pm

          Shallow: I think you will find the press release at the link below from FDIC interesting:

          https://www.fdic.gov/news/news/press/2015/pr15089.html

          Here is an excerpt:

          "Oil and gas commitments to the exploration and production sector and the services sector totaled $276.5 billion, or 7.1 percent, of the SNC portfolio. Classified commitments-a credit rated as substandard, doubtful, or loss-among oil and gas borrowers totaled $34.2 billion, or 15.0 percent, of total classified commitments, compared with $6.9 billion, or 3.6 percent, in 2014."

          I went looking for this because a local bank is seeking to increase is liquidity via a preferred stock offering. It is trying to raise a multi-million $ amount. The offered terms are a 5% dividend, 5 year term, and share repurchase at redemption date. The bank is 30 + years old.

          I am told another local bank is doing a similar offering.

          Hmmm…..liquidity issues and off balance sheet financing. Where has that been tried before in the oil patch?

          Watcher says:
          11/11/2015 at 4:23 pm

          Banks do preferred offerings all the time.

          Quick example, go to finance.google.com and enter stock symbol bac. and that's a period after the c and look at all the preferred offerings/issues.

          Quick lesson for the partially washed. Preferred stock is equity that usually has no voting rights for corporate governance determination. Speaking practically it's usually priced about $25/share and pays a higher yield than any common dividend. Preferreds get their dividend first. If there isn't enough profit to pay preferred divvies and common, common has to get zero.

          There are cumulative preferreds and convertible preferreds. Cumulative means if a quarter's dividend is missed, ya gotta make up that quarter's missed payout before you can pay to common shares. Convertible means can convert to XXX shares of common. blahblah

          Anyway, a bank issuing preferred stock is not eyebrow raising in any environment. That is, excluding issuance bought by Buffet in 2009. Anything at all done that year was eyebrow raising.

          shallow sand says:
          11/11/2015 at 5:55 pm

          John S. Thanks for the link! That is the release I was referring to earlier.

          WTI below $43. Wow. Have to think the substandard or worse oil and gas backed loans are only going to grow.

          Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA.

          Watcher says:
          11/11/2015 at 6:46 pm

          KSA has said repeatedly shale is no threat to them and they are no threat to shale. Shale oil can't export. It CAN'T compete. And almost all US imports are coming from Canada and Mexico and Ven and Nigeria. Only about 1 mbpd from KSA.

          They're right - besides which shale oil isn't the medium / heavy oil out of KSA. It's not even the same product to envision as competing.

          oldfarmermac says:
          11/11/2015 at 8:34 pm

          Watcher, you occasionally make some sense, sorta kinda.

          But you know better, or at least you ought to know better, than to say shale oil doesn't matter because it cannot be exported.

          Oil is a fungible commodity traded in a brutally competitive world market.

          A million barrels a day of domestic yankee production above and beyond "the usual" is a million barrels somebody formerly exported to us Yankees looking for a new home in some other importing country.

          Taking a million barrels a day off our Yankee production would have approximately the same effect on the world market as if Saudi Arabia were to cut back by a million barrels a day.

          But your remarks about oil supposedly going into storage recently seem to be very reasonable.

          SURELY TO SKY DADDY the tank farms of the world must be getting pretty damned close to overflowing by now, and every rusty old tanker that will hold a few thousand barrels is probably full as well, sitting anchored someplace.

          Doug Leighton says:
          11/11/2015 at 1:49 pm

          OIL GLUT DEEPENS WITH 100M BARRELS AT SEA

          "Patrick Rodgers, the chief executive of Euronav, one of the world's biggest listed tanker companies, said oil glut was so severe traders were asking ships to go slow to help them manage storage levels."

          http://www.ft.com/cms/s/0/f763a6da-8859-11e5-9f8c-a8d619fa707c.html#axzz3rD5Ye7ss

          ezrydermike says:
          11/11/2015 at 2:25 pm

          wti futures 11-11-2015

          Watcher says:
          11/11/2015 at 6:50 pm

          And btw all you supply and demand worshippers . . . just who is buying oil to store, when storage has throughput? You aren't buying to store it for future higher price. You buy it to store it to flow it outward incrementally to consumption, with new oil coming in to refill the tanks. FIFO. That's how Cushing works. If price rose, the oil getting sold from storage just went in there last week or 2 weeks ago. It didn't get there in January. There's no big profit.

          dmg555 says:
          11/11/2015 at 3:13 pm

          From the Financial Times on Energy Debt

          http://www.bloomberg.com/news/articles/2015-11-11/opec-challenges-shale-afresh-as-iraq-crude-floods-gulf-of-mexico

          Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

          Watcher and Shallow: Your numbers on total debt look a bit low, but I'm only siting the Financial Times.

          shallow sand says:
          11/11/2015 at 6:01 pm

          dmg555. I was just throwing out things off the top of my head, which is probably not the best thing to do.

          A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017.

          [Nov 12, 2015] Monthly legacy shale production declines accelerates

          Notable quotes:
          "... Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin. ..."
          peakoilbarrel.com
          AlexS, 11/09/2015 at 7:02 pm
          Combined oil production from 7 shale plays is expected to decline by 558 kb/d, from 5507 kb/d in April to 4949 (these numbers include ~800-900 kb/d of conventional production, mainly from the Permian basin).

          New combined estimates for 7 plays were revised down by about 25-35 kb/d from March to May, and by 40-50 kb/d from June to December.

          AlexS, 11/09/2015 at 9:05 pm
          Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin.

          Monthly legacy production declines as % of total production by 4 key LTO plays
          Source: EIA DPR

          [Nov 12, 2015] Oil Majors Don't Share OPEC's Optimism On Oil Prices In 2016

          Notable quotes:
          "... Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at $43. The math on that is staggering. ..."
          "... So why are they overproducing, selling more of their finite resource at a low price instead of over the longer term at more than double its current price. ..."
          "... If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others, well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices are more favorable. ..."
          Zero Hedge

          OPEC's meeting in Vienna is less than a month away, and oil producers – countries and companies alike – have been raising their concerns at an energy conference in the United Arab Emirates over the cartel's strategy to keep prices low.

          The issue arose on Monday when Mohammed bin Hamad al-Rumhy, the oil minister of Oman – not a member of OPEC – told the annual Abu Dhabi International Petroleum Exhibition and Conference that oil production is at "irresponsible" levels, leaving little latitude for variations in production.

          "This is [a] man-made crisis in our industry we have created," al-Rhumy said. "And I think all we're doing is irresponsible."

          Al-Rhumy added, "This is a commodity that if you have 1 million barrels a day extra in the market, you just destroy the market. We are hurting, we are feeling the pain, and we're taking it like a God-driven crisis. Sorry, I don't buy this, I think we've created it ourselves."

          The next day, al-Rhumy's concerns, if not his criticism, were shared by executives of leading international oil companies: ExxonMobil of the United States, BP of Britain and Total of France. All said they expect the current glut of oil, and the resultant depression in oil prices, to last longer than anyone expected – months longer, if not years longer.

          "I'm not sure we will exit from low prices before many months," Total CEO Patrick Pouyanne said.

          Lamar McKay, the director of exploration and production for BP, said he expects oil prices will stay low for some time, and Michael Townshend, the company's director for Middle East operations, said he expects the price of a barrel of oil will rise no higher than about $60 for three more years.

          These gloomy forecasts contrasted with the OPEC view. The group's secretary general, Abdullah al-Badri, told the conference on Tuesday that 2016 is likely to be a year for positive momentum in oil markets. And on Monday, UAE Oil Minister Suhail al-Mazrouei, said a decision by OPEC to cut production to shore up oil prices would only play into the hands of its competitors.

          As a result, al-Mazrouei said, he doesn't expect OPEC to change its strategy when it meets Dec. 4. "When you are the least expensive oil, you should be the base producer," he said.

          At its meeting in November 2014, OPEC adopted Saudi Oil Minister Ali al-Naimi's strategy of keeping production at 30 million barrels a day, despite the fall in oil prices caused by a rapid increase in production by non-members, especially the United States, which had ramped up production of shale oil.

          The goal was to wage a price war that would keep oil prices so low that such producers, who rely on relatively expensive hydraulic fracturing, or fracking, can't afford to drill for oil. The break-even point for fracking is around $60 per barrel, and oil now averages about $50 per barrel, leading to a noticeable drop in U.S. drilling.

          In the meantime, OPEC nations are exceeding their production limit of 30 million barrels per day by more than 1.5 million barrels, so it's no wonder oil prices are so low.

          Concerns about low oil prices were raised before last year's OPEC meeting, particularly by Venezuela.

          Saudi Arabia had already said it opposed production cuts. Venezuela's president, Nicolas Maduro, said he was hoping to work out ways to bolster oil prices in meeting both with members of OPEC and producers who weren't part of the 12-member cartel.

          That came to naught, however, and the Saudi plan became OPEC policy. Despite current dissatisfaction from some oil producers, there's no reason to expect the cartel to change course if it believes its strategy is working.

          Selected Skeptical Comments

          Hard Assets

          I have posted this comment on 7 million forums and discussion boards and I have yet to get a reasonable answer.

          If an oil producer, big or small, has X barrels of oil in the ground, a finite number, why would they (especially OPEC countries who can 'control' the price) overproduce to sell today at $43 instead of $110+ ??

          How does driving down the price get one more 'market share' ? When oil was $100/bbl, all things being equal, it was $100 across the globe. At $43, its $43 across the globe. Again, all things being equal, how does that impact market share ?

          Sure, at a point in the future, when competitors fold you gain market share. Does this fall into the "market can stay illogical longer than one can remain solvent" category ?

          Completely short sighted vision in my book. WTF was the intention of OPEC in the first place?

          Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at $43. The math on that is staggering.

          Back to the finite X reserves. No doubt Saudi and every oil producer will pump and drill and do everything they can to get down to the last drop. Then it's over, literally pack up your tent and call it a day.

          So why are they overproducing, selling more of their finite resource at a low price instead of over the longer term at more than double its current price.

          If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others, well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices are more favorable.

          So WTF is really going on here ?

          Benjamin123

          I sort of answered below.

          They dont care. Those countries do not feel any pain. Countries are not even real, only people or animals feel pain and those oil ministers are rich either way.

          Gregor Samsa

          Easy answer: cashflow. These companies / countries need any revenue they can get. Turning off the lights and going home is simply not an answer.

          A secondary answer is that many oil plays, such as tarsands and fracking literally cannot be shut down once started (at least not without incurring extra costs in the millions).

          erk

          US oil production is still up around 9 mill barrels according to EIA. Once their unsustainable shale oil output drops a million BBL or two, then OPEC are back to business as usual.

          Youri Carma

          It's not about OPEC anymore.

          [Nov 11, 2015] Four US Firms With $4.8 Billion In Debt Warned This Week They May Default Any Minute

          Zero Hedge

          agent default

          It's not just the oil. The oil is convenient to point at because the US can pretend that they got SA to cause the drop in order to stick it to Russia. Makes the US look really smug. Meanwhile the truth is, copper down, zinc down, iron ore down, you name it down.

          Baltic Dry almost crashing, soft commodities gone to hell. I guess SA can also influence these markets as well.

          [Nov 11, 2015] Questions for Monetary Policy

          Notable quotes:
          "... Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next. ..."
          "... The drop in hours worked data in the productivity report is very confusing. ..."
          "... I think lower oil prices has lead to a stronger consumption boost than initially thought. ..."
          economistsview.typepad.com
          James Bullard, president of the St. Louis Fed, says there are five questions for monetary policy:

          The five questions

          • What are the chances of a hard landing in China?
          • Have U.S. financial market stress indicators worsened substantially?
          • Has the U.S. labor market returned to normal?
          • What will the headline inflation rate be once the effects of the oil price shock dissipate?
          • Will the U.S. dollar continue to gain value against rival currencies?

          I would add:

          • Will wage gains translate into inflation (or something along those lines)?

          Anything else?

          sanjait said in reply to Anonymous...

          Markets move based on expectations of both economic fundamentals and the Fed's reaction function. So both can create surprises.

          In this case, a relatively stronger than expected US economy could push the dollar up quite a bit. The central bank would be expected to dampen but not eliminate this effect, even without changing their perceived reaction function.

          DeDude said in reply to Anonymous... , November 10, 2015 at 02:35 PM

          Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next.

          What we can say is that the strengthening of the US$ that has happened recently will hurt the economy - whether it will hurt enough to slow the Fed is anybodies guess. Whether those guesses have already been baked into the exchange rates is impossible to predict.

          Bert Schlitz said...

          On Angry Bear, there is a post about 3rd quarter hours and Spencer's remark:

          "The drop in hours worked data in the productivity report is very confusing.

          The employment shows several measures of hours worked and they increased in the third quarter from 0.5% to 1,08 for aggregate weekly payrolls.

          Something is really change.

          The productivity report also had unit labor cost rising more than prices,
          This implies falling profits, what the S&P 500 shows."

          Basically wages accelerated rapidly in the 3rd quarter. The BLS didn't start catching up to it until October. My guess the hours drop and employment picks up trying to hold down costs. However, this will probably only level off things off for a few quarters, which would be good enough to profits catch back up until the labor market becomes so tight, they simply have no choice but to raise prices and hours worked surge again. Classic mid-cycle behavior (which Lambert should have noticed).

          This is what triggered the 3rd quarter selloff and inventory correction. That foreign stuff was for show. I think lower oil prices has lead to a stronger consumption boost than initially thought.

          am said...

          Clicked on this link for the answers but it is 34 blank pages, so i'll go for:
          1. No, they'll just devalue when need be to soften the landing. I think they will do another one before the end of the year.
          2. No idea.
          3. Near it if you believe the Atlanta Fed. They have a detailed analysis on their blog.
          4. 2.2 if you believe the St Louis Fed, end of December for the oil price decline washout from the system. So inflation will creep up by the end of the year.
          5. Yes and more so if they raise the rate.
          6. No. because it will just be oil led not wages (see 4).
          Anything else: the weather with apologies to PeterK.

          anne said...

          I am really having increasing trouble understanding, how is it that having a Democratic President means making sure appointments from the State or Defense Department to the Federal Reserve are highly conservative and even Republican. Republicans will not even need to elect a President to have conservatives strewn about the government:

          http://www.latimes.com/business/la-fi-neel-kashkari-federal-reserve-minneapolis-20151110-story.html

          November 10, 2015

          After failed GOP bid to be California's governor, Neel Kashkari will head Minneapolis Fed
          By Jim Puzzanghera - Los Angeles Times

          anne said in reply to anne...

          Neel Kashkari is another Goldman Sachs kid, what would you expect?

          anne said in reply to anne...

          http://www.nytimes.com/2015/11/11/business/ex-treasury-official-kashkari-named-minneapolis-fed-president.html

          November 10, 2015

          Neel Kashkari, Ex-Treasury Official, Named Minneapolis Fed President
          By BINYAMIN APPELBAUM

          Neel Kashkari is the third new president of a regional reserve bank named this year, and all three previously worked at Goldman Sachs.

          [ Really, well, creepy comes to mind. ]

          [Nov 11, 2015] Valentin Katasonov - Banks Rule the World, but Who Rules the Banks (II)

          Notable quotes:
          "... do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system. ..."
          Strategic Culture Foundation
          Financial holding companies like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system.

          Some analysts believe that just four financial companies make up the main body of shareholders of Wall Street banks. The other shareholder companies either do not fall into the key shareholder category, or they are controlled by the same 'big four' either directly or through a chain of intermediaries. Table 4 provides a summary of the main shareholders of the leading US banks.

          Table 4.

          Leading institutional shareholders of the main US banks

          Name of shareholder company Controlled assets, valuation (trillions of dollars; date of evaluation in brackets) Number of employees
          Vanguard Group 3 (autumn 2014) 12,000
          State Street Corporation 2.35 (mid-2013) 29,500
          FMR (Fidelity) 4.9 (April 2014) 41,000
          Black Rock 4.57 (end of 2013) 11,400

          Evaluations of the amount of assets under the control of financial companies that are shareholders of the main US banks are rather arbitrary and are revised periodically. In some cases, the evaluations only include the companies' main assets, while in others they also include assets that have been transferred over to the companies' control. In any event, the size of their controlled assets is impressive. In the autumn of 2013, the Industrial and Commercial Bank of China (ICBC) was at the top of the list of the world's banks ranked by asset size with assets totaling $3.1 trillion. At that point in time, the Bank of America had the most assets in the US banking system ($2.1 trillion). Just behind were US banks like Citigroup ($1.9 trillion) and Wells Fargo ($1.5 trillion).

          [Nov 11, 2015] 2 simple charts illustrate why low oil prices are so depressing

          Nov 9, 2015 | Business Insider
          The energy sector's capital expenditure, or capex, on spending for fixed infrastructure that secures future business activity, has slumped 8% this year according to Goldman Sachs.

          Energy capex growth is set to fall another 20% next year, wrote the firm's strategists led by David Kostin to clients on Friday.

          There's usually a lag between energy-sector capital spending and oil prices, with prices leading. That means even if oil prices defy most forecasts and rise sharply from current levels, capex will likely still fall.

          [Nov 11, 2015] IEA World Energy Outlook New Hope For Civilization

          Notable quotes:
          "... In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go. ..."
          "... The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance. ..."
          "... A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?" ..."
          Nov 11, 2015 | naked capitalism

          Sandwichman, November 11, 2015 at 2:39 am

          Green smoke. "These projected figures are a figment of our imagination. We hope you like them." (New Yorker cartoon from the 1980s

          vteodorescu, November 11, 2015 at 5:31 am

          The path to low carbon is nuclear. Anything else is a palliative. Technical fact: wind and solar have to be backed up with equal capacity of baseload generation, usually gas, to keep the grid balanced, to compensate the highly variable supply wind and solar produce. They are largely politically driven and a sop to the misinformed intelligentsia.

          Energy scarcity is another tool to keep the huddled masses huddled.

          Disclaimer: I am an organic farmer in the northeast of Brazil. I do not work for or have any financial interest in the nuclear industry.

          TheCatSaid, November 11, 2015 at 6:54 am

          These crystal-ball gazing exercises leave out the high likelihood like pandemics. Losing a significant % of population will impact demand but also supply (just imagine what losing key engineers and scientists could impact on development of better technologies, or on production facilities).

          likbez -> TheCatSaid, November 11, 2015 at 9:34 pm

          If I remember correctly in 1956 Hubbert correctly predicted the peak of the USA production in 1970. From Wikipedia
          ==== quote ===
          Hubbert, in his 1956 paper,[3] presented two scenarios for US crude oil production:
          most likely estimate: a logistic curve with a logistic growth rate equal to 6%, an ultimate resource equal to 150 Giga-barrels (Gb) and a peak in 1965. The size of the ultimate resource was taken from a synthesis of estimates by well-known oil geologists and the US Geological Survey, which Hubbert judged to be the most likely case.

          upper-bound estimate: a logistic curve with a logistic growth rate equal to 6% and ultimate resource equal to 200 Giga-barrels and a peak in 1970.

          Hubbert's upper-bound estimate, which he regarded as optimistic, accurately predicted that US oil production would peak in 1970, although the actual peak was 17% higher than Hubbert's curve.

          Production declined, as Hubbert had predicted, and stayed within 10 percent of Hubbert's predicted value from 1974 through 1994; since then, actual production has been significantly greater than the Hubbert curve.

          Nicholas Cole, November 11, 2015 at 8:51 am

          Is the title of this article supposed to be funny?

          To echo Paper Mac, I'd like to know more about their assumptions re: energy efficiency investments and improvements.

          In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go.

          DanB, November 11, 2015 at 9:35 am

          The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance.

          The counter explanation that the price of oil fell because people are going broke while the cost of extracting oil is climbing cannot be conceived, let alone entertained.

          And the peak oil scenario is actually hidden in plain sight in classical economics: if a resource becomes scarce what happens? Price increases and then encourages more exploration and recovery of the resource. If that does not work then price incentivizes the introduction of substitutes. And if that doe not work you get demand destruction, because the market always clears -- even if people go hungry the market clears.

          A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?"

          IDG, November 11, 2015 at 9:50 am

          Humans are awfully bad at predicting things, specially under radical uncertainty conditions (so basically this situation); yet we see this sort of rubbish published on daily basis. Call me back when we can predict what will happen in a year reliably, until then… 20y-30y projections are a joke, for all I know humanity could have self-exterminated itself in a nuclear war by then (one century with nuclear weapons around and no nuclear-conflict having happened yet looks like defying probability to me!).

          But I guess economists need employment too after all, how would such useless profession be justified if wouldn't swallow rubbish like this.


          [Nov 11, 2015] Friction is Now Between Global Financial Elite and the Rest of Us

          Notable quotes:
          "... But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs ..."
          "... This means that the fracture in politics will move from left to right to the anti-establishment versus establishment. ..."
          "... In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. ..."
          "... when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital ..."
          "... Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity. ..."
          "... Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally. ..."
          "... Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power. ..."
          Economist's View

          Friction is now between global financial elite and the rest of us, The Guardian:

          ... ... ...

          But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. ...

          Dan Kervick said...

          "This means that the fracture in politics will move from left to right to the anti-establishment versus establishment."

          I think this is probably right, but the established parties are doing their best to prevent it. Each of them has an interest in continuing to divide people along various cultural, religious and ethnic identity lines in order to prevent them from achieving any kind of effective solidarity along class lines.

          Anyway, I fear we may be headed toward a turbulent and very unpleasant future.

          Kenneth D said...

          "Rethinking the Global Political Economy" By Jeff Faux April 24, 2002

          In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. As a retired U.S. State Department official put it to me bluntly a few years ago, "What you don't understand," he said, "is that when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital."

          Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity.

          But labor is typically at a disadvantage because it usually bargains under conditions of excess supply of unemployed workers. Moreover, the forced liberalization of finance and trade provides enormous bargaining leverage to capital, because it can now threaten to leave the economy altogether.

          Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally.

          Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power.

          [Nov 11, 2015] An Almost Perfect Storm of Incompetence and Felony

          Notable quotes:
          "... People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. ..."
          "... The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy. ..."
          jessescrossroadscafe.blogspot.com
          "People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.

          But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right."

          John Kenneth Galbraith, Age of Uncertainty

          "Misdeeds, once exposed, have no refuge but in audacity. And they have accomplices in those who are fearful in their complicity."

          Tacitus, Annals

          I was discussing the markets this morning with my friends Dave and Bill Murphy as we generally do. This is what I just wrote back in response to a question from Bill. I read his columns at LeMetropoleCafe.com every day. His is an amazing crossroads for discussion of things that are interesting about precious metals. I have been a subscriber since 2000. Dave has a new site at Investment Research Dynamics that is quite good and different since he has a very different background in the heart of darkness as a NYC bond trader from mine as a Bell Lab rat and Silicon Valley roustabout.
          We just saw a very historically significant decline in the precious metals in terms of days lower without relief. And we have seen a remarkable rise in the US dollar index against the Euro and the Swiss franc that cannot possibly be good for the real economy of the US, when every other developed nation is trying to devalue their currencies to stimulate their exports and inhibit imports.

          I believe that a portion of the gold selling in particular is an effort to knock down the open interest in gold for December. If there was any serious attempt for holders of those contracts to stand for delivery, even JPM, which has been obviously building up its stores of gold to act as the 'fixer' in that market, would not be able to cover the demand.

          JPM was consistently taking delivery for their house account in gold, and just transferred 70,000+ ounces over from Nova Scotia's warehouse, from whom they had been taking delivery.

          As we know, in the last big delivery month, JPM stepped up with an enormous amount of their gold, 400,000+ ounces, to provide enough real bullion to satisfy the contracts standing for delivery. Even now their inventories remain somewhat depleted.

          The dollar has also been soaring, because the Fed is trying to pretend that the US is recovering so that they can raise rates. A strong dollar and higher rates are very harmful to what is almost undoubtedly a fragile economic recovery in the US.

          And it is fantasy to think that the US can somehow go it alone, and continue to improve while the rest of the world is cutting rates because their economies are slowing.

          The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy.

          There will be another financial crisis as the IMF warned today. There will be a serious dislocation in several financial markets, including the precious metals and the bonds at some point, that will rock the current system to its foundations. It is a portion of the credibility trap which inhibits any meaningful remedy and reform.

          It is an almost perfect storm of incompetence and felony.

          [Nov 09, 2015] Supervising Culture and Behavior at Financial Institutions

          Notable quotes:
          "... Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so. ..."
          "... One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?" ..."
          Nov 09, 2015 | naked capitalism

          John Zelnicker, November 7, 2015 at 9:49 am

          Fascinating research. Thanks for posting this, Yves.

          Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so.

          Unfortunately, I don't see any of these executive psychopaths putting themselves through the self-assessment that is one of the necessary steps mentioned in the study. At least, not voluntarily.

          Sluggeaux, November 7, 2015 at 11:39 am

          Important.

          One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?"

          [Nov 08, 2015] Why The Stock Buyback Spree Is Ending

          Notable quotes:
          "... Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back. ..."
          Nov 08, 2015 | Zero Hedge
          From Goldman:

          Managements will remain committed to returning cash S&P 500 firms will return more than $1 trillion to shareholders in 2016 with buybacks and dividends each growing by 7%. We expect high cash return strategies to outperform given modest GDP growth, low rates, and slim equity returns. A similar macro environment in 2015 rewarded stocks with high cash returns to shareholders while firms investing in capex lagged.

          So buy stocks the buy their own stock. Got it. Only.... any time Goldman tells its client to do something, the opposite usually happens. Could that be the case again?

          Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back.

          Give up. Reality is not scientific nor even mathematical

          Yes, and from all the ugliness will come an even tighter grip on the New American Century.

          Get ready for the rate hikes that will follow by understanding, the dollar, not gold and certainly not the yuan, is going to rule the world.

          Opportunity abounds for those who aren't the typical alternative media America hater, and who also have sense enough to see the next logical step in this march toward the future. Given the alternative, the world will welcome what they will see as a new golden age of prosperity and progress.

          It won't be that, but only the old will be in on the massive deceit. Civilization merely rides the mercilous bucking bronco of reality.

          Yen Cross

          He's joking right? CapEx has been in the shitter since 2008-09.

          " Furthermore, according to the latest forecast by Goldman's David Kostin, this surge in buybacks will continue for the simple reason that with Capex spending set for its first decline since 2009."


          [Nov 06, 2015] Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and biosphere is dying off at exponential rates that will kill us

          Jef, 11/05/2015 at 10:24 am

          Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and biosphere in general all of which humans rely 100% on to exist which is dying off at exponential rates that will kill us.
          Doug Leighton, 11/05/2015 at 10:37 am
          You've got it wrong. We HAVE to kill off flora and fauna to make room for more humans. Getting rid of buffalo was a master stroke but now there's the other stuff to exterminate. Think about how many people we can fit into Africa by getting rid of that useless wildlife. And, all the bio-fuel we can generate with land wasted by jungle in the Amazon. The key is HUMAN CARRYING CAPACITY. That's what really matters guy.
          BC, 11/05/2015 at 12:59 pm

          Who needs these large animals on our planet anyway? We are the dominant predator species, including prey on one another; these animals simply have failed to evolve and adapt with a neo-cortex, superior technology, will to power, and the imperative to grow numbers and resource consumption per capita perpetually.

          Human apes are superior, and the 7 billion of us and counting is unambiguous proof of our superiority.

          Doug Leighton, 11/05/2015 at 1:27 pm
          Exactly, we're like rats: better at what we do than anyone else. And like rats we deserve to inherit the earth. But I do wonder what happens when all that's left is us and rats? Maybe they eat us.
          MarbleZeppelin, 11/05/2015 at 6:48 pm
          Or the rats will carry a new plague that eradicates the human population. Problem solved.

          MarbleZeppelin, 11/05/2015 at 6:46 pm

          Doesn't it seem very odd that we define progress as some new machine and superiority as the ability to kill off everything?

          [Nov 06, 2015] Debt and energy

          Notable quotes:
          "... I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international travel, etc. This was a blip in history, one that was financed by – debt. ..."
          "... The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked at. ..."
          "... I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by a construction bubble in China. ..."
          "... The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced. ..."
          "... "Would an economy with 25% unemployment be good for them?" Dennis Coyne ..."
          "... "There is nothing crappy or fake about the current economy," ~ ChiefEngineer ..."
          "... "1. thrifty management; frugality in the expenditure or consumption of money, materials, etc." ~ dictionary.com ..."
          "... "Do you need a job Caelan ?" ~ ChiefEngineer ..."

          Doug Leighton, 11/05/2015 at 11:41 am

          "This is the same as borrowing even more from the future to maintain today's over consumptive life styles and leaving their children and grand children with the bill." And, that says it all, thanks Rune.
          Dennis Coyne, 11/05/2015 at 12:14 pm
          Hi Doug,

          Imagine your children were just graduating from college. Would an economy with 25% unemployment be good for them? That's what we get when we are too concerned over high public debt as the Hoover administration clearly was. You should read Keynes (it is a short book),
          The General Theory of Employment, Interest, and Money

          https://en.wikipedia.org/wiki/The_General_Theory_of_Employment,_Interest_and_Money

          Or read Krugman's End This Depression Now, for an alternative view on debt from Gail's.

          Doug Leighton, 11/05/2015 at 12:36 pm
          I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international travel, etc. This was a blip in history, one that was financed by – debt.
          Dennis Coyne, 11/05/2015 at 5:36 pm
          Hi Doug,

          My daughter just graduated from University. You avoided the question, if your daughter had just graduated do you think a World with a 25% unemployment rate would be better, or one with a 6% unemployment rate?

          Low government debt and balanced budgets (Herbert Hoover thinking) gets you low employment. Keynesian policies done properly get you higher employment.

          Debt is important, of that there is no doubt.
          When the economy is doing poorly it is usually because of too little debt rather than too much debt.

          Greece is a notable exception and there are other cases where countries have taken on too much debt, in Greece's case the lack of control over its own monetary policy is a big problem. If they had the ability to increase their money supply to get some moderate inflation (5% or so), they could have eased their debt burden and gradually got there spending and taxation to sustainable levels. The Euro was not a good idea for this reason, that is why the United Kingdom did not join in the monetary union, a smart economic and political move.

          Ron Patterson, 11/05/2015 at 1:16 pm

          Dennis, there are two types of debt, public and private. If you read Gail's article, you will see that it deals exclusively with private debt and not public debt. Keynes theories deals primarily with public debt, efforts by the government to prime the economy with public money.

          I don't think Krugman would disagree that strongly with Gail. I read some of the reviews of his book, End This Depression Now! It appears to me that they are talking about two entirely different subjects.

          But back to Keynes, do you really believe that the economic theories of John Maynard Keynes, written in 1936 have more than a remote connection to today's financing in the oil patch.

          The US government public debt today is totally different from the public debt during the Hoover administration. It is more than just silly to compare the US economy today with that of the Hoover administration. But even doing so would would have only marginal connection to the oil patch.

          Nick G, 11/05/2015 at 2:22 pm
          Ron,

          The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked at.
          -------–

          I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by a construction bubble in China.

          Rune Likvern, 11/05/2015 at 3:07 pm

          BIS (Bank for International Settlements) apparently gives some attention to the oil and gas sector total debt.

          "First, the oil–debt nexus illustrates the evolving risks in the financial system. Rapidly rising leverage creates risk exposures in the non-financial corporate sector that may be transferred across the global financial system. Similarly, rising leverage puts a greater premium on the liquidity of the markets for the assets that back debt. Both developments underscore the need to better understand the functioning, behaviour and interaction of markets and intermediaries.
          Second, the build-up of debt in the oil sector provides an example of how high debt levels can induce new linkages between individual markets and the wider economy. Such interaction needs to be taken into account in assessments of the economic implications of falling oil prices."

          https://www.bis.org/publ/qtrpdf/r_qt1503f.pdf

          Dennis Coyne, 11/05/2015 at 5:44 pm

          Hi Ron,

          Doug was talking about public debt, I used to read Gail's stuff at the Oil Drum, on economics she is not very good in my opinion.

          One thing she may be missing is that when oil companies go bankrupt, they may sell off their assets to bigger companies with deeper pockets. When oil prices recover, these financially stronger companies will be able to get financing to drill profitable wells.

          I won't comment further, there will be much less of a lag in new drilling once oil prices get above $75/b than Gail believes.

          Rune Likvern, 11/05/2015 at 3:32 pm

          There is something called a balanced budget (I am aware that there are pockets on this planet that this principles do not apply).

          To run a deficit means spending more than what is received as income. This may work temporarily if that puts the economy back on an organic growth trajectory.

          According to data (Warning these are predatory data!) the Office of Management and Budget (OMB)
          https://www.whitehouse.gov/omb/budget/Historicals

          The US has since 1945 accumulated a total debt of around $12Trillion from (total) fiscal deficits (OMB) and has not run a surplus since 2001 and OMBs estimates now is for deficits through 2020.

          So solving the debt problem created by one generation by arguing that youth unemployment needs to be kept in check by adding more debt for them to service later is [insert appropriate description here].

          The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced.

          "Overall, unemployment in Spain stands at 22.4 percent."
          http://www.reuters.com/article/2015/10/04/us-spain-apprentices-idUSKCN0RY09N20151004

          Watcher, 11/05/2015 at 4:11 pm

          and it gets harder to run a deficit, which means austerity measures are introduced.

          Not if you have a central bank that finances the deficit via purchase of gov't securities.

          Rather a lot of that going on right now.

          Everywhere with a CB.

          ChiefEngineer, 11/05/2015 at 5:38 pm

          Rune says:

          "The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced."

          If this is true, why do so many right wing conservatives have their panties in a wad about the United States ? The US is the strongest economy in the world and the dollar is at record strength. Why won't Republicans return to the tax policies of the year 2000 if debt is that important to them? The year of a record surplus.

          History shows Conservatives only care about debt when a Progressive is in the White House. I never heard a word about debt from the Republicans during the Bushy and Raygun years. Remember, Dick Cheney said deficits don't matter.

          http://www.ontheissues.org/Celeb/Dick_Cheney_Budget_+_Economy.htm

          Dennis Coyne, 11/05/2015 at 5:58 pm

          Hi Rune,

          Yes when unemployment is low, a balanced budget makes perfect sense to me.

          I am not in favor of unending deficits (though I probably don't sound like it). It would be better for the government to pay down debt when the economy is doing well (lets say 5.5% unemployment rate or lower).

          When the unemployment rate is high (I was talking about unemployment in general rather than youth unemployment rates), government deficits make perfect sense, even if too much private debt initially caused the recession. Sometimes solving a problem caused by too much private debt, requires increasing public debt to get the economy growing. The economic growth should decrease the deficit as increased income will increase tax revenue and reduce government spending on unemployment benefits and government aid to low income citizens.

          Caelan MacIntyre: On Dennis' Fake Stuff, 11/05/2015 at 6:25 pm

          "Would an economy with 25% unemployment be good for them?" Dennis Coyne

          Would it be a real economy or an uneconomy, helped run by an ungovernment?

          If the latter, then I would answer, yes, if with 100% unemployment. (Because they would be employed in a real economy with a real government)

          …Dennis, why is it that you seem to like crappy stuff like fake governments and fake economies?

          ChiefEngineer, 11/05/2015 at 7:01 pm

          There is nothing crappy or fake about the current economy, unless your on the outside looking in.

          Do you need a job Caelan ?

          Caelan MacIntyre, 11/05/2015 at 7:25 pm

          "There is nothing crappy or fake about the current economy," ~ ChiefEngineer

          The economy is uneconomical, so, yes, it's crappy.
          …Well, ok, its much worse than crappy. Happy?

          Economy:
          "1. thrifty management; frugality in the expenditure or consumption of money, materials, etc." ~ dictionary.com

          "Do you need a job Caelan ?" ~ ChiefEngineer

          You mean like one that manufactures a need for a relatively useless, overpriced and/or otherwise crappy junk sweatshopped product that breaks more often and sooner than ever before and cannot be fixed or fixed easily or cheaply by the owner?

          ChiefEngineer, 11/05/2015 at 8:28 pm

          That crappy economy produced that crappy computer which keeps posting your crappy comments. All because of the crappy education you got from the fake school from a crappy fake government.

          Caelan, I hope your having a real nice day

          Caelan MacIntyre, 11/06/2015 at 7:56 am

          Ya all this fake/virtual communication in place of the real, all the while those with an education (in what?) run around and help to perpetuate the above, the aforementioned and this kind of uneconomy that pushes the planet ever closer to the precipice.
          Back to the ol' drawing board, ChiefEngineer.

          Dennis Coyne, 11/06/2015 at 9:57 am

          Hi Caelan,

          I deal with what is rather than what might be, as far as governments. Your imaginary utopia is likely to remain just that.

          I imagine everyone would vote for optional taxation, what could possibly go wrong? :)

          Fred Magyar, 11/05/2015 at 7:28 pm

          My daughter just graduated from University.
          You avoided the question, if your daughter had just graduated do you think a World with a 25% unemployment rate would be better, or one with a 6% unemployment rate?

          I think you are living far far in the past. I have a son who is still at a University, My brother's daughter also just graduated. so I think I can relate to your concerns. However I think what is happening now, is going to change how society views employment at a fundamental level. The idea of a career might not even apply at all anymore for the current crop of graduates.

          https://goo.gl/EbR8lY

          "We are in the middle of an economic transition, from the old industrial economy to the new collaborative economy" – Peers Inc.

          New sharing practices, facilitated by information technology and pervasive networking, are disrupting the status quo in business, education and society. As co-founder of Zipcar, Robin Chase has been a pioneer and leading thinker in this movement since its emergence. Now, with Peers Inc, Robin aims to "combine the best of people power with the best of corporate power" to help realise the wider benefits when decentralisation, localisation and specialisation meet scale and resources.

          On top of examples and success stories from this 'new collaborative economy', what could this mean for the economy as a whole? Are we in the midst of a transition from capitalism to something new and different? Are the rules of our current economic model being rewritten? If so, what are the new rules of the game and how do we play by them?

          Dennis Coyne, 11/06/2015 at 10:06 am

          Hi Fred,

          The transition may be good for many, my point is that many University graduates are having a tough time finding work that utilizes what they have learned at University.

          This is potentially much more of a problem for young people than excess government debt. In addition, the idle labor and capital is wasteful, there is work to be done to transition away from fossil fuel we should get to it. The ensuing economic growth will reduce government deficits so that the debt incurred to jump start the economy will be reduced if the government surplus that results is not given away in lower tax rates (as Republican presidents since 1980 have tended to do.)

          BC, 11/05/2015 at 12:32 pm

          Speaking of money velocity, it's acceleration is contracting at the fastest rate since 2008, 2001, and the early 1980s:

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mPb

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2n98

          And a bear market for the broad equity market is underway (especially value and small-cap stocks, which typically is followed by the large-cap stocks "catching down" thereafter):

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2n96

          So-called "health" care spending has been growing at twice the rate of final sales, which is characteristic of recessionary conditions:

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qs5

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qrZ

          Subprime auto loans are driving (bad pun) auto sales to bubbly heights vs. real wages, but the rate of growth of auto sales is decelerating:

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2oZu

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qsp

          Without subprime auto loans, vehicle sales would be 13M vs. 17-18.

          Subprime debt and ACA-induced spending (subsidies to insurers) for "health" care is what is preventing the US economy from decelerating from around stall speed to recession since late 2014. But "health" care spending has become a net drag on the rest of the economy.

          The recession-like contraction in the acceleration of money velocity to private GDP implies that the market is tightening financial conditions (credit/debt-money acceleration) before the Fed can begin raising rates and tightening reserves.

          Therefore, rather than raising rates, the Fed (and ECB, BOJ, BOE, and PBoC) is more likely to resume QEternity to fund increasing deficits/GDP to prevent nominal GDP from contracting from the post-2007 trend rate per capita of below 2% (slowest since the Great Depression, 1890s, and 1830s-40s).

          Moreover, don't be surprised if the Fed is compelled to resort to negative interest rate policy (NIRP) because of debt and price deflation hereafter, including for the service sector ("health" care, "education", law, personal services, etc.).

          Petro, 11/06/2015 at 12:08 am

          Mr. Likvern,

          Normally I would think twice before commenting/correcting you, but this time I noticed you used "Credit" and "Debt" as equivalent terms, therefore I will try:
          although many economists and finance people erroneously use those terms as equivalent – they are NOT!
          Simply/shortly said: credit is a "worthiness" notion -economically not useful in practical terms.
          In order for it to be "useful" economically (i.e generate economic activity/GDP), it has to become debt.
          Signatory parties with COLLATERAL who are pledging/willing to circulate it (i.e. spend it) are necessary for credit to become debt.
          Although this " concept" is altered by Glass_Stegal repeal and interest paying central bank reserves (i.e. FED) which erased the line between commercial and investment banking (today they are one and the same), it still holds generally true throughout economy.
          Be well,

          Petro

          P.S.: an essential mistake most economic/finance luminaries make is: "money is backed by debt".
          Today money is debt – debt is money!
          If one does not clear that concept up, one is certain to stay in the fog when it comes to money/debt/credit…

          [Nov 06, 2015] Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production

          Notable quotes:
          "... Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. ..."
          "... Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. ..."
          "... If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out. ..."
          "... 63 Billion USD went poof in the Enron Collapse. ..."
          "... Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive. ..."
          "... Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization. ..."
          peakoilbarrel.com

          Heinrich Leopold, 11/06/2015 at 3:06 am

          Shale Gas Economics,

          Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. Total loss for the first nine months $16bn. See also http://wolfstreet.com/2015/11/05/giant-sucking-sound-of-capital-destruction-in-us-oil-gas-impairments/.

          Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. As no economic system could carry on to produce at such losses, companies have already responded. Chesapeake has cut rig count to 18 from 69. Gross wells completed are down to 84 (from 309) and gross wells spud are down to 81 from 296. Activity is reduced threefold!!! As there is a time lag of six to nine months from lower capex to actual production, I expect a significant fall of natgas production for the first quarter 2016. As CHK is one of the leading producers in the US, this will also impact total US production.

          MarbleZeppelin, 11/06/2015 at 6:56 am
          Reminds me of some old cars I have had, keep pouring money into them and get poor performance all the way to the next time they suck your wallet dry. Answer, dump the old one, get a newer more efficient car.

          So if oil is not working out for us, dump it. Get our energy elsewhere. Time to stop throwing money at it, it's in a death spiral.

          AlexS, 11/06/2015 at 7:17 am

          Heinrich,

          Thanks for the link. The article has a link to the original research by Evaluate Energy on U.S. oil & gas companies' 3Q results. Recommended reading
          http://blog.evaluateenergy.com/us-oil-gas-company-earnings-take-a-huge-hit-in-q3-2015-impairments

          Heinrich Leopold, 11/06/2015 at 7:37 am
          AlexS,
          Thank you for the link. As prices – especially natgas – are now even lower than in 3q15, this becomes even bigger this quarter. I get the feeling that this is very big and I am wondering what the consequences will be.
          shallow sand, 11/06/2015 at 7:57 am
          Wont their be even more impairments in Q4 as companies like CLR, who have held off, will be forced to write down assets?
          Heinrich Leopold, 11/06/2015 at 8:26 am
          shallow sand,

          If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil&Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out.

          Enno Peters, 11/06/2015 at 8:34 am
          It doesn't matter if prices will take off now, the impairment still has to be made. Only December may make a very small difference:

          "The United States Securities and Exchange Commission (SEC) calculates the economics of proved reserves using the unweighted, trailing 12-month average of the closing prices from the first day of each month. Year-end 2014 impairment tests were evaluated using a $94.99/barrel of oil prices and a $4.31 per MCF gas price, with 2014's low year-end prices buoyed by strong prices from the first 10 months of the year."

          http://press.ihs.com/press-release/ep-impairments/gloomy-price-outlook-signals-continued-impairments-likely-throughout-20

          HR, 11/06/2015 at 10:36 am
          I saw wolf richters article this mornings as well. Those are some ugly numbers mainly because of the write downs. I think I already know the answer, but without the write downs are any of these guys even cash neutral much less making money?

          Wasn't it Harold Hamm that said by spring production will fall off a cliff?

          Heinrich Leopold, 11/06/2015 at 2:23 pm
          HR,

          It would be interesting to know if the write downs are just related to price or is there any write down on the quantity of reserves?

          AlexS, 11/06/2015 at 11:44 am

          Heinrich Leopold said:

          "What strikes me is that OXY left the Bakken at a huge loss"

          Occidental was planning to sell its Bakken assets long before the drop in oil prices. But the actual price was far from what they were initially expecting. Occidental Reportedly Sells Bakken Assets To Lime Rock

          October 15, 2015
          http://www.ugcenter.com/occidental-reportedly-sells-bakken-assets-lime-rock-823211

          As recently as last fall, Wall Street had expected Oxy's Bakken assets to sell for more than $3 billion. The sharp drop in the deal's value represents the most-significant pullback in valuation yet in the second-largest U.S. oil producing state.
          =================================

          Occidental Petroleum cuts spending, scales back in the Bakken

          By Patrick C. Miller | February 03, 2015
          http://www.thebakken.com/articles/1005/occidental-petroleum-cuts-spending-scales-back-in-the-bakken

          Occidental Petroleum Corp. will scale back operations in the Williston Basin and is reducing its 2015 capital cost budget by 33 percent in response to low oil prices.
          "Our capital program will focus on our core assets in the Permian Basin and parts of the Middle East," said Stephen Chazen, president and CEO. "We have minimized our development activities in the Williston Basin, domestic gas properties, Bahrain, and the Joslyn oil sands project, as these have subpar returns in this current product price environment."
          ========================================
          Oxy Says Permian Operations Still Solidly Profitable

          FRI, JAN 30, 2015
          http://www.energyintel.com/pages/eig_article.aspx?DocId=875317

          … while Hess regards the Bakken as a crown jewel in its portfolio, it is far less important to Oxy, which lacks the core acreage positions and sheer scale that Hess enjoys there.
          In fact, Oxy is cutting spending in the Bakken to "virtually nil" this year, matching similar cuts across its gas-weighted Midcontinent holdings, Chazen said.
          ===========================================
          Oxy sale of Bakken assets would make strategic sense -analysts

          Reuters, Oct 7, 2014
          http://www.reuters.com/article/2014/10/07/occidentalpetroleum-bakken-idUSL2N0S22HI20141007

          Any sale of Occidental Petroleum Corp's roughly 330,000 acres in North Dakota's oil-rich Bakken shale formation would make strategic sense for the company, which is likely eager to strike a deal, two analysts said on Tuesday.
          Oxy is looking to sell its Bakken holdings, which are largely undeveloped, for as much as $3 billion, according to a report from Bloomberg News.
          Even with the recent dip in crude oil prices, the divestment "makes sense to us, strategically," Raymond James analysts Pavel Molchanov and Kevin Smith said in a note to clients on Tuesday.
          "This is substantially undeveloped acreage, and Occidental has long cited it as a likely monetization candidate, so it's been puzzling why the company kept it this long," the analysts said.
          Oxy is spending about $510 million this year on its North Dakota holdings, and any buyer would have to invest significant capital to boost production. Currently, Oxy is the 18th-largest oil producer in North Dakota with about 17,000 barrels per day as of July, trailing peers of the same size and even much-smaller rivals.
          Oxy said last October that it would pursue "strategic alternatives" for some of its North American assets, including those in North Dakota. In a statement to Reuters on Tuesday, the company reiterated that position.
          ===============================================

          Occidental said to seek buyer for $3 billion Bakken oil business

          10/07/2014
          http://www.worldoil.com/Occidental-said-to-seek-buyer-for-3-billion-bakken-oil-business.html

          HOUSTON (Bloomberg) - Occidental Petroleum is seeking to sell oil assets in North Dakota for as much as $3 billion, people with knowledge of the matter said.
          Occidental is working with investment bank Tudor Pickering Holt & Co. to sell about 335,000 net drilling acres in the Williston Basin, said the people, who asked not to be identified because they were discussing private information. The holdings include a part of North Dakota's Bakken formation, an area that has been less successful for Occidental because of higher costs, though it's one of the fastest-growing oil-producing regions in the U.S.
          Melissa Schoeb, an Occidental spokeswoman, said the Houston-based company reported plans last year to "pursue strategic alternatives" for some assets, including in the Williston Basin.
          Occidental, CEO, Stephen I. Chazen has embraced a restructuring plan that includes selling part of Occidental's Middle East business and spinning off the company's California operations. Chazen told investors in July that he might accelerate plans to sell assets in what the company calls its "midcontinent" operations in the Piceance and Williston basins.
          ==============================================

          Will Oxy's Divorce Spur The Break Up Of Big Oil?

          2/19/2014
          http://www.forbes.com/sites/christopherhelman/2014/02/19/will-oxys-divorce-encourage-the-break-up-of-big-oil/

          … Occidental Petroleum has decided to slim down as well.
          Oxy's plan, announced last Friday, will be dramatic. Its California assets will be rolled into a separate publicly traded company … . Analyst Tim Rezvan with Sterne Agee expects Oxy to sell down its Middle Eastern and Bakken assets as well as its oil trading division in order to focus on Texas.
          =============================================
          Occidental Petroleum starts breakup plan in Middle East, North Africa

          Bloomberg, 10/18/2013

          The company said today it will pursue "strategic alternatives" for Mid-continent assets, including some in the oil-bearing Bakken shale of North Dakota as well as in the Hugoton gas field in Kansas and the Piceance gas fields in the Rocky Mountains.

          Longtimber, 11/06/2015 at 11:35 am

          OMG – 33 Billion poof ball for Q3, Top 10 From link above. http://blog.evaluateenergy.com/us-oil-gas-company-earnings-take-a-huge-hit-in-q3-2015-impairments
          63 Billion USD went poof in the Enron Collapse.
          http://usatoday30.usatoday.com/money/energy/2002-01-22-enron-numbers.htm..
          Sportsfans- this is serious, and the train is still on the tracks.

          Ron Patterson, 11/06/2015 at 11:50 am
          I think this one was more impressive. These are "energy companies".

          Evaluate Energy has analysed the preliminary Q3 earnings statements of 48 U.S. companies and compared it with their earnings in previous periods. The 48 companies had a combined total net loss of US$25.5 billion, which is a staggering 70% and 58% larger than these companies' significant combined net losses of US$14.9 billion and US$16.6 billion in Q1 and Q2 2015 respectively.

           photo Net Income_zpsoxne1mv2.gif

          AlexS, 11/06/2015 at 12:23 pm

          In fact, the sharp increase in combined net losses was largely due to the increase in asset impairments. "Impairments are clearly the main reason for this continued downward trend".

          Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive.

          However lower capex will likely results in lower 1h16 production volumes.

          shallow sand, 11/06/2015 at 12:38 pm

          AlexS. I agree with you.

          Do you have any statistics on gas/ oil ratio trend? Seems to me oil production is declining faster than gas and NGLs production for the oil weighted companies.

          I think Enno has posted that associated gas is not falling to the extent oil is, and this masks oil decline in the company headline reports. Have to look at each report/10Q.

          An example of this is SD, who saw Mid-Continent BOE production fall 10%, but oil fell 18%.

          Heinrich Leopold, 11/06/2015 at 2:05 pm

          AlexS,

          Asset impairments relate to revisions of reserves and resources. However, the main question is now did the revisions relate to oil and gas prices only or is there also a revision of the quantity of reserves due to faster than expected decline? Is there any way to find this out?

          AlexS, 11/06/2015 at 2:50 pm
          Heinrich,

          I think impairments mainly reflect the reduction in the value of the reserves (due to lower prices), rather than volumes. There was no mention of faster decline rates

          shallow sand, 11/06/2015 at 3:52 pm
          I think it should be noted in the SEC reserve reports there are the following categories:

          PDP – Proved Developed Producing
          PDNP – Proved Developed Non-Producing
          PUD- Proved Undeveloped

          Although admittedly simplistic, and I stand to be corrected, PDP are active wells, PDNP are inactive wells and PUD are where there are no wells, but the locations have been "proved" by offsetting wells, and there are plans to drill and complete the location within 5 years.

          All categories will be hit by WTI and Henry Hub prices being half of 2014, but also there should be a hit due to a number of PUD locations being no longer economically viable.

          Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization.

          Banks, on the other hand, use a price deck, which should closely mirror the WTI and Henry Hub strips, subject to maybe a little of the banks' own forecasts on future prices.

          As I have noted many times, total debt levels for all US companies operating in the Bakken, except for XOM, EOG and Abraxas will be greater than 65% of SEC PDP PV10 at 2015 year end, if my calculations are close. Prior to the shale boom, would have meant no further monies advanced using reserves as collateral, assuming bank price decks are close to the current strips.

          Yes, this will include, companywide, the likes of COP, MRO, HES, QEP, CLR and WLL.

          Another exception would be Statoil (not US), I did not include them, as I could not get a handle on their debt/PDP PV10. I did also not analyze Canadian firms operating in the Bakken. However, most Canadian shale firms have large amounts of long term debt, similar to US shale firms.

          Rune Likvern, 11/06/2015 at 6:17 pm

          Just dropping by and remembered an article (Linn Energy) from yesterday;

          "Non-cash impairment of long-lived assets of approximately $2.3 billion for the third quarter 2015, primarily driven by lower commodity prices and the Company's estimates of proved reserves; and"
          http://www.bloomberg.com/research/markets/news/article.asp?docKey=600-201511050650PRIMZONEFULLFEED6022751-1

          More later if time allows……….

          [Nov 06, 2015] Giant Sucking Sound of Capital Destruction in US Oil Gas

          Notable quotes:
          "... Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3. ..."
          "... In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive. ..."
          "... he game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction. ..."
          "... Banks, when reporting earnings, are saying a few choice things about their oil gas loans ..."
          "... Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again. ..."
          "... If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down. ..."
          "... Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning. ..."
          "... Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going? ..."
          "... You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. ..."
          "... Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster... ..."
          www.zerohedge.com

          Wolf Richter www.wolfstreet.com

          Chesapeake Energy is a good example. The second largest natural gas producer in the US, after Exxon, reported its debacle yesterday.

          Revenues plunged 49% from the quarter a year ago, when the oil bust had already set in. The company has been slashing costs and capital expenditures. In June, it eliminated its dividend. And yesterday, it recognized $5.4 billion in impairment charges, bringing impairments for the nine months to a staggering $15.4 billion.

          Impairment charges are a sudden accounting recognition of accumulated capital destruction. These impairments pushed its losses from operations to $5.4 billion in Q3 and to $16 billion for the nine months.

          Chesapeake currently gets 72% of its production from natural gas, 17% from oil, and 11% from natural gas liquids. The oil bust has been going on since the summer of 2014. The US natural gas bust has been going on since 2009! Two natural gas producers have already gone bankrupt this year: Quicksilver Resources and Samson Resources.

          Its annual free cash flow has been negative since 1994, even during good times, with only two tiny exceptions (Bloomberg chart). After living off borrowed money, it's now trying to hang on by selling assets and lowering its mountain of debt. But it still owes $16 billion, much of which QE-besotted, ZIRP-blinded, yield-hungry investors had handed it over the years, based on hype and false hopes.

          Its shares last traded at $7.50, down 75% from peak hype in June 2014. Its 4.875% notes due 2022 and its 5.75% notes due 2023, according to S&P Capital IQ LCD yesterday, traded for 66 cents on the dollar.

          In terms of capital destruction, Chesapeake is in good company, and not even the leader. A new report by Evaluate Energy, which covers Oil & Gas companies around the globe, examined the financial statements of the 48 US oil & gas companies that have reported earnings for the third quarter so far. The amounts and the speed of deterioration are just stunning.

          Turns out, what started in Q4 last year is getting worse relentlessly. And now it's getting serious: plunging revenues, squeezed operating margins, whopping impairment charges, and horrendous losses are combining into a very toxic mix.

          Evaluate Energy determined that net income of those 48 companies was a gigantic loss for the three quarters combined of $57 billion.

          On a quarterly basis, the losses in Q3 jumped 58% from Q2 and 70% from Q1 to $25.5 billion. This fiasco, which has been spiraling down at a breath-taking pace, looks like this:

          US-oil-gas-earnings-quarterly-2014-Q3-2015

          The biggest factor in these losses, as in Chesapeake's case, was the impairments. For this study, Evaluate Energy only counted impairments of property and equipment, not of financial assets such as "goodwill." Including charge-offs of goodwill, it would have been even worse (an example is Whiting Petroleum, which we'll get to in a moment).

          Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3.

          Devon Energy was king of the hill, with $5.9 billion in impairments in Q3, after having recognized impairments every quarter this year, for a total of about $15.5 billion.

          Our natural-gas hero Chesapeake is in second place, if only barely, with $5.4 billion in impairments this quarter, and $15.5 billion for the nine months.

          Of note, Occidental Petroleum, with impairments of $3.3 billion in Q3, Murphy Oil, Whiting Petroleum, and Carrizo Oil & Gas all recognized over 90% of their respective impairments this year in this misbegotten third quarter. They were in no hurry to grant their investors a peek at reality.

          However, Whiting's impairments of $1.7 billion do not include an additional $870 million in write-offs of goodwill in connection with its once highly ballyhooed acquisition of Kodiak Oil & Gas, which closed in December last year.

          In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive.

          But now that oil in storage is practically coming out of our ears, globally, the meme has become "lower for longer," and the game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction.

          Banks, when reporting earnings, are saying a few choice things about their oil & gas loans, which boil down to this: it's bloody out there, but we made our money and rolled off the risks to others in a trade that has become blood-soaked.

          Read… Who on Wall Street is Now Eating the Oil & Gas Losses?

          NotApplicable

          Which plays right into the hands of those manipulating Brzezinski's "Grand Chessboard," as energy choke-points grow ever more valuable to those who ultimately control them.

          Frumundacheeze

          You were a complete inbecile if you ever believed the US fracking industry was anything more than a false pretense for pump and dump schemes. If you did, you didn't do your homework, or you bought into the hype.
          Benjamin123

          Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again.

          The conventional oil industry was also in trouble in the early 90s when oil slipped under $7. Oh, that was also a pump and dump.

          Casey Jones

          I was in North Dakota recently and was shocked, appalled and utterly devastated by the environmental damage up there, not to mention all the cheap ass construction of lousy housing and fact food outlets. The place is wrecked. Fracking is a cruel joke.

          divingengineer

          I guess that makes me a complete imbecile. The industry seems a little complex to reduce to a pump and dump.

          If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down.

          Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning.

          philipat

          Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going?

          NotApplicable

          I still say that this narrative is more of an after the fact blame-game, as prices would've crashed regardless of what the Saud's are doing. You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. Mises laid all of this out nearly a century ago.

          new game

          thank the fed with zirp and qe stimulas. without it and market discipline none of this would be happening. fascism, what is the future now. the fed is the enemy from within that is destroying freedom...

          KnuckleDragger-X

          Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster...

          [Nov 06, 2015] Who on Wall Street is Now Eating the Oil Gas Losses

          Notable quotes:
          "... Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves. ..."
          "... fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead. ..."
          "... Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil ..."
          Nov 06, 2015 | Wolf Street

          Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

          ... ... ...

          Magnetar Capital, with $14 billion under management, sports an energy fund that is down 12% this year through September on "billions of dollars" it had invested in struggling oil-and-gas companies. But optimism reigns. It recovered a little in October and plans to plow more money into energy.

          ... ... ...

          Brigade Capital Management, which sunk $16 billion into junk-rated energy companies, is "having its worst stretch since 2008." It fell over 7% this summer and is in the hole for the year. But it remained gung-ho about energy investments.

          ... ... ...

          But fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead.

          Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil

          [Nov 05, 2015] Silly Robots! by William Davies

          Important point is that the answer to virtually any economic policy question was "education" is the neoliberal ploy. This is simply not true in the current environment. It is important what specialty to choose at the university. And taking into account shifting job market it is difficult to choose right (decimation of IT is one great story in this respect). Stories of university graduates working as bartenders are abundant. Especially graduates from such fields as psychology, public relations, English literature, etc.
          Notable quotes:
          "... The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value from workers than they actually pay for, which explains the accrual of profits. Without labor, there could be no value. Without labor markets, there could be no capitalism. ..."
          "... Marx liked to depict capital as a vampire that sucked the blood from living labor. But the fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no longer needs us at all. ..."
          "... This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account forces us to pay attention to the family as a source of income - work is an increasingly unlikely path to acquiring wealth. ..."
          "... Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away from productive activities and toward balance-sheet manipulation and financial innovations as sources of profit. ..."
          "... The neoliberal ploy that each individual be treated as a chunk of capital was present in the discourse of the 1990s knowledge economy, and the answer to virtually any economic policy question was education. This no longer feels adequate ..."
          "... An economy in which capital has replaced labor may witness the rise of a few thousand well-paid YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their parents, and unpaid workfare contracts. ..."
          "... Ford advocates a basic income guarantee, an idea that is accumulating support right now. If the labor market will not provide the income that people need, some other institution will be required to take its place. He makes the case well, dismissing the simplistic policy narrative that people need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things but struggling to get paid for them. ..."
          "... Piketty's proposal for a global wealth tax, they require not only greater political coordination than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides the basis for so much policy, starts from the assumption that resources and time are scarce. ..."
          Nov 01, 2015 | The Chronicle of Higher Education

          Since the Victorian era, the labor market has been the arena in which the virtues and injuries of capitalism can been seen. Classical economic liberals look at the labor market and see a platform for social mobility, one in which individual effort is matched by monetary reward. The neoliberals of the 20th century took this optimism further still, adding the notion of human capital - that people could augment themselves through education or self-branding so as to increase their own value in the market.

          The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value from workers than they actually pay for, which explains the accrual of profits. Without labor, there could be no value. Without labor markets, there could be no capitalism.

          Marx liked to depict capital as a vampire that sucked the blood from living labor. But the fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no longer needs us at all. As the economist Joan Robinson has written, if there is one thing worse than being exploited by capital, it is not being exploited by capital. The vision that Kaplan and Ford put before us is of a world in which machines don't even bother to extract value from us any longer - they're too busy trading with one another. What might capitalism look like if labor markets lose their political centrality? Would this even be capitalism?

          This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account forces us to pay attention to the family as a source of income - work is an increasingly unlikely path to acquiring wealth.

          Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away from productive activities and toward balance-sheet manipulation and financial innovations as sources of profit. The vaudevillian horror show of machines broken free from human control is mirrored in the anxieties of contemporary political economy. The specter of autonomous machines is also the specter of autonomous capital, no longer anchored in society via the wage relation.

          The neoliberal ploy that each individual be treated as a chunk of capital was present in the discourse of the 1990s "knowledge economy," and the answer to virtually any economic policy question was "education." This no longer feels adequate. As Kaplan and Ford point out, the market value of most qualifications is diminishing all the time. Given the possible scale of automation, Ford argues, the idea that education can achieve prosperity for all is like "believing that, in the wake of the mechanization of agriculture, the majority of displaced farmworkers would be able to find jobs driving tractors."

          An economy in which capital has replaced labor may witness the rise of a few thousand well-paid YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their parents, and unpaid workfare contracts. As Ford points out, even where humans are cheaper than robots to employ, there are various reasons that automation may nevertheless be preferable. Robots bring less baggage than people. The prospects for inequality under these conditions are terrifying.

          ... ... ...

          Ford advocates a basic income guarantee, an idea that is accumulating support right now. If the labor market will not provide the income that people need, some other institution will be required to take its place. He makes the case well, dismissing the simplistic policy narrative that people need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things but struggling to get paid for them.

          The chance of such policy ideas being adopted is slim at best. As with Piketty's proposal for a global wealth tax, they require not only greater political coordination than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides the basis for so much policy, starts from the assumption that resources and time are scarce. Hence the curiosity that as our national productive capacity swells from year to year, political discourse seems ever more fixated on constraints and cuts.

          ... ... ...

          ...there is an unavoidable sense in which the robots can't understand what they're doing. Their inability to complain, which is precisely what makes them attractive to the likes of Uber and Amazon, is also what renders them somewhat stupid after all. They are locked into what Max Weber termed instrumental rationality. Endlessly performing, relentlessly producing, they are incapable of ever saying "enough's enough."

          In this they hold up a daunting mirror for us to look in. They represent an impossible benchmark of success and efficiency, one that recedes so far into the distance ahead that the only sane response is to abandon the idea of humans as capital altogether.

          ... ... ...

          William Davies is a senior lecturer in politics at Goldsmiths, University of London. He is the author of The Happiness Industry (Verso, 2015).


          [Nov 04, 2015] Americas labour market is not working

          Notable quotes:
          "... the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. Everything is awesome. Repeat till it becomes fact. ..."
          "... To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists. ..."
          "... That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of greater transparency for the private sector, and we are the worlds police in their foreign policy. ..."
          "... That, of course, almost every US academic would question, and call you nuts if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families. ..."
          "... The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine. ..."
          "... American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party. ..."
          "... Wolf has a point. Im in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. Im also very physically fit and energetic. But after more than a year of hearing that I was well-qualified but too senior, I stopped looking. ..."
          "... ordinary people who rely on jobs to supply lifes necessities - food, clothing and shelter - get short shrift when economic priorities are being set. ..."
          "... Maybe it has something to do with the breakdown of the lower middle class family in the US ..."
          "... In light of studies showing that low quality jobs are worse for folks mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists. ..."
          "... @cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported low level jobs. ..."
          "... The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. ..."
          "... I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys. ..."
          "... Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. ..."
          "... The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. ..."
          "... In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. ..."
          "... The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s). ..."
          "... Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago. ..."
          "... the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting. ..."
          "... @lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is off the books ) the results look better. You cannot make an apples to apples comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different. ..."
          "... You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period). ..."
          "... Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it. ..."
          "... I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents. ..."
          "... Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number. ..."
          FT.com

          Ex NHS Surgeon

          The causes are multi factorial, but what is really disturbing is the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. 'Everything is awesome'. Repeat till it becomes fact.

          To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists.

          The discovery mechanisms in America's so called free markets are terminally broken.

          The whole charade is necessary to keep the terrifying monster that circles the deep below the surface: debt. Irreconcilable, measured in numbers so stupendous it makes Zimbabwe's terminal hyperinflation seem tame by comparison.

          There is only one way the monster of debt can be tamed: war.

          E. Scrooge, 3 hours ago

          The rise of the underground economy, pay cash and you can get sizable discounts on construction, repairs, all sorts of things. Many, but not all of those able, are providing products and mainly services as part of the underground economy. This was and I still believe is the fastest growing segment of the US economy. Mostly out of necessity, but will likely remain a very significant part of the overall economy for quite some time, as many of these workers are years away from Social Security eligible.

          ceteris paribus

          The irony of this title. The American labour force--the people who do real jobs in the real economy are working harder than ever, for less and less money to keep themselves afloat. So American labour does work while the American labour market is apparently on a permanent vacation.

          Kevin Alexanderman

          "America's labour market is not working"?

          You mean "America's government is not working".

          That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of "greater transparency" for the private sector, and "we are the world's police" in their foreign policy.

          They can't even competently establish metrics to adequately assess performance of their economy.

          Mr. Martin, you say "In all, the proportion of the fall in the unemployment rate because of lower participation cannot be more than a quarter." Is that your best attempt at one-liner humour? Are you still mocking Greenspan-speak?

          So I gather you are saying that a fall from 10% to 5% is more on the order of a fall from 10% to 6.25%.

          That, of course, almost every US academic would question, and call you "nuts" if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families.

          Astrophysicist111

          Interesting that the author doesn't consider the possible role of the increased death rate among middle aged U.S. whites - as recently reported, e.g. in the NY Times - to be a factor in the low labor participation rate. As one economist who studied the data observed: "There are a half million people dead who shouldn't be". This is over the interval 1993-2014. Prior to 1993 the specific age demographic, 45-64 years old, had enjoyed a 2 percent improvement in life span - but no more. The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine.

          Legal Tender

          For those interested, here is an NPR piece (and follow-up from The Atlantic) on the disability situation in the US. Note that an adult need not be disabled themselves to collect payments and leave the workforce. Children are eligible for disability payments in the US for learning disabilities (including ADD, ADHD, dyslexia, etc) with the income going to the parent (reducing the need for that parent to enter the workforce).

          From 2009 to 2013, there were 2.5 million jobs created in the US while 5.9 million people were added to the disability system.

          fmayer314

          One thing I enjoy a great deal is good comedy. And as an American reader I find plenty of fabulous comedy in these "what's wrong with America" articles. Soaring rates of morbidity among white middle-aged Americans? How can that be? Pathologically low LFP rates? What could possibly explain that? Billionaire clowns near the top of opinion polls? Go figure!

          After the first course, one then moves on to the comments, littered with the aromatic excretions of right-wing American idiots. The incredulous replies subsequently posted are often quite hilarious, because respondents find it so hard to believe the amazing levels of stupidity on display.

          American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party.

          Thanks FT!

          TJG

          Thank you Mr. Wolf for pointing out that the declining employment participation rate portends significant community and social problems. I would like to suggest that two issues play a significant role in this decline. The low minimum wage combined with the high cost of competent child care make it financially pointless for a spouse earning less than $10.00/hour to work. Secondly racially tinged mass incarceration has produced an ever growing number of unemployable people. The moment an applicant indicates he or she has been incarcerated it is pretty certain the application will be rejected. Until societal attitudes and public policies change the problems illuminated by Mr. Wolf's opinion piece will only continue to grow.

          JMC22

          The title of this piece -- that the US labour market is not working -- is way out of line with the content. A highly contentious issue regarding the fall in the measured participation rate is hardly an indication of a non-working labour market, especially given the huge increase in employment in recent years. One issue not discussed -- the fact of a very considerable increase in the employment in the grey markets. Self-employed persons, partly growing out of internet activities, are not properly measured. Nor are those who simply work outside the formal economy, including many illegal immigrants.

          ciwp1

          @JMC22 Good points. Worth bearing in mind also, wrt self-employed, there are large numbers 'officially' self-employed who are not doing much; similar irregular work patterns afflict temps, part-time works, zero hours...

          Mark Feldman

          Mr. Wolfe, the problem is a lack of education. And I don't mean a lack of degrees.

          I'm not an economist (I'm a former math professor.), but it certainly seems to me that if an economy needs educated (Again, don't confuse that with "degreed".), workers, and they aren't readily available, then there will be more unemployment.

          What I mean by "degreed but uneducated" should be obvious, but I do want to make one point with an example.

          If you learn how to do calculus - just how to do it period - that will not make it easier to learn how to use a spreadsheet; but, if you really learn calculus, you will find it much easier to use a spreadsheet. That is because you will have trained your mind to think quantitatively. It's that simple.

          In the 60's students who took calculus learned it. Now, they mainly just get certified in it. (If you doubt me, just compare today's AP Calculus with the one from 1970.)

          This same phenomena is true across all disciplines. It is because the American higher educational system, as a whole, is corrupt. (In a recent issue,The Economist has done an excellent job reporting and analyzing the system. Thank you.)

          But here is what is even worse.

          The effect of this corruption has seeped down to America's K-12 system. To see how, just ask yourself where high school teachers go to learn, and within what system do "professors" at regional state schools get their "credentials", and why it might be in the interest of more "elite" schools to credential them.

          For anyone who wants to know more, I have a blog inside-higher-ed that has convincing examples and documentation.

          Veiled One

          Wolf has a point. I'm in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. I'm also very physically fit and energetic. But after more than a year of hearing that I was "well-qualified but too senior," I stopped looking.

          Now, I'm a rentier with 100% free time, and read the FT every morning. I suppose I should be happy to enjoy the guerdons of a career when very young.

          Kevin Alexanderman

          @Veiled One ,

          Sounds like you are a victim of age-racism. The leftist journalist crowd know the money is with the older people. Just as they slander the banks, (who have the money), and as the German national socialists slandered the Jews (who had the money), today's socialists slander older people.

          The leftists are preparing some kind of way to swindle more experienced people out of their money, just haven't figured out how yet.

          Gail Johnson

          This is a political problem. Ordinary Americans are no longer represented by the national government. In other major industrialized democracies, the equivalent of US congressional districts include about 100,000 people. For example, in the UK there are 650 members of the House of Commons representing about 64 million people. In a district with 100,000 people it is possible to contest an election without a $1 million war chest.

          In the US congressional districts average over 700,000 people. There are 435 representatives for over 310 million people. Congress has an approval rating on the low teens, and yet in the last election 95% of incumbents got reelected. Why? Their demonstrated willingness to vote the way big money tells them to in return for the funds needed to stay in office.

          Thus, ordinary people who rely on jobs to supply life's necessities - food, clothing and shelter - get short shrift when economic priorities are being set.

          http://www.twoyearstodemocracy.com/

          LJH

          The US is focused on Austerity. Cultural, Economic and Political Austerity. The right wing drive to kill everything for everyone ( save for the elite that are rapidly accumulating it all) has destroyed the infrastructure and the fabric of the country. The US is the laggard in the 'leading developed countries' of the world and is certainly vectored in the wrong direction.

          Michael Moran

          I wonder how much of this can be explained by furtive self-employment. The ridiculous tax system provides every reason for a smart person to try and avoid formal employment through LLCs or other dodges. The LLC structure and their tax status is unique to the US, after all. It could be part of the explanation.

          RDRAVID


          @Michael Moran

          If someone is self-employed they would be counted as actively participating in the Labour market. Rather than self-employment, I think the issue is a growth in informal activity in the US. Its becoming more common there for people to do undeclared work, whether of the handyman, domestic helper or running a mobile food shack.

          The bottom 20% in the US are effectively living a third world style life.

          Isaias

          I always said that if US unemployment was measured by Spain unemployment standards ( the strictest in the EU ), it would probably be around 12 % if not more.

          What free market?

          While Martin Wolf explains a deeply worrying trend, particularly for those who have given up the struggle to find work, there is another bar to job creation.

          Small businesses find the bureaucratic hassle of taking on staff a nightmare: the intrusion of form filling, record keeping, the tax authorities, local authorities etc, all of which have their own, separate agendas, is sufficient deterrent to employing anyone except on a casual basis - which the very young and old are happy to engage with the process.

          The only common strategy for bureaucrats and tax men is job creation - theirs and those of the ilk - their role is job destructive in the real economy.

          gkjames

          @What free market? Really? How so? What "bureaucratic hassle"? Are standard record-keeping and accounting practices an "intrusion" or, more likely, a useful mechanism by which shareholders can track the health of the enterprise? In most US states, by the way, it takes all of a single form and a modest fee to incorporate. As for the alleged "common strategy for bureaucrats and tax men," you do realize, presumably, that it is elected legislatures who write the tax laws, laws that reflect extensive (and, not infrequently, exclusive) input from the business community.

          What free market?

          Yes, it is BIG business that controls the output of legislatures, small business does not get a look in - those running them are too busy running their businesses and coping with bureaucracy. It is often overlooked that rules and regulations that are imposed universally suit big business but place a disproportionate burden on small business who have to comply with the same dictats but without the administrative cohort and infrastructure that large firms can justify.

          What free market?

          Indeed, without sounding too conspiratorial, I would say there is an unwritten pact between big business and legislators that allows big business to comply with onshore rules and forces competing small business to do the same.

          Meanwhile offshore, big business can engage in tax evasion on a massive scale using offshore tax havens, transfer pricing and the freedom from jurisdictional control that obviates their need to remit revenues that would be taxable (viz Apple) . Small businesses are captive, they have to be 100% complient and that suits big business as the administrative burden crushes incipient competition from small business.

          Anon2

          Maybe it has something to do with the breakdown of the lower middle class family in the US and the subsequent poor performance in school, crime, prison etc. I guarantee those not participating exhibit a higher percentage of having had no father in the home as a child.

          LJH

          @Anon2 Yes, we don't like poor people in the US, or minorities - including women. The problem is the ruling class of white rich men is morally and intellectually bankrupt.

          Those that create the problems are usually not the first to suffer the consequences. That comes later as the empire crumbles.

          M_T

          @Hell No -- Given the minimal welfare in the US, and that it seems implausible that one in eight American working age men are starving, my personal assumption would be that a large proportion of the remainder are working in the unregistered economy. That includes crime but would also include casual work where the employer doesn't pay proper taxes etc.

          RiskAdjustedReturn

          @M_T @Hell No --

          "... casual work where the employer doesn't pay proper taxes etc."

          In my local bank, on a Saturday morning, one will see lines of middle-aged white guys standing in line to take out thousands of dollars each in cash, which I'm assuming is meant to pay their workers

          Adam Bartlett

          An issue that's only going to get more severe and widespread as technological unemployment continues its advance.

          In light of studies showing that low quality jobs are worse for folk's mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists.

          The choice facing us is probably between the statist solution of a massive increase in public sector employment, or the relatively libertarian option of a generous universal basic income. Let's pray it won't be too many years before such options get to the table.

          pangloss

          Surely an American (or any other) worker is worth no more than say a Chinese worker + some translation factor. The translation factor includes the presence of infrastructure and human capital on both sides. The low skill worker suffers first because of an early and easy shift in the translation factors. Sooner or later the high-end designers of Silicon Valley will suffer the same fate. Excluding nuclear war there is likely to be a flattening of wages across the developed world. This is especially bad news for those at the lower end of the ability scale, no credible amount of education or training will make enough difference. There are limits to human capital. Start thinking about redistribution and the niches that are immune from this effect.

          nonuthin

          The question that bothered me through this is what do they actually do if they're not "working". Clearly not all sustained by welfare, does this indicate a significant increase in either the black economy, the criminal economy or both. E.g. it would be statistically fascinating ( if politically unachievable) to see the impact of a legally licenced drugs trade on the employment participation rates.

          Adam Bartlett

          @nonuthin Some in single earner households, having to accept a lower material quality of life than they would if both adults could earn. Others drawing down savings and living frugally. Many dependent on food banks and other forms of charity. Others subsisting in the informal economy, but activity one would call 'grey' at worst, not the black or criminal economy.

          Big Dipper

          There is more to life's responsibilities than your "men and women whose responsibilities should make earning a good income". Perhaps you could consider high-quality child raising, other care activity, community and education. The ratio is dangerous.

          cg12348

          Every week Martin Wolf reminds me why the self proclaimed experts are really idiots - you can make stats sing if you know what you are doing........but the reality is easy to see. Americans have a work force that is seeing its jobs exported - notice he does not give the stats on companies moving out of the US over the past 30 years. Again the experts say we could not stop It - NO they cant stop it that is true - but there is a way to stop it.

          They would further tell you that the 11 million immigrant workers have little to no effect because they take jobs that we don't want - wrong again. As you age your are happy to be employed even if the job does not hold the allure of your previous job. What immigrant workers do is they take less money because they are willing to live at a lower standard. They will live many families to one home etc. In fact if they were not here to take the job the job would get done when the pay increased to attract a willing worker - FACT. Finally what stats do not capture is the moral of a work force.

          There is nothing "decent" about our unemployment stats. We are not a nation of any one race we are a nation of opportunity with one of the most powerful economies and plenty of natural resources and demand and opportunity for innovation - so what sickness has befallen the US - large government - corporate taxation - political mediocrity - the same thing that has recently become apparent in Germany and France - idiots who give away what we worked hard for and expect us to pay more for those they choose to support.

          Todays social programs breed a generation that no longer asks what they can do for their nation - but what their nation can do for them. Obama and his ilk have handed the world to those who were unwilling to fight to fix their own countries - instead they want to come here for opportunity that did not exist at home and then in a great act of irony turn our land into theirs - we do not want to be Europe - nor do we want to be Mexico and we certainly do not want to be the middle east - instead what we want those who love our opportunity to come here and become American - but in numbers and within a legal process that does not exacerbate or marginalize those who were born here and should have the right to the first jobs here.

          Profitsee

          @cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported "low level" jobs. Even as a Democrat, I confess, you provide a lucid argument.

          Tiger II

          The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. Sclerotic labor laws and regulations make it impossible to create many jobs that can produce more than they cost, especially given the dumbing down of the work force by public monopoly schools. Regulated labor markets are one of the biggest drivers of unemployment on both sides of the Atlantic and should be abolished.

          Brian Reading

          While not disputing in any way Martin Wolf's analysis, the devil may still be in the detail. Population estimates by age cohorts come from ten-yearly census data - the denominator for participation rates. These estimates are interpolated between censuses from births, deaths and migration data. The numerator, the number in each age cohort at work or seeking work, comes from regular household sample surveys. Using one source for denominator and another for numerator, which cannot be avoided, entails a margin of error. In looking into this, I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys.

          DougInCalifornia

          What I am seeing where I live is the emergence of a part-time, informal service economy. You might call it the Craigslist/Ebay/PayPal economy. I think that a lot of people make a (minimal) living this way. And my guess is that most of it doesn't get picked up in official statistics. I think that "employment" will need to be measured differently in the post-internet era.

          RiskAdjustedReturn

          @cg12348 @Boston1

          "Show me a middle class kid that expects to work his way up and willing to start at the bottom and I will show you..."


          ...a recent immigrant.

          WL - Minneapolis

          One clue into the declining labor force participation rate may have been discovered in a study reported in the NY Times today, that may account for a substantial portion. The death rate among middle-aged (45-54) whites with high school education or less has increased in recent years, reversing a long-term trend. The cause appears to be poor health/chronic pain/mental health issues that result in death by drug/alcohol abuse and/or suicide.

          Clearly unskilled and low-skilled workers have more trouble finding well paying jobs, and the wages for those jobs have fallen around 19% since 2000 in real, inflation-adjusted terms. But an increase in health problems of one sort or another may also be the cause of the lower participation rate as well.

          http://www.nytimes.com/2015/11/03/health/death-rates-rising-for-middle-aged-white-americans-study-finds.html

          Paul A. Myers

          Excellent article on education difficulties in the US by Edouardo Porter in today's NYT. One problem is that children living in poverty in the US struggle to learn in the education system partially because overall public support for impoverished families is so poor in the US.

          http://www.nytimes.com/2015/11/04/business/economy/school-vs-society-in-americas-failing-students.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region®ion=bottom-well&WT.nav=bottom-well&_r=0

          KKB

          If we think the current labor market is not working, wait till the Trans Pacific Partnership (TPP) trade deal passes the US Congress & signed into law .
          Capital ($), aided by misguided policies of the US economic elites, will prevail over (skilled) Labor.

          Paul A. Myers

          A major contributor to lack of hiring men age 25-54 is the massive underinvestment in infrastructure in the U.S. This is a prime age for construction employment and this industry provides a ladder of advancement from low and semi-skilled labor up to more skilled labor. My experience with construction contractors in Southern California is that they are interested in individuals who can get to the job site and do the work and are often willing to overlook criminal records. A dollar of public spending on construction puts American workers to work, not someone in Korea. You can't import a highway or a building from the Far East.

          The other major failure is the large urban school district. These "too big to succeed" institutions have a record for over a half a century of failure to turn out skilled young people. In the massive Los Angeles Unified School District, they shut down skill-based vocational education during the period 1970-1990 with the lame excuse of everyone is going to college. The duopoly of a wooden-headed educational establishment fostered by graduate schools of education and powerful job-protecting, mediocrity-fostering teachers unions have created the largest statist failure since the collapse of East Germany. (And you can remember how much Germany paid to clean up that mess!)

          There are recent reports that there are 4-5 million unfilled jobs in the US due to lack of skilled applicants.

          A crummy labor market is almost always the creation of bad public policy. And today's America swims in bad public policies.

          beforethecollapse.com

          @Paul A. Myers As an educator, I wonder what role poor nutrition plays in the US?

          beforethecollapse.com

          Also, I must say that the family unit is far more influential and important to the youth than any teacher. The teacher can operate as a third parent, or second parent if the family breaks down, but a youth needs a stable environment for healthy emotional and instinctual development. Excellent diet, physical exercise and regimented sleep patterns are essential. It's easy for parents to blame teachers but I have noted that such complaints arise from personalities that resent strong authority figures and duty enforces. As such, they are incapable of disciplining their own child.

          In China, society encourages the family to be unconditionally supportive to the child, this is balanced by the teacher who is a strict disciplinarian, often by way of corporeal punishment.

          Philip Verleger

          @Paul A. Myers A crummy labor market can also be the result of increased monopsonistic power of employers. Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. The employers cannot offer more because their customers - the large airlines and the big shippers will not pay more. The trained workers are there. They just will not accept the scarps.

          The public policy mistake was allowing the creation of such large monopolies/monopsonies.

          Look outside your silo!

          Paul A. Myers

          @Philip Verleger @Paul A. Myers Good points. The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. (I think I was seriously outside my silo and I think the FT editors were very receptive to this argument--then and now.)

          Oligopolies (the only kind of major corporations and markets in the US today) produce lower volumes, at higher prices, and with fewer employees than a more competitive economic sector would employ, produce, price.

          In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. In the 1950s and 60s, it used to be the Big Three in most sectors; today is at most the Big Two.

          The Progressives understood the economic concentration argument; the Democratic Leadership Council generation embraces concentration's contributory support.

          Philip Verleger

          @Paul A. Myers @Philip Verleger

          Could not agree more. I am on the board of a family firm. We cannot find truck drivers although we pay well and train (to move gasoline - it takes an extra license). There is just little interest in joining the profession because the large companies keep wages down.

          The FTC and Justice Department unfortunately failed to do their jobs.

          BelCan

          Mr Wolf seems to have missed the fact that the FT already covered this issue on 16 October.

          See http://blogs.ft.com/ftdata/2015/10/16/us-statisticians-are-in-the-dark-over-the-20-million-working-age-americans-who-dont-want-a-job/

          nb

          No cause for concern. The decline in the LFP rate is simply a social readjustment

          https://www.stlouisfed.org/publications/regional-economist/october-2013/a-closer-look-at-the-decline-in-the-labor-force-participation-rate

          The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s).

          The main factors that keep the aggregate LFP rate from falling further are the increase of the LFP rate of those 55 and older and the strong attachment to the labor force of Hispanic and Asian people, who constitute the main share of the immigrant population.

          Henry C

          @nb Your good post is reinforced plenty by the more recent talk by Bullard. He notes:

          "If you know only one aspect of the data on labor force participation, it should be this: Labor force participation used to be relativelylow, it rose during the 1970s, 1980s and 1990s,peaking in 2000, and it has generally been declining since 2000.From 1948 to 1966, the labor force participation rate was relatively low and relatively stable, averaging 59.1 percent. That's substantially lower than today's value of 63 percent. It is important to note that we normally consider the U.S. economy to have performed relatively well during this period, especially during the long expansion of the 1960s.

          Evidently, low labor force participation does not equate with weak economic growth. Surely this is because the factors driving economic growth are different from the factors driving labor force participation."

          https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf

          beforethecollapse.com

          Why are you surprised? You genuflected to my employer.. The People's Republic of China.

          Where slavery is a tool for political control. Perhaps you should have thought harder and better when you and your friends were nattering on about The Great Moderation. What was your long game? Did you think there would be a revolution or revolt that you could manipulate? Or were you a true believer in The Circular Theory of Income?

          Action? What action? How are you going to move production back to the West? How can you undo what you are responsible for?

          Chinese Competition Exposes Americans to Cruelty

          Henry C

          I'm not sure I want to worry about the US LFPR, and whether it's it's indicative of Americans' feelings that they can't support a family.


          The literature on US LFPR is pretty consensual on the main effect being demographic (ageing) and virtually nothing else. The St. Louis Fed's Bullard's recent talk is illustrative: see https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf .

          As to family support, the other aspect one might look at is whether US household disposable income growth has been deficient relative to other G7 countries (which all have higher LFPR). But that's not the case: see

          https://data.oecd.org/hha/household-disposable-income.htm

          So on the face of it, it seems to take a higher LFPR in other G7 countries to match the same approximate growth in US disposable income in the long run.

          L'anziano

          "What might explain the extent to which prime-aged men and women have been withdrawing from the labour market in the US over a long period?"

          Heartless as this sounds (and I am sure I will not gain any friends for this on this page) the reason on the male side of the equation is that it is much easier to fire ineffective, unproductive, middle-aged, male dinosaurs in the US than it is in the UK, France or Japan. At least this has always been the case in every global firm in which I have worked. I am acutely aware of this as a middle aged man myself.

          lennerd

          Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago.

          This, of course, is the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting.

          Olaf von Rein

          @lennerd Those income statistics right? Frightening.

          Legal Tender

          @lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is "off the books") the results look better. You cannot make an "apples to apples" comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different.

          If Europe admits millions of refugees over the next few years, I can assure you it will depress average male household earnings. But you always need to look at what has changed in the composition of the data before drawing conclusions about the data. The fact that there might be millions of Middle Eastern and African arrivals earning very little (officially) would impact the overall data for wages but may not accurately describe the experience of the pre-existing labour force.

          You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period).

          Cuibono

          As somebody who has worked in both Europe and the US I would add to the list of underlying causes mentioned. First employee rights in the US are abysmal. Poor conditions, no training or upward mobility, little or no personal privacy, cult like "motivation" exercises, passive aggressive annual reviews, drug testing, binding non-compete contracts that disallow moving to competitors for long periods of time and now declining benefits. The list goes on and on.

          The employer gets everything and gives nothing more than an "at-will" commitment to continue employment.

          It gets to a point where it's not profitable to bother.

          Raver

          @Cuibono Yes it's gotten pretty bad. The benefit packages are barely cheaper than what you can buy in the health insurance marketplace, maybe $20 less a month if you're lucky.

          Banker

          @Cuibono yea but salaries are 2-3x as much as in the UK.

          Cuibono

          @Banker @Cuibono Right, until you factor in the cost of health care and college tuition for your kids.

          Banker

          @Cuibono @Banker @Cuibono Ahm? Most ivies have $0 fees for families under $60k and a lot of support. Health insurance also provided from employer covers everything. Have you even got any idea how expensive private healthcare is in the UK? Unless you want to use 3rd world NHS ofcourse.

          All public universities also charge minimum Ł9k/year fees here.

          Learn your facts before you post.

          Cuibono

          Well I believe I know facts. I also have manners, and you apparently don't. So get off your high horse before you post!

          Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it.

          You 9k per year number is, frankly hilarious to any middle class US parent. Try 60k per year for fees and board for a good university.

          And if you are earning 60k per year how are you going to afford the basic second level education, complete with top SAT scores and cultural experiences that will get you selected to the mythical ivy.- especially if you are white and without legacy connections? You should take your own advice and read up on US colleges and their outrageous manipulation of statistics to hide the fact that they are little more than vehicles that allow the elite to transfer status across generations.

          You are upset about an opinion I expressed based on my own experiences and you set yourself up as the comment police to challenge that opinion without.

          Something to think about. . .

          US corporations have the developed world's highest remuneration scale to executives and the lowest benefits to other employees. How else can these corporate executive maintain their life style without hiring from the two employee pools (young and old) that work for such low wages? Young are beginning and old augmenting income.

          ForgottenHistory

          I recall how in the Netherlands and in Germany (and i think to a lesser degree also in France but haven't got a clue on the UK in this matter) policymakers and governments were very concerned for just this: an increase in the longer -and ultimately eternally- unemployed. Therefore people weren't just been laid off but held on and send on courses or only half-employed(=50% or so) and the government added some funds to that.

          This way people retained and even improved their skills, in stead of losing skills and become unemployable and ultimately end up being a costly burden for society.

          It doesn't surprise me at all this didn't happen in the US, as the US has equal opportunities(supposed to) but no proper sense of community in the sense of a government with a long term-planning; US has been doing the opposite, e.g. cutting-off anything which would help the unemployed, poor, or disadvantaged -that's equal opportunities in reality.

          Smyrna Cracker

          I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents.

          Mr Passive

          Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number.

          Is it another function of very low bond yields & therefore pension rates, the side-effects of QE we may call it.

          Time for the CBs to hold up their hands and admit they've done all they can and at the margin further extra-ordinary measures will be counter productive.

          Massachusetts

          @Mr Passive In the US the only age group that has seen incomes increase consistently is the 65-74 decile. I cannot speak to the UK.

          http://www.nytimes.com/2014/09/13/business/economy/young-households-are-losing-ground-in-income-despite-education.html
          http://www.nytimes.com/2015/06/15/business/economy/american-seniors-enjoy-the-middle-class-life.html

          [Nov 04, 2015] Secular stagnation and Mutual Fund Marxism

          Worthwhile Canadian Initiative

          Suppose the government issued a financial asset that, adjusted for risk and liquidity, promised a higher rate of return than any alternative asset. The government can do this, because it has the power to tax. Everybody prefers holding that government-issued financial asset to any other asset.

          There would be an excess demand for that government-issued asset. The only way to eliminate that excess demand would be for the government to buy up all the other assets in exchange for that asset. The government would be operating one big closed-end mutual fund, that owned all the assets in the economy, with people owning shares in that mutual fund. And the rate of return on those mutual fund shares would be guaranteed by the government's power to tax.

          Most people would be against that policy. Perhaps we could call the few people who supported it "Mutual Fund Marxists"?

          Now let's suppose that particular government-issued financial asset is also used as the medium of exchange. An excess demand for the medium of exchange causes a recession. Each individual tries to ensure that the flow of money leaving his pocket is less than the flow of money entering his pocket, so the stock of money in his pocket increases over time. This is possible for each individual, but impossible in aggregate (unless the government increases the aggregate stock sufficiently quickly over time), but the attempt by each to do something they cannot all do causes a recession.

          So we would have a permanent recession, unless the government implemented Mutual Fund Marxism, by buying up all the assets in the economy in exchange for government-issued money, to eliminate that excess demand for government-issued money.

          The threat of permanent recession I have just described is usually called "secular stagnation". The proposed cures of ever-expanding central bank balance sheets and national debts are the first steps towards Mutual Fund Marxism.

          Should we blame the economy for secular stagnation, or should we blame the government for issuing a financial asset that promises a more attractive rate of return than other assets, and that also is used as medium of exchange?

          Would private financial institutions, that lack the power to tax, ever do the same thing?

          Some might reasonably argue that the twin threats of permanent recession or Mutual Fund Marxism themselves lower the expected rate of return on other assets.

          Just a slightly different way of looking at some old questions. Secular stagnation is the same question as the Optimum Quantity of Money.

          Addendum: If we want to avoid having to choose between secular stagnation or Mutual Fund Marxism, we need to increase the yield spread between government-issued money and other assets. One way would be to target NGDP level path, with a suitably high growth rate for NGDP (presumably a rough proxy for the nominal rates of return on other assets). A second way would be to raise the inflation target. A third way would be a Gesellian tax (negative interest rate) on money.

          Benoit Essiambre

          Exactly!

          I don't understand why there isn't a immense sense of urgency from central banks, governments and the economic profession to fix this.

          People argue about details meanwhile central banks like the ECB are maintaining an asset that is directly subsidizing disinvestment and economic inactivity and leading to colossal amounts of needless suffering and a relative decline of the western world.

          [Nov 04, 2015] Do Economists Promote Ideology as Science?

          Notable quotes:
          "... Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing? ..."
          "... This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works. ..."
          "... No - we dont allow MDs to prescribe or treat on the basis of theory alone. Its unethical for any professional practitioner to give advice that is not supported by compelling evidence demonstrating that the advise is both safe and effective - First, do no harm. ..."
          "... To a man, professional economists shill for the view that they are morally free to treat real economies and real people as their personal lab rats. As a group, economists are an ethically challenged bunch in this respect, and probably in other respects too. ..."
          "... The rich plutocrats have a major stake in advocating very specific narratives, so they will throw large sums behind those narratives (and the fight against anything conflicting with them). ..."
          "... What sort of opinions are economists allowed to have if they want tenure, want to be published in the major journals or want to make a living? ..."
          "... Keynes concluded that government direction was necessary for a viable economy. Keynes interpreters in the US buried that idea, and thus became very important economists - guys like Paul Samuelson. The first ( and only) US book to faithfully represent Keynes ideas faded away soon after publication: http://news.stanford.edu/pr/93/931011Arc3112.html ..."
          "... It is impossible to talk about economics without making essentially ideological distinctions. Private property and wage labor are not natural categories. Their adequacy as human practices therefore needs to be either defended or criticized. To simply take them as given is an ideological waffle that begs THE question. ..."
          "... Economists thus SHOULD have, acknowledge and fully disclose their ideological biases. When evaluating evidence they should make every effort to set aside and overcome their biases. And they need to stay humble about how Sisyphean, incongruous and incomplete their attempts at objectivity are. ..."
          "... And so - though we proceed slowly because of our ideologies, we might not proceed at all without them. - Joseph Schumpeter ..."
          Nov 03, 2015 | Economist's View

          My latest column:

          Do Economists Promote Ideology as Science?: Which is more important in determining the policy positions of economists, ideology or evidence? Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing?
          This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works.

          But what about academic economists who are supposed to be searching for the truth no matter the political implications? Can we detect the same degree of bias in their research and policy positions? ...

          rayward said...

          Thoma's assessment seems fair enough. I'd make the point that, for some academic economists, no amount of evidence is sufficient to overcome their bias. "Where's the proof" is the refrain one hears often. And then there's the question: what is evidence? The availability of lots of data is often used to "prove" this or that theory, even when the "proof" is contrary to the historical evidence one can see with her own eyes. Data used as obfuscation rather than clarification. I appreciate that one historical event following another historical event does not prove causation, but what's better proof than history.

          RogerFox said...

          "Shouldn't theory be a guide when the empirical evidence is unconvincing one way or the other?"

          No - we don't allow MDs to prescribe or treat on the basis of theory alone. It's unethical for any professional practitioner to give advice that is not supported by compelling evidence demonstrating that the advise is both safe and effective - 'First, do no harm.'

          To a man, professional economists shill for the view that they are morally free to treat real economies and real people as their personal lab rats. As a group, economists are an ethically challenged bunch in this respect, and probably in other respects too.

          DeDude said...

          Economics as a science is mainly hurt by two things.

          1. The rich plutocrats have a major stake in advocating very specific narratives, so they will throw large sums behind those narratives (and the fight against anything conflicting with them).
          2. Economics does not have anything resembling the double blind placebo controlled trials that help medicine fight off the narratives of those with money and power.
          RGC said...

          What sort of opinions are economists allowed to have if they want tenure, want to be published in the major journals or want to make a living?

          Keynes concluded that government direction was necessary for a viable economy. Keynes' "interpreters" in the US buried that idea, and thus became very important economists - guys like Paul Samuelson. The first ( and only) US book to faithfully represent Keynes' ideas faded away soon after publication: http://news.stanford.edu/pr/93/931011Arc3112.html

          pete said...

          I did not know there was a debate. Krugman summed it all up in Peddling Prosperity. Folks know who pays the rent, and opine accordingly.

          Syaloch said...

          I think problems arise when economists are called upon by politicians or the media to give expert advice.

          Within the sciences, "We don't know the answer to that" is a perfectly acceptable response, and in scientific fields where the stakes are low that response is generally accepted by the public as well. "What is dark matter made of?" "We don't know yet, but we're working on it." But in politics, where the stakes are higher, not having a definitive answer is viewed as a sign of weakness. How often do you hear a politician responding to a "gotcha" question admit that they don't know the answer rather than trying to BS their way through?

          Given the timeliness of news coverage the media prefer to consult experts who offer definitive answers, especially given their preference for pro/con type interviews which require experts on both sides of an issue. Economists who are put on the spot this way feel pressured to ditch the error bars and give unambiguous answers, even answers based purely on theory with little to no empirical backing, and the more often they do this the more often they're invited back.

          Sandwichman said...

          It is impossible to talk about economics without making essentially ideological distinctions. Private property and wage labor are not "natural" categories. Their adequacy as human practices therefore needs to be either defended or criticized. To simply take them "as given" is an ideological waffle that begs THE question.

          Economists thus SHOULD have, acknowledge and fully disclose their ideological biases. When evaluating evidence they should make every effort to set aside and overcome their biases. And they need to stay humble about how Sisyphean, incongruous and incomplete their attempts at objectivity are.

          Let's not forget that "The End of Ideology" was a polemical tract aimed at designating the ideology of the managers and symbol manipulators "above" and beyond ideology. Similarly, Marx's brilliant critique of ideology degenerated into polemic as its practitioners adopted the mantle of "science."

          anne said in reply to Sandwichman...

          Really excellent, and why I am immediately wary of self-described "technocrats."

          anne said in reply to Sandwichman...

          https://en.wikipedia.org/wiki/The_End_of_Ideology

          The End of Ideology: On the Exhaustion of Political Ideas in the Fifties is a collection of essays published in 1960 by Daniel Bell, who described himself as a "socialist in economics, a liberal in politics, and a conservative in culture". He suggests that the older, grand-humanistic ideologies derived from the nineteenth and early twentieth centuries had been exhausted, and that new, more parochial ideologies would soon arise. He argues that political ideology has become irrelevant among "sensible" people, and that the polity of the future would be driven by piecemeal technological adjustments of the extant system.

          anne said in reply to Sandwichman...

          What precisely is "Marx's critique of ideology ?"

          Sandwichman said in reply to anne...

          A very big question! Like "what is the meaning of life?" At least a semester-long upper division seminar course. ;-)

          In a nutshell (to put it crudely), Marx labelled as ideologists a cohort of German followers of Hegel's philosophy who envisioned historical progress as the result of the progressive refinement of intellectual ideas. Marx argued instead that historical change resulted from struggle between social classes over the material conditions of life, fundamental to which was the transformation of nature through human intervention into means of subsistence.

          anne said in reply to Sandwichman...

          Marx labelled as ideologists a cohort of German followers of Hegel's philosophy who envisioned historical progress as the result of the progressive refinement of intellectual ideas. Marx argued instead that historical change resulted from struggle between social classes over the material conditions of life, fundamental to which was the transformation of nature through human intervention into means of subsistence.

          [ What a superb introductory or summary explanation. I could not be more impressed or grateful. ]

          DrDick said in reply to Sandwichman...

          Well said. I would add "markets" to that list of relatively recent cultural constructs that needs greater scrutiny.

          Chuck said...

          "And so - though we proceed slowly because of our ideologies, we might not proceed at all without them." - Joseph Schumpeter, "Science and Ideology," The American Economic Review 39:2 (March 1949), at 359
          http://www.jstor.org/stable/1812737

          Sandwichman said in reply to Chuck...

          Indeed.

          Ignacio said...

          Many guys are not driven by ideology, rather than evidence. The problem with this article is that we cannot compare with other professions and say "economists are more/less prone to promote ideology than the average".

          DrDick said in reply to Ignacio...

          All human endeavors are shaped by "ideology" in many different ways. What is important is to be aware of and explicit about their influences on our thought and action.

          RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

          If there are two sides to an argument that radically disagree then it is possible that both sides may be ideology, but both sides cannot be science. Only the correct argument can be science. Of course ideology is a bit too kind of a word since the incorrect argument is actually just a con game by people out to lay claim on greater unearned wealth.

          ken melvin said...

          Economists seem content with trying to figure out how to make 'it' work. Far better, I think, to try and figure out how it should be.

          It was philosophers such as Hume, Locke, Marx, Smith, Rawls, ... who asked the right questions. Laws and economics come down to us according to how we think about such things; they change when we change the way we think. Seems we're in a bit of a philosophical dry patch, here. Someday, we will have to develop a better economic system, might be now. Likewise, there are laws rooted in antiquity that were wrong then and are wrong still.

          RC AKA Darryl, Ron said in reply to ken melvin...

          Exactly! They all know what they are doing. Some of them are just trying to do the wrong thing.

          Arne said...

          "Ideology certainly influences which questions academic researchers believe are the most important, but there is nothing wrong with that."

          No "experiment" in economics comes with the degree of control that experiments in physical sciences take for granted, so there is tremendous room for ideology to come into the discussion of whether a data set really represents the conditions the model is supposed to consider. Since reviewing another economist's study entails asking questions those questions...

          DrDick said in reply to Arne...

          Please describe the "experimentation" which takes place in astronomy and geology. Ideologies also play important roles in experimental sciences, such as biology (for which we have a lot of evidence.

          [Nov 04, 2015] Fifty Shades of Tax Dodging: How EU Helps Support Unjust Global Tax Systems

          www.nakedcapitalism.com

          Yves here. Tax is a major way to create incentives. New York City increased taxes dramatically on cigarettes, and has tough sanctions for trying to smuggle meaningful amounts of lower-taxed smokes in. Rates of smoking did indeed fall as intended.

          Thus the debate about whether corporations should pay more taxes is not "naive" as the plutocrats would have you believe; in fact, they wouldn't be making such a big deal over it if it were. In the 1950s, a much larger percentage of total tax collections fell on corporations than individuals. And the political message was clear: the capitalist classes needed to bear a fair share of the total tax burden. Similarly, what has been the result of the preservation of a loophole that allows the labor of hedge fund and private equity fund employees to be taxed at preferential capital gains rates? A flood of "talent" into those professions at the expense of productive enterprise.

          And the result of having lower taxes on companies has been a record-high corporate profit share of GDP, with none of the supposed benefits of giving businesses a break. Contrary to their PR, large companies have been net saving, which means liquidating, since the early 2000s. The trend has become more obvious in recent years as companies have borrowed money to buy back their own stock.

          Originally published at the Tax Justice Network

          In the past year, scandal after scandal has exposed companies using loopholes in the tax system to avoid taxation. Now more than ever, it is becoming clear that citizens around the world are paying a high price for the crisis in the global tax system, and the discussion about multinational corporations and their tax tricks remains at the top of the agenda. There is also a growing awareness that the world's poorest countries are even harder impacted than the richest countries. In effect, the poorest countries are paying the price for a global tax system they did not create.

          A large number of the scandals that emerged over the past year have strong links to the EU and its Member States. Many eyes have therefore turned to the EU leaders, who claim that the problem is being solved and the public need not worry. But what is really going on? What is the role of the EU in the unjust global tax system, and are EU leaders really solving the problem?

          This report – the third in a series of reports – scrutinises the role of the EU in the global tax crisis, analyses developments and suggests concrete solutions. It is written by civil society organisations (CSOs) in 14 countries across the EU. Experts in each CSO have examined their national governments' commitments and actions in terms of combating tax dodging and ensuring transparency.

          Each country is directly compared with its fellow EU Member States on four critical issues: the fairness of their tax treaties with developing countries; their willingness to put an end to anonymous shell companies and trusts; their support for increasing the transparency of economic activities and tax payments of multinational corporations; and their attitude towards letting the poorest countries have a seat at the table when global tax standards are negotiated. For the first time, this report not only rates the performance of EU Member States, but also turns the spotlight on the European Commission and Parliament too.

          This report covers national policies and governments' positions on existing and upcoming EU level laws, as well as global reform proposals.

          Overall, the report finds that:

          • Although tweaks have been made and some loopholes have been closed, the complex and dysfunctional EU system of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes still remains in place. On some matters, such as the controversial patent boxes, the damaging policies seem to be spreading in Europe. Defence mechanisms against 'harmful tax practices' that have been introduced by governments, only seem partially effective and are not available to most developing countries. They are also undermined by a strong political commitment to continue so-called 'tax competition' between governments trying to attract multinational corporations with lucrative tax reduction opportunities – also known as the 'race to the bottom on corporate taxation'. The result is an EU tax system that still allows a wide range of options for tax dodging by multinational corporations.

          • On the question of what multinational corporations pay in taxes and where they do business, EU citizens, parliamentarians and journalists are still left in the dark, as are developing countries. The political promises to introduce 'transparency' turned out to mean that tax administrations in developed countries, through cumbersome and highly secretive processes, will exchange information about multinational corporations that the public is not allowed to see. On a more positive note, some light is now being shed on the question of who actually owns the companies operating in our societies, as more and more countries introduce public or partially public registers of beneficial owners. Unfortunately, this positive development is being somewhat challenged by the emergence of new types of mechanisms to conceal ownership, such as new types of trusts.

          • Leaked information has become the key source of public information about tax dodging by multinational corporations. But it comes at a high price for the people involved, as whistleblowers and even a journalist who revealed tax dodging by multinational corporations are now being prosecuted and could face years in prison. The stories of these 'Tax Justice Heroes' are a harsh illustration of the wider social cost of the secretive and opaque corporate tax system that currently prevails.

          • More than 100 developing countries still remain excluded from decision-making processes when global tax standards and rules are being decided. In 2015, developing countries made the fight for global tax democracy their key battle during the Financing for Development conference (FfD) in Addis Ababa. But the EU took a hard line against this demand and played a key role in blocking the proposal for a truly global tax body.

          Not one single EU Member State challenged this approach and, as a result, decision-making on global tax standards and rules remains within a closed 'club of rich countries'.

          A direct comparison of the 15 EU countries covered in this report finds that:

          • France, once a leader in the demand for public access to information about what multinational corporations pay in tax, is no longer pushing the demand for corporate transparency. Contrary to the promises of creating 'transparency', a growing number of EU countries are now proposing strict confidentiality to conceal what multinational corporations pay in taxes.
          • Denmark and Slovenia are playing a leading role when it comes to transparency around the true owners of companies. They have not only announced that they are introducing public registers of company ownership, but have also decided to restrict, or in the case of Slovenia, avoided the temptation of introducing, opaque structures such as trusts, which can offer alternative options for hiding ownership. However, a number of EU countries, including in particular Luxembourg and Germany, still offer a diverse menu of options for concealing ownership and laundering money.
          • Among the 15 countries covered in this report, Spain remains by far the most aggressive tax treaty negotiator, and has managed to lower developing country tax rates by an average 5.4 percentage points through its tax treaties with developing countries.
          • The UK and France played the leading role in blocking developing countries' demand for a seat at the table when global tax standards and rules are being decided.

          To read a summary of the report, please click here.

          A summary of the report is here.

          The full report is here or here.

          Stephen Rhodes, November 3, 2015 at 11:00 am

          Or try this, kids:

          Class Actions vs. Individual Prosecutions
          Jed S. Rakoff NOVEMBER 19, 2015 NYRB
          Entrepreneurial Litigation: Its Rise, Fall, and Future
          by John C. Coffee Jr.
          Harvard University Press, 307 pp., $45.00

          http://www.nybooks.com/articles/archives/2015/nov/19/cure-corporate-wrongdoing-class-actions/

          [Nov 02, 2015] Frankenstein capitalism is sucking the life from Americas soul by Paul B. Farrell

          Another nickname for neoliberalism ;-)
          Notable quotes:
          "... They assume infinite growth of resources and opportunities for profits, income and wealth. Ad infinitum. Though rich and brilliant, American capitalists have a childlike, irrational conviction that they can indefinitely produce, mine, grow, fish, dump and extract resources from the planet's limited supply, without ever paying a steep price or planning for the day the planet's resources are exhausted. Hence their bizarre opposition to all carbon pollution-taxation and regulation. ..."
          "... Stiglitz warns that today's zombies all have a definite conservative bias on political issues. Economic courses taught at Harvard, for example, use a textbook written by a former member of President Bush's Council of Economic Advisors that pushes "a particular ideological view that markets work perfectly." ..."
          "... Today the "Atlas Shrugged" ideology of Ayn Rand is the core of Frankenstein economics, having replaced Adam Smith's original capitalism. It is now in a war to the death with liberalism. This extremism is now the conventional wisdom of conservative politicians: "When I say 'capitalism,' I mean a pure, uncontrolled, unregulated laissez-faire capitalism." It is "the only system that can make freedom, individuality, and the pursuit of values possible." Compromise is impossible. ..."
          "... Today Rand's ideology is not only deeply embedded in conservative economic thought, it has emerged as a conspiracy of a Super Rich elite and the political right, in a dangerous spiral repetition of the historical patterns Acemoglu and Robinson warn we are closing the door to America's future, setting up the collapse of our economy and our nation's failure. ..."
          Oct 31, 2015 | finance.yahoo.com

          ... ... ...

          Halloween once was the family favorite across America, loads of fun. But this year, it seems zombies, ghouls, vampires all de-materializing, draining all the bloody spirit out of Halloween. America's Frankenstein economy is in line with Daron Acemoglu and James Robinson predictions in "Why Nations Fail: The Origins of Power, Prosperity, and Poverty": Nations grow. Wealth concentrates at the top. The elite manipulate to protect their wealth. They close doors that got them to the top. Economies collapse. Nations fail.

          This Halloween that same pattern is accelerating across America as wealth rapidly concentrates at the top, GDP growth keeps declining. This time, however, the door is also closing on entrenched zombie capitalists as the inequality gap widens. They are losing the battle to control government, threatening insiders, setting up revolutions. Here are seven signs of this classic pattern:

          1. Frankenstein economics is a mausoleum for trickle-down capitalism

          This theory that policies that help the rich get richer will "ultimately help everybody," has been with us a long time. Foreign Policy says it was coined by the great urban philosopher Will Rogers when he commented on Herbert Hoover's 1928 tax cuts: "The money was all appropriated for the top in the hopes that it would trickle down to the needy," but the president didn't "know that money trickles up."

          Since the presidency of Ronald Reagan, zombie capitalists have turned trickle-up into a flood. Forbes Global Billionaires list rocketed from 322 in 2000 to 1,826 in 2015. By 2099 Credit Suisse predicts 11 trillionaires. But for the rest of the world, capitalism is a cancer: A billion live on less than two dollars a day. And as global population explodes to 10 billion by 2050, the widening inequality gap will trigger revolutions, pandemics, starvation, an overheated planet. Trillionaires? Or GDP below 1% by 2099?

          2. Frankenstein economy is now America's new Invisible Hand

          Adam Smith was a moral philosopher, believed the Invisible Hand of a divine power would act to the benefit of all. Unfortunately, today's capitalists took away control of the Invisible Hand, transformed it into a blood-sucking vampire, into "mutant capitalism" as Jack Bogle calls it, an egocentric materialism with no moral compass that justifies America's obsession with celebrity power and personal wealth.

          Nobel Economist Joseph Stiglitz warned of this new "Frankenstein economy" mythology. Lacking any scientific proof of their own ideologies, insiders use computer technology, math and physics to justify their ideological biases, dismissing the economic impact of climate change, research on the predictably irrational, often evil behavior of all humans.

          As a result, today's capitalists often become climate deniers, ignore social issues, focusing instead on justifying the self-serving behavior of billionaires maximizing profits, accumulating massive wealth, dangerously widening the inequality gap. They pretend their myth-based economy works, even as they drain our GDP's soul of blood.

          3. Frankenstein capitalism is trapped in a Myth of Perpetual Growth

          Capitalism's Frankenstein economics is failing America: by relying on its core Myth of Perpetual Growth. They assume infinite growth of resources and opportunities for profits, income and wealth. Ad infinitum. Though rich and brilliant, American capitalists have a childlike, irrational conviction that they can indefinitely produce, mine, grow, fish, dump and extract resources from the planet's limited supply, without ever paying a steep price or planning for the day the planet's resources are exhausted. Hence their bizarre opposition to all carbon pollution-taxation and regulation.

          4. Frankenstein capitalists have short-term-thinking brains

          Wall Street bankers, corporate insiders, and other capitalists tend to focus on today's stock prices, quarterly earnings, annual bonuses. Most of these Frankenstein capitalists are alpha-males, aggressive short-term thinkers, says Jeremy Grantham, while America's next generation needs new leaders for 2050 with a "historical perspective." But unfortunately our leaders have grown into "an army of left-brained immediate doers" which "guarantees" they "will always to miss" the next big one.

          5. Frankenstein capitalism has a conservative GOP political bias

          Stiglitz warns that today's zombies all have a definite conservative bias on political issues. Economic courses taught at Harvard, for example, use a textbook written by a former member of President Bush's Council of Economic Advisors that pushes "a particular ideological view that markets work perfectly."

          Moreover, they tend to see environmental issues as liberal myths, and back GOP politicians committed to climate-science denialism. And yet, politically biased economic theories, whether conservative or liberal, are dangerous to America's future. Future leaders need to be flexible, open to compromise, making decisions on broader public policies, not, for example, locked on some rigid version of Adam Smith's theories. Time to bury that corpse.

          6. Frankenstein capitalism is accelerating disasters, famine, pandemics

          Flash forward: The planet is incapable of feeding the 10 billion people projected on Earth by 2050, warns Jeremy Grantham, whose firm manages over $120 billion. And yet, most economists today work for banks and businesses that ignore demographics, except as a source of consumer marketing data, trapped in a self-destructive climate-science-denial bubble.

          Snap out of it, reread "The Shock Doctrine: The Rise of Disaster Capitalism." See why this kind of thinking will require a disaster of epic proportions, a World War III, worldwide famine or global pandemic to shock the Frankenstein capitalist mind-set, awaken their conscience, revive the original moral core of Adam Smith's economic soul.

          7. Frankenstein economy trapped between uncompromising ideologies

          Today the "Atlas Shrugged" ideology of Ayn Rand is the core of Frankenstein economics, having replaced Adam Smith's original capitalism. It is now in a war to the death with liberalism. This extremism is now the conventional wisdom of conservative politicians: "When I say 'capitalism,' I mean a pure, uncontrolled, unregulated laissez-faire capitalism." It is "the only system that can make freedom, individuality, and the pursuit of values possible." Compromise is impossible.

          Today Rand's ideology is not only deeply embedded in conservative economic thought, it has emerged as a conspiracy of a Super Rich elite and the political right, in a dangerous spiral repetition of the historical patterns Acemoglu and Robinson warn we are closing the door to America's future, setting up the collapse of our economy and our nation's failure.

          Happy Halloween, the good news is that this war will soon come to a predictably irrational end: By the 2020 presidential election when Clinton is reelected. By then the GOP will have been looking at 16 long years out of the presidency.

          Plus by 2020, the grim realities of global warming will force Big Oil and the worldwide fossil-fuel industry to wake up and accept the need for controlling global warming. And finally, that will break the conspiracy trapping GOP politicians like Donald Trump, Sen. Ted Cruz, Sen. Marco Rubio, and even Sen. James Inhofe in the mythic greed of climate-science denialism.

          Now isn't that a truly scary thought for Frankenstein capitalists on this wonderful Happy Halloween?

          Paul B. Farrell is a MarketWatch columnist based in San Luis Obispo, Calif. Follow him on Twitter @MKTWFarrell.

          [Nov 02, 2015] Foreign Banks Such as Deutsche Using Variant of Lehman Repo 105 Balance-Sheet Tarting Up Strategy

          Notable quotes:
          "... Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales ..."
          "... "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…." ..."
          "... Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly. ..."
          "... The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105." ..."
          "... Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that. ..."
          "... In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was. ..."
          "... Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense ..."
          "... Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media. ..."
          "... Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105 ..."
          Nov 02, 2015 | naked capitalism
          Deep Thought

          Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales

          Thank you for writing this bit. All the explanations I've read of Repo 105 seemed to be missing the step where liabilities were actually reduced – because what's the difference between an asset and an obligation/contract to buy said asset in X hours time?

          So I'm glad a more financially astute mind than mind wrote down what I'd suspected, that real liabilities weren't actually reduced by Repo 105 and it's just window dressing to fool the regulators. I'd hazard that it actually makes the situation worse, because it's pretty expensive window dressing and that's real cash that has to head out the door once a quarter.

          tawal

          Turning all the brokerages into bank holding companies, where now they all have a calendar year end and can't temporarily hide their trash on each other's books, but can all hide it on the Fed's unaudited balance sheet.

          Why isn't Deutsche Bank doing this too, and are UBS, Barclays and HSBC the next to fail?

          fresno dan

          "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…."

          Upon finding this out, tire squeal, sirens wail, lights flash, and grim faced men rush to take into custody little Timmy Geithner and serve warrants a the New York FED….

          LOL – of course not. Most government officials, of BOTH parties, would say Timmy Geithner and his ilk performed fantastically….
          After all, he worked hard to prop it up…. If you remove the corruption, the double and self dealing, price fixing, fraud, ad infinitum, and how could the system continue as constituted? And the people at the top of the system thinks it works very well indeed.

          Chauncey Gardiner

          This issue is unsurprising to me. Many signs over the past couple years of deeply troubling matters at this TBTF: CEO resignations, NY Fed criticisms of systems and financial reporting (as Yves pointed out), participation in market manipulations, billions in writedowns, suicide death of bank's regulatory lawyer, massive derivatives exposures, central bank calls for increased capital, etc.

          Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly.

          Recalling Ernest Hemingway in "The Sun Also Rises":
          "How did you go bankrupt?" Bill asked.
          "Two ways," Mike said. "Gradually and then suddenly."

          JustAnObserver

          • Deutche Bank = Germany's RBS (Royal Bank of Scotland) ?
          • All the Eurozone's nightmares since 2010 have been down to a desperate attempt to postpone DB's "Minsky Moment" ?

          I did see a report that DB is withdrawing from a number of countries but Wall Street wasn't on that list. Interestingly the list includes all the Scandinavian countries as well as the usual suspects – Mexico, Turkey, Saudi, etc.

          Oliver Budde

          The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst & Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105."

          Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that.

          The few banks who did dare to help out Lehman of course charged higher than market rates for those loans, even though they held an extra 3% in collateral, which was always made up of high quality Treasury bonds and the like. Those lenders charged more anyway, because they knew what Lehman was up to and knew they could wring out some extra cash in exchange for 'aiding' Lehman in its needs. Lehman gladly paid the higher interest.

          In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was.

          The scam began in 2001 or so and while it may not have been what blew up Lehman in 2008, it did importantly mislead a lot of people in 2007 and 2008, when its use was ramped up dramatically. And it put extra bonus money into the Lehman executives' pockets, year in and year out. No wonder others seek to emulate it.

          Tom

          Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense

          RBHoughton

          Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media.

          Thank Heavens for NC – one of the most important of a handful of sites that fearlessly report. Fingers crossed we can build a new media industry around this nexus of quality.

          Pearl

          Yves,

          Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105:

          http://www.bloomberg.com/news/videos/2014-12-11/banks-are-taking-cybersecurity-seriously-lawsky-says-video

          I know it may not be likely that Deutsche's U.S. banking license would get pulled, but it is possible, isn't it?

          (btw, here is what Lawsky is doing now:)

          http://nypost.com/2015/05/20/ny-financial-watchdog-ben-lawsky-leaving-to-start-firm/

          If enough folks became vocal (enough) about the issue–couldn't we make a difference this time? ("We," as in ordinary housewives from Roswell, GA and humble bloggers such as the illustrious Yves Smith?".) ;-)

          I think you are waaaay more famous than you think you are, Yves. Indeed, you are universally one of the most well-respected and straight-shooting authors/academics/authorities on such subjects. And I think Mr. Lawsky would take your call or reply to an email if written by you.

          I spoke with his staff (yes, me–a housewife from Roswell, GA) when he was at DFS during my "Ocwiteration Perseveration" days of yore, and his staff was unusually generous with their time and they seemed genuinely appreciative to get info and feedback from just regular folks.

          I think Mr. Lawsky himself would be thrilled to hear from someone like you. And I think the two of you would be an extremely formidable team.

          I just don't want to give up on this. It's too important. At the very least, I will forward to him this post of yours.

          Thanks again for everything you do, Yves.

          [Nov 02, 2015] Low Oil Prices Could Persist Through 2016

          This game became really interesting if prices will remain low for oil all 2016. That's another 200 billion stimulus for the US economy. People are genetically biased against change, because change means potential danger. People are also genetically biased against acknowledging this bias, because they wish to see themselves as being able to cope with both change and danger. Put together, this means that when changes come, people are largely unprepared or underprepared. This little bit of psychology 101 may seem redundant, but it is indispensable if we are talking about the current oil price slump...
          Notable quotes:
          "... The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016. ..."
          "... U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015. ..."
          "... ... ... ... ..."
          "... However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April. ..."
          Nov 02, 2015 | OilPrice.com

          A group of investment banks are becoming increasingly gloomy about the direction of oil prices in the near-term. A Wall Street Journal survey of 13 investment banks found a growing degree of pessimism about the oil markets.

          The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016.

          The growing pessimism is in part due to the potential slowdown in demand, particularly from China. At the same time, Russia and OPEC nations continue to produce at elevated levels. Only U.S. production appears to be declining in any substantial way. U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015.

          ... ... ...

          ... producing in places like the Permian Basin is still very much profitable today, even with prices at $50 per barrel or lower. While North Dakota, Louisiana, or Colorado have seen drilling grind to a halt, drilling in the Permian Basin in West Texas is still going strong. In fact, many oil companies are scrapping drilling in other parts of their portfolio and expanding their footprint in the Permian. As a result, production from the Permian is still rising. The Permian stands out because of the abundance of oil and gas in place, making each well more lucrative than a similar well in another basin.

          However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April.

          [Nov 01, 2015] Employment growth is submerged in stagnation

          Notable quotes:
          "... Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3]. ..."
          "... The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation). ..."
          "... This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7]. ..."
          www.voltairenet.org

          The ego of Janet Yellen has broken into a thousand pieces. The new data published some days ago by the US Department of Labor confirms the hypothesis of the economist Ariel Noyola Rodríguez, who had maintained since last year that the United States' labour market was much more fragile than was presumed by the head of the Federal Reserve. If the situation of the North American economy continues to get worse it is probable that in coming weeks new measures will be taken to mitigate structural unemployment.

          In her public discourses, the president of the Federal Reserve, Janet Yellen, has avoided the serious problems that the United States economy suffers. When in mid-September the Federal Open Market Committee (FOMC) took the decision to maintain the federal funds rate between zero and 0.25% the target of Yellen's worries was directed to China [1] and the debts of emerging economies [2].

          In accord with the President of the Federal Reserve, the process of recovery of the North American economy has been strengthening for considerable time. And, because of this, if the FOMC has not raised the cost of credit is due, above all, to a high rate of "obligation" and "responsibility" with the rest of the world.

          Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3].

          On the other hand, during the month of September the non-agricultural employment reached 143,000, much less than the 200,000 hoped for [4]. The greatest reversals were in sectors tied to external trade and energy. The rise of the dollar, and the fall in prices of commodities and the extreme weakness of global demand with the rest of the world precipitated the structural deterioration of the US economy.

          The bad news does not end here: the numbers of the jobs generated in July and August were also lower [5]. Now we know that in August only 136,000 jobs were created, rather than the 176,000 originally reported: while in the month of July there were created 21,000 fewer jobs than those counted in the previous revision.

          Hence with the data actualized by the Department of Labor, in the United States there were registered an average of 167,000 new jobs between July and September, an amount that represents less than 65% of the 260,000 (average per month) that were created during the previous year.

          The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation).

          This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7].

          Hence it is now clear that the fall of the unemployment rates in recent months depends more on the reduction of the rate of participation in the labour market - as a consequence of the despair of thousands of US citizens - and less on the creation of quality long range jobs: on Friday October 2 it was announced that in September 350,000 persons abandoned the search for work [8]. There is no turning around, in the United States job growth has been submerged in stagnation.

          [Nov 01, 2015] Chevron Takes Drastic Measures, Lays Off Another 7000 Employees

          "... And even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier. ..."
          OilPrice.com

          Back in January, in the aftermath of the first plunge in commodity prices, and oil in particular, oil major Chevron had the unsavory distinction of being the first US oil giant to admit cash flow "constraints" when it was forced to scrap its buyback. And since oil's dead cat bounce fizzled just around the summer before resuming is slide, it was inevitable that Chevron would proceed with trimming even more cash outflows.

          It did so for the first time in July, when as we reported at the time, Chevron would layoff 1,500 jobs globally, saying that "the cost reductions due to cuts in the corporate center are expected to total $1 billion with additional cost savings expected across the company."

          And even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier.

          [Oct 31, 2015] No Real Chance of Another Financial Crisis - Silly

          Notable quotes:
          "... The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it. ..."
          "... But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective. ..."
          "... Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be philosopher kings. ..."
          "... The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be fragile. In this thinking Nassim Taleb is far ahead of the common economic thought as a real systems thinker. The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within. ..."
          "... So Mr. Baker, rather than looking for the bubble, lets say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a new bubble as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way? ..."
          "... A new crisis does not have to happen. This is the vain comfort in these sorts of black swan events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain, ..."
          "... neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously. ..."
          "... If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story... ..."
          jessescrossroadscafe.blogspot.com

          I like Dean Baker quite well, and often link to his columns. On most things we are pretty much on the same page.

          And to his credit he was one of the few 'mainstream' economists to actually see the housing bubble developing, and call it out. Some may claim to have done so, and can even cite a sentence or two where they may have mentioned it, like Paul Krugman for example. But very few spoke about doing something about it while it was in progress. The Fed was aware according to their own minutes, and ignored it.

          The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it.

          Am I such a person? Do I actually see a fragile financial system that is still corrupt and highly levered, grossly mispricing risks? Or am I just seeing things the way in which I wish to see them?

          That difficulty arises because economics is no science. It involves judgment and principles, and weighs the facts far too heavily based upon 'reputation' and 'status.' And of course I have none of those and wish none.

          But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective.

          Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be 'philosopher kings.'

          The housing bubble was no 'cause' of the latest financial crisis. More properly it was the tinder and the trigger event. The S&L crisis was just as great, if not greater. Why then did it not bring the global financial system to its knees?

          The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be 'fragile.' In this thinking Nassim Taleb is far ahead of the common economic thought as a real 'systems thinker.' The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within.

          I see the same fragility which existed from 1999 to 2008 still in the system, only grown larger, global, and more profoundly influencing the political processes.

          The only question is what 'trigger event' might set it spinning, and how great of a magnitude will it have to be in order to do so. The more fragile the system, the less that is required to knock it off its underpinnings.

          And a crisis is not a binary event. There is the 'trigger' and the dawning perception of risks, and the initial responses of the political, social, and regulatory powers.

          There is no point in debating this, because the regulators and powerful groups like the Fed are caught in a credibility trap, which prevents them from seeing things as they are, and saying so.

          So Mr. Baker, rather than looking for the bubble, let's say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a 'new bubble' as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way?

          I think if one exercises clear and open judgement, they can see that we have stirred up the same pot of witches brew that has made the system fragile and vulnerable to an exogenous shock, and has kept it so.

          A new crisis does not have to happen. This is the vain comfort in these sorts of 'black swan' events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain,

          The problem is not a 'bubble.' The problem is pervasive corruption, fraud, and lack of meaningful reform. The 'candidate' is the financial system itself, with its outsized hedge funds and the TBTF Banks with their serial crime sprees and accommodative regulators in particular.

          And if one cannot see that in this rotten system with its brazenly narrow rewarding of a select few with the bulk of new income, then there is little more that can be said.

          Neil Irwin, a writer for the NYT Upshot section, had an interesting debate with himself about the likely future course of the economy. He got the picture mostly right in my view, with a few important qualifications.

          "First, his negative scenario is another recession and possibly a financial crisis. I know a lot of folks are saying this stuff, but it's frankly a little silly. The basis of the last financial crisis was a massive amount of debt issued against a hugely over-valued asset (housing). A financial crisis that actually rocks the economy needs this sort of basis.

          If a lot of people are speculating in the stock of Uber or other wonder companies, and reality wipes them out, this is just a story of some speculators being wiped out. It is not going to shake the economy as a whole. (San Francisco's economy could take a serious hit.)

          Anyhow, financial crises don't just happen, there has to be a real basis for them. To me the housing bubble was pretty obvious given the unprecedented and unexplained run-up in prices in the largest market in the world. Perhaps there is another bubble out there like this, but neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously.

          If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story...

          Anyhow, a story of slow job growth and ongoing wage stagnation would look like a pretty bad story to most of the country. It may not be as dramatic as a financial crisis that brings the world banking system to its knees, but it is far more likely and therefore something that we should be very worried about."

          Dean Baker, Debating the Economy with Neil Irwin, 31 October 2015

          [Oct 29, 2015] Hedges Wolin Can Capitalism and Democracy Coexist (1-8)

          Notable quotes:
          "... In classic totalitarianism, thinking here now about the Nazis and the fascists, and also even about the communists, the economy is viewed as a tool which the powers that be manipulate and utilize in accordance with what they conceive to be the political requirements of ruling. And they will take whatever steps are needed in the economy in order to ensure the long-run sustainability of the political order. In other words, the sort of arrows of political power flow from top to bottom. ..."
          "... in inverted totalitarianism, the imagery is that of a populace which is enshrined as the leadership group but which in fact doesnt rule, but which is turned upside down in the sense that the people are enshrined at the top but dont rule. And minority rule is usually treated as something to be abhorred but is in fact what we have. ..."
          "... I think Webers critique of capitalism is even broader. I think he views it as quintessentially destructive not only of democracy, but also, of course, of the sort of feudal aristocratic system which had preceded it. Capitalism is destructive because it has to eliminate the kind of custom / m re z/, political values, even institutions that present any kind of credible threat to the autonomy of the economy. And its that -- thats where the battle lies. Capitalism wants an autonomous economy. They want a political order subservient to the needs of the economy. And their notion of an economy, while its broadly based in the sense of a capitalism in which there can be relatively free entrance and property is relatively widely dispersed its also a capitalism which, in the last analysis, is [as] elitist as any aristocratic system ever was. ..."
          "... I think the system that was consciously and deliberately constructed by the founders who framed the Constitution -- that democracy was the enemy. ..."
          "... the framers of the Constitution understood very well that this would mean -- would at least -- would jeopardize the ruling groups that they thought were absolutely necessary to any kind of a civilized order. And by ruling groups , they meant not only those who were better educated, but those who were propertied, because they regarded property as a sign of talent and of ability, so that it wasnt just wealth as such, but rather a constellation of virtues as well as wealth that entitled capitalists to rule. And they felt that this was in the best interests of the country. ..."
          "... in Politics and Vision , as in Democracy Inc. , you talk about the framing of what Dwight Macdonald will call the psychosis of permanent war, this constant battle against communism, as giving capital the tools by which they could destroy those democratic institutions, traditions, and values that were in place. How did that happen? What was the process? ..."
          "... I think it happened because of the way that the Cold War was framed. That is, it was framed as not only a war between communism and capitalism, but also a war of which the subtext was that communism was, after all, an ideology that favored ordinary people. Now, it got perverted, theres no question about that, by Lenin and by Stalin and into something very, very different. ..."
          "... the plight of ordinary people under the forms of economic organization that had become prominent, the plight of the common people had become desperate. There was no Social Security. There were no wage guarantees. There was no union organization. ..."
          "... They were powerless. And the ruling groups, the capitalist groups, were very conscious of what they had and what was needed to keep it going. And thats why figures like Alexander Hamilton are so important, because they understood this, they understood it from the beginning, that what capitalism required in the way not only of so-called free enterprise -- but remember, Hamilton believed very, very strongly in the kind of camaraderie between capitalism and strong central government, that strong central government was not the enemy of capitalism, but rather its tool, and that what had to be constantly kind of revitalized was that kind of relationship, because it was always being threatened by populist democracy, which wanted to break that link and cause government to be returned to some kind of responsive relationship to the people. ..."
          "... the governing groups manage to create a Cold War that was really so total in its spread that it was hard to mount a critical opposition or to take a more detached view of our relationship to the Soviet Union and just what kind of problem it created. And it also had the effect, of course, of skewing the way we looked at domestic discontents, domestic inequalities, and so on, because it was always easy to tar them with the brush of communism, so that the communism was just more than a regime. It was also a kind of total depiction of what was the threat to -- and complete opposite to our own form of society, our old form of economy and government. ..."
          "... that ideological clash, therefore any restriction of capitalism which was defined in opposition to communism as a kind of democratic good, if you want to use that word, was lifted in the name of the battle against communism, that it became capitalism that was juxtaposed to communism rather than democracy, and therefore this empowered capital, in a very pernicious way, to dismantle democratic institutions in the name of the war on communism. ..."
          "... the notion that you first had to, so to speak, unleash the great potential capitalism had for improving everybodys economical lot and the kind of constraints that had been developed not only by the New Deal, but by progressive movements throughout the 19th century and early 20th century in the United States, where it had been increasingly understood that while American economic institutions were a good thing, so to speak, and needed to be nurtured and developed, they also posed a threat. They posed a threat because they tended to result in concentrations of power, concentrations of economic power that quickly translated themselves into political influence because of the inevitably porous nature of democratic representation and elections and rule, so that the difficultys been there for a long time, been recognized for a long time, but we go through these periods of sleepwalking where we have to relearn lessons that have been known almost since the birth of the republic, or at least since the birth of Jeffersonian democracy, that capitalism has its virtues, but it has to be carefully, carefully watched, observed, and often controlled. ..."
          therealnews.com

          Chris Hedges, whose column is published Mondays on Truthdig, spent nearly two decades as a foreign correspondent in Central America, the Middle East, Africa and the Balkans. He has reported from more than 50 countries and has worked for The Christian Science Monitor, National Public Radio, The Dallas Morning News and The New York Times, for which he was a foreign correspondent for 15 years. He has written nine books, including "Empire of Illusion: The End of Literacy and the Triumph of Spectacle" (2009), "I Don't Believe in Atheists" (2008) and the best-selling "American Fascists: The Christian Right and the War on America" (2008). His book "War Is a Force That Gives Us Meaning" (2003) was a finalist for the National Book Critics Circle Award for Nonfiction.

          Transcript

          CHRIS HEDGES, PULITZER PRIZE-WINNING JOURNALIST: Hi. I'm Chris Hedges. And we are here in Salem, Oregon, interviewing Dr. Sheldon Wolin, who taught politics for many years at Berkeley and, later, Princeton. He is the author of several seminal works on political philosophy, including Politics and Vision and Democracy Inc.. And we are going to be asking him today about the state of American democracy, political participation, and what he calls inverted totalitarianism.

          So let's begin with this concept of inverted totalitarianism, which has antecedents. And in your great work Politics and Vision, you reach back all the way to the Greeks, up through the present age, to talk about the evolution of political philosophy. What do you mean by it?

          SHELDON WOLIN, PROF. POLITICS EMERITUS, PRINCETON: Well, I mean by it that in the inverted idea, it's the idea that democracy has been, in effect, turned upside down. It's supposed to be a government by the people and for the people and all the rest of the sort of rhetoric we're used to, but it's become now so patently an organized form of government dominated by groups which are only vaguely, if at all, responsible or even responsive to popular needs and popular demands. But at the same time, it retains a kind of pattern of democracy, because we still have elections, they're still relatively free in any conventional sense. We have a relatively free media. But what's missing from it is a kind of crucial continuous opposition which has a coherent position, and is not just saying, no, no, no but has got an alternative, and above all has got an ongoing critique of what's wrong and what needs to be remedied.

          HEDGES: You juxtapose inverted totalitarianism to classical totalitarianism -- fascism, communism -- and you say that there are very kind of distinct differences between these two types of totalitarianism. What are those differences?

          WOLIN: Well, certainly one is the -- in classic totalitarianism the fundamental principle is the leadership principle and the notion that the masses exist not as citizenry but as a means of support which can be rallied and mustered almost at will by the dominant powers. That's the classical one. And the contemporary one is one in which the rule by the people is enshrined as a sort of popular message about what we are, but which in fact is not really true to the facts of political life in this day and age.

          HEDGES: Well, you talk about how in classical totalitarian regimes, politics trumps economics, but in inverted totalitarianism it's the reverse.

          WOLIN: That's right. Yeah. In classic totalitarianism, thinking here now about the Nazis and the fascists, and also even about the communists, the economy is viewed as a tool which the powers that be manipulate and utilize in accordance with what they conceive to be the political requirements of ruling. And they will take whatever steps are needed in the economy in order to ensure the long-run sustainability of the political order. In other words, the sort of arrows of political power flow from top to bottom.

          Now, in inverted totalitarianism, the imagery is that of a populace which is enshrined as the leadership group but which in fact doesn't rule, but which is turned upside down in the sense that the people are enshrined at the top but don't rule. And minority rule is usually treated as something to be abhorred but is in fact what we have.

          And it's the problem has to do, I think, with the historical relationship between political orders and economic orders. And democracy, I think, from the beginning never quite managed to make the kind of case for an economic order that would sustain and help to develop democracy rather than being a kind of constant threat to the egalitarianism and popular rule that democracy stands for.

          HEDGES: In your book Politics and Vision, you quote figures like Max Weber who talk about capitalism as in fact being a destructive force to democracy.

          WOLIN: Well, I think Weber's critique of capitalism is even broader. I think he views it as quintessentially destructive not only of democracy, but also, of course, of the sort of feudal aristocratic system which had preceded it. Capitalism is destructive because it has to eliminate the kind of custom /ˈmɔːreɪz/, political values, even institutions that present any kind of credible threat to the autonomy of the economy. And it's that -- that's where the battle lies. Capitalism wants an autonomous economy. They want a political order subservient to the needs of the economy. And their notion of an economy, while it's broadly based in the sense of a capitalism in which there can be relatively free entrance and property is relatively widely dispersed it's also a capitalism which, in the last analysis, is [as] elitist as any aristocratic system ever was.

          HEDGES: You talk in the book about about how it was essentially the engine of the Cold War, juxtaposing a supposedly socialist Soviet Union, although like many writers, including Chomsky, I think you would argue that Leninism was not a socialist movement. Adam Ulam talks about it as a counterrevolution, Chomsky as a right-wing deviation. But nevertheless, that juxtaposition of the Cold War essentially freed corporate capitalism in the name of the struggle against communism to deform American democracy.

          And also I just want to make it clear that you are very aware, especially in Politics and Vision, of the hesitancy on the part of our founding fathers to actually permit direct democracy. So we're not in this moment idealizing the system that was put in place. But maybe you could talk a little bit about that.

          WOLIN: Well, I think that's true. I think the system that was consciously and deliberately constructed by the founders who framed the Constitution -- that democracy was the enemy. And that was rooted in historical realities. Many of the colonial governments had a very strong popular element that became increasingly prominent as the colonies moved towards rebellion. And rebellion meant not only resisting British rule, but also involved the growth of popular institutions and their hegemony in the colonies, as well as in the nation as a whole, so that the original impulses to the Constitution came in large measure from this democratizing movement. But the framers of the Constitution understood very well that this would mean -- would at least -- would jeopardize the ruling groups that they thought were absolutely necessary to any kind of a civilized order. And by "ruling groups", they meant not only those who were better educated, but those who were propertied, because they regarded property as a sign of talent and of ability, so that it wasn't just wealth as such, but rather a constellation of virtues as well as wealth that entitled capitalists to rule. And they felt that this was in the best interests of the country.

          And you must remember at this time that the people, so-called, were not well-educated and in many ways were feeling their way towards defining their own role in the political system. And above all, they were preoccupied, as people always have been, with making a living, with surviving. And those were difficult times, as most times are, so that politics for them could only be an occasional activity, and so that there would always be an uneasy relationship between a democracy that was often quiescent and a form of rule which was constantly trying to reduce, as far as possible, Democratic influence in order to permit those who were qualified to govern the country in the best interests of the country.

          HEDGES: And, of course, when we talk about property, we must include slaveholders.

          WOLIN: Indeed. Indeed. Although, of course, there was, in the beginning, a tension between the northern colonies and the southern colonies.

          HEDGES: This fear of direct democracy is kind of epitomized by Thomas Paine, --

          WOLIN: Yeah. Yeah.

          HEDGES: -- who was very useful in fomenting revolutionary consciousness, but essentially turned into a pariah once the Revolution was over and the native aristocracy sought to limit the power of participatory democracy.

          WOLIN: Yeah, I think that's true. I think it's too bad Paine didn't have at his disposal Lenin's phrase "permanent revolution", because I think that's what he felt, not in the sense of violence, violence, violence, but in the sense of a kind of conscious participatory element that was very strong, that would have to be continuous, and that it couldn't just be episodic, so that there was always a tension between what he thought to be democratic vitality and the sort of ordered, structured, election-related, term-related kind of political system that the framers had in mind.

          HEDGES: So let's look at the Cold War, because in Politics and Vision, as in Democracy Inc., you talk about the framing of what Dwight Macdonald will call the psychosis of permanent war, this constant battle against communism, as giving capital the tools by which they could destroy those democratic institutions, traditions, and values that were in place. How did that happen? What was the process?

          WOLIN: Well, I think it happened because of the way that the Cold War was framed. That is, it was framed as not only a war between communism and capitalism, but also a war of which the subtext was that communism was, after all, an ideology that favored ordinary people. Now, it got perverted, there's no question about that, by Lenin and by Stalin and into something very, very different.

          But in the Cold War, I think what was lost in the struggle was the ability to see that there was some kind of justification and historical reality for the appearance of communism, that it wasn't just a freak and it wasn't just a kind of mindless dictatorship, but that the plight of ordinary people under the forms of economic organization that had become prominent, the plight of the common people had become desperate. There was no Social Security. There were no wage guarantees. There was no union organization.

          HEDGES: So it's just like today.

          WOLIN: Yeah. They were powerless. And the ruling groups, the capitalist groups, were very conscious of what they had and what was needed to keep it going. And that's why figures like Alexander Hamilton are so important, because they understood this, they understood it from the beginning, that what capitalism required in the way not only of so-called free enterprise -- but remember, Hamilton believed very, very strongly in the kind of camaraderie between capitalism and strong central government, that strong central government was not the enemy of capitalism, but rather its tool, and that what had to be constantly kind of revitalized was that kind of relationship, because it was always being threatened by populist democracy, which wanted to break that link and cause government to be returned to some kind of responsive relationship to the people.

          HEDGES: And the Cold War. So the Cold War arises. And this becomes the kind of moment by which capital, and especially corporate capital, can dismantle the New Deal and free itself from any kind of regulation and constraint to deform and destroy American democracy. Can you talk about that process, what happened during that period?

          WOLIN: Well, I think the first thing to be said about it is the success with which the governing groups manage to create a Cold War that was really so total in its spread that it was hard to mount a critical opposition or to take a more detached view of our relationship to the Soviet Union and just what kind of problem it created. And it also had the effect, of course, of skewing the way we looked at domestic discontents, domestic inequalities, and so on, because it was always easy to tar them with the brush of communism, so that the communism was just more than a regime. It was also a kind of total depiction of what was the threat to -- and complete opposite to our own form of society, our old form of economy and government.

          HEDGES: And in Politics and Vision, you talk about because of that ideological clash, therefore any restriction of capitalism which was defined in opposition to communism as a kind of democratic good, if you want to use that word, was lifted in the name of the battle against communism, that it became capitalism that was juxtaposed to communism rather than democracy, and therefore this empowered capital, in a very pernicious way, to dismantle democratic institutions in the name of the war on communism.

          WOLIN: Oh, I think there's no question about that, the notion that you first had to, so to speak, unleash the great potential capitalism had for improving everybody's economical lot and the kind of constraints that had been developed not only by the New Deal, but by progressive movements throughout the 19th century and early 20th century in the United States, where it had been increasingly understood that while American economic institutions were a good thing, so to speak, and needed to be nurtured and developed, they also posed a threat. They posed a threat because they tended to result in concentrations of power, concentrations of economic power that quickly translated themselves into political influence because of the inevitably porous nature of democratic representation and elections and rule, so that the difficulty's been there for a long time, been recognized for a long time, but we go through these periods of sleepwalking where we have to relearn lessons that have been known almost since the birth of the republic, or at least since the birth of Jeffersonian democracy, that capitalism has its virtues, but it has to be carefully, carefully watched, observed, and often controlled.

          HEDGES: Thank you. Please join us for part two later on with our interview with Professor Sheldon Wolin.

          [Oct 29, 2015] Hedges and Wolin (3-8) Can Capitalism and Democracy Coexist

          Sheldon Wolin RIP... This is part 2 of 8 of his interview with Chris Hedges made a year before his death...
          Notable quotes:
          "... n all totalitarian societies theres a vast disconnect between rhetoric and reality, which, of course, would characterize inverted totalitarianism as a species of totalitarianism. ..."
          "... I think Id probably qualify that, because Id qualify it in the sense that when you look at Naziism and fascism, they were pretty upfront about a lot of things -- leadership principle, racist principles -- and they made no secret that they wanted to dominate the world, so that I think there was a certain kind of aggressive openness in those regimes that I think isnt true of our contemporary situation. ..."
          "... And we have, as superpower, exactly replicated in many ways this call for constant global domination and expansion that was part of what you would describe as classical totalitarianism. And that -- youre right, in that the notion of superpower is that its global and that that constant global expansion, which is twinned with the engine of corporate capitalism, is something that you say has diminished the reality of the nation-state itself -- somehow the nation-state becomes insignificant in the great game of superpower global empire -- and that that has consequences both economically and politically. ..."
          "... I think one of the important tendencies of our time -- I would say not tendencies, but trends -- is that sovereign governments based on so-called liberal democracy have discovered that the only way they can survive is by giving up a large dose of their sovereignty, by setting up European Unions, various trade pacts, and other sort of regional alliances that place constraints on their power, which they ordinarily would proclaim as natural to having any nation at all, and so that that kind of development, I think, is fraught with all kinds of implications, not the least of [them] being not only whether -- what kind of actors we have now in the case of nation-states, but what the future of social reform is, when the vehicle of that reform has now been sort of transmuted into a system where its lost a degree of autonomy and, hence, its capacity to create the reforms or promote the reforms that people in social movements had wanted the nation-state to do. ..."
          "... And part of that surrender has been the impoverishment of the working class with the flight of manufacturing. And I think its in Politics and Vision you talk about how the war that is made by the inverted totalitarian system against the welfare state never publicly accepts the reality that it was the system that caused the impoverishment, that those who are impoverished are somehow to blame for their own predicament. And this, of course, is part of the skill of the public relations industry, the mask of corporate power, which you write is really dominated by personalities, political personalities that we pick. And that has had, I think (I dont know if you would agree), a kind of -- a very effective -- it has been a very effective way by which the poor and the working class have internalized their own repression and in many ways become disempowered, because I think that that message is one that even at a street level many people have ingested. ..."
          "... The problem of how to get a foothold by Democratic forces in the kind of society we have is so problematic now that its very hard to envision it would take place. And the ubiquity of the present economic system is so profound (and its accompanied by this apparent denial of its own reality) that it becomes very hard to find a defender of it who doesnt want to claim in the end that hes really on your side. ..."
          "... when a underdeveloped part of the world, as theyre called, becomes developed by capitalism -- it just transforms everything, from social relations to not only economic relations, but prospects in society for various classes and so on. No, its a mighty, mighty force. And the problem it always creates is trying to get a handle on it, partly because its so omnipresent, its so much a part of what were used to, that we cant recognize what were used to as a threat. And thats part of the paradox. ..."
          "... I think theyre conservative on sort of one side of their face, as it were, because I think theyre always willing to radically change, lets say, social legislation thats in existence to defend people, ordinary people. I think theyre very selective about what they want to preserve and what they want to either undermine or completely eliminate. ..."
          "... Thats, of course, the kind of way that the political system presents itself in kind of an interesting way. That is, you get this combination of conservative and liberal in the party system. I mean, the Republicans stand for pretty much the preservation of the status quo, and the Democrats have as their historical function a kind of mild, modest, moderate reformism thats going to deal with some of the excesses without challenging very often the basic system, so that it kind of strikes a wonderful balance between preservation and criticism. The criticism -- because the preservation element is so strong, criticism becomes always constructive, in the sense that it presumes the continued operation of the present system and its main elements. ..."
          "... Yeah, political debate has become either so rhetorically excessive as to be beside the point, or else to be so shy of taking on the basic problems. But again youre back in the kind of chasing-the-tail problem. The mechanisms, i.e. political parties, that we have that are supposed to organize and express discontent are, of course, precisely the organs that require the money that only the dominant groups possess. I mean, long ago there were theories or proposals being floated to set up public financing. But public financing, even as it was conceived then, was so miniscule that you couldnt possibly even support a kind of lively political debate in a modest way. ..."
          therealnews.com
          CHRIS HEDGES, PULITZER PRIZE-WINNING JOURNALIST: Welcome back to part three of our discussion with Professor Sheldon Wolin.

          You talk in both of your books, Politics and Vision and Democracy Incorporated, about superpower, which you call the true face of inverted totalitarianism. What is superpower? How do you describe it?

          SHELDON WOLIN, PROF. EMERITUS POLITICS, PRINCETON: Well, I think it's important to grasp that superpower includes as one of its two main elements the modern economy. And the modern economy, with its foundations in not only economic activity but scientific research, is always a dynamic economy and always constantly seeking to expand, to get new markets, to be able to produce new goods, and so on. So the superpower's dynamism becomes a kind of counterpart to the character of the modern economy, which has become so dominant that it defines the political forms.

          I mean, the first person to really recognize this -- which we always are embarrassed to say -- was Karl Marx, who did understand that economic forms shape political forms, that economic forms are the way people make a living, they're the way goods and services are produced, and they determine the nature of society, so that any kind of government which is responsive to society is going to reflect that kind of structure and in itself be undemocratic, be elitist in a fundamental sense, and have consumers as citizens.

          HEDGES: And Marx would also argue that it also defines ideology.

          WOLIN: It does. It does define ideology. Marx was really the first to see that ideology had become a kind of -- although there are antecedents, had become a kind of preconceived package of ideas and centered around the notion of control, that it represented something new in the world because you now had the resources to disseminate it, to impose it, and to generally make certain that a society became, so to speak, educated in precisely the kind of ideas you wanted them to be educated in. And that became all the more important when societies entered the stage of relatively advanced capitalism, where the emphasis was upon work, getting a job, keeping your job, holding it in insecure times. And when you've got that kind of situation, everybody wants to put their political beliefs on hold. They don't want to have to agonize over them while they're agonizing over the search for work or worrying about the insecurity of their position. They're understandably preoccupied with survival. And at that point, democracy becomes at best a luxury and at worst simply an afterthought, so that its future becomes very seriously compromised, I think.

          HEDGES: And when the ruling ideology is determined by capitalism -- corporate capitalism; you're right -- we have an upending of traditional democratic values, because capitalist values are about expansion, exploitation, profit, the cult of the self, and you stop even asking questions that can bring you into democratic or participatory democracy.

          WOLIN: I think that's true to an extent. But I would amend that to say that once the kind of supremacy of the capitalist regime becomes assured, and where it's evident to everyone that it's not got a real alternative in confronting it, that I think its genius is it sees that a certain relaxation is not only possible, but even desirable, because it gives the impression that the regime is being supported by public debate and supported by people who were arguing with other people, who were allowed to speak their minds, and so on. And I think it's when you reach that stage -- as I think we have -- that the problematic relationship between capitalism and democracy become more and more acute.

          HEDGES: And yet we don't have anyone within the mainstream who questions either superpower or capitalism.

          WOLIN: No, they don't. And I don't think it's -- it may be a question of weakness, but I think -- the problem is really, I think, more sort of quixotic. That is, capitalism -- unlike earlier forms of economic organization, capitalism thrives on change. It presents itself as the dynamic form of society, with new inventions, new discoveries, new forms of wealth, so that it doesn't appear like the old regime -- as sort of an encrusted old fogey type of society. And I think that makes a great deal of difference, because in a certain sense you almost get roles reversed. That is, in the old regime, the dominant powers, aristocracy and so on, want to keep the lid on, and the insurgent democracy, the liberalizing powers, wanted to take the lid off.

          But now I think you get it -- as I say, I think you get it kind of reversed, that democracy, it now wants -- in its form of being sort of the public philosophy, now wants to keep the lid on and becomes, I think, increasingly less -- more adverse to examining in a -- through self-examination, and becomes increasingly, I would say, even intolerant of views which question its own assumptions, and above all question its consequences, because I think that's where the real issues lie is not so much with the assumptions of democracy but with the consequences and trying to figure out how we've managed to get a political system that preaches equality and an economic system which thrives on inequality and produces inequality as a matter of course.

          HEDGES: Well, in all totalitarian societies there's a vast disconnect between rhetoric and reality, which, of course, would characterize inverted totalitarianism as a species of totalitarianism.

          WOLIN: Well, I guess that's true. I think I'd probably qualify that, because I'd qualify it in the sense that when you look at Naziism and fascism, they were pretty upfront about a lot of things -- leadership principle, racist principles -- and they made no secret that they wanted to dominate the world, so that I think there was a certain kind of aggressive openness in those regimes that I think isn't true of our contemporary situation.

          HEDGES: And yet in the same time, in those regimes, I mean, you look at Stalin's constitution as a document, it was very liberal, --

          WOLIN: Sure.

          HEDGES: -- it protected human rights and free speech. And so on the one hand -- at least in terms of civil liberties. And we have, as superpower, exactly replicated in many ways this call for constant global domination and expansion that was part of what you would describe as classical totalitarianism. And that -- you're right, in that the notion of superpower is that it's global and that that constant global expansion, which is twinned with the engine of corporate capitalism, is something that you say has diminished the reality of the nation-state itself -- somehow the nation-state becomes insignificant in the great game of superpower global empire -- and that that has consequences both economically and politically.

          WOLIN: Well, I think it does. I think one has to treat the matter carefully, because a lot of the vestiges of the nation-states still are, obviously, in existence. But I think one of the important tendencies of our time -- I would say not tendencies, but trends -- is that sovereign governments based on so-called liberal democracy have discovered that the only way they can survive is by giving up a large dose of their sovereignty, by setting up European Unions, various trade pacts, and other sort of regional alliances that place constraints on their power, which they ordinarily would proclaim as natural to having any nation at all, and so that that kind of development, I think, is fraught with all kinds of implications, not the least of [them] being not only whether -- what kind of actors we have now in the case of nation-states, but what the future of social reform is, when the vehicle of that reform has now been sort of transmuted into a system where it's lost a degree of autonomy and, hence, its capacity to create the reforms or promote the reforms that people in social movements had wanted the nation-state to do.

          HEDGES: And part of that surrender has been the impoverishment of the working class with the flight of manufacturing. And I think it's in Politics and Vision you talk about how the war that is made by the inverted totalitarian system against the welfare state never publicly accepts the reality that it was the system that caused the impoverishment, that those who are impoverished are somehow to blame for their own predicament. And this, of course, is part of the skill of the public relations industry, the mask of corporate power, which you write is really dominated by personalities, political personalities that we pick. And that has had, I think (I don't know if you would agree), a kind of -- a very effective -- it has been a very effective way by which the poor and the working class have internalized their own repression and in many ways become disempowered, because I think that that message is one that even at a street level many people have ingested.

          WOLIN: Yeah. I think you're right about that. The problem of how to get a foothold by Democratic forces in the kind of society we have is so problematic now that it's very hard to envision it would take place. And the ubiquity of the present economic system is so profound (and it's accompanied by this apparent denial of its own reality) that it becomes very hard to find a defender of it who doesn't want to claim in the end that he's really on your side.

          Yeah, it's a very paradoxical situation. And I don't know. I mean, I think we all have to take a deep breath and try to start from scratch again in thinking about where we are, how we get there, and what kind of immediate steps we might take in order to alter the course that I think we're on, which really creates societies which, when you spell out what's happening, nobody really wants, or at least not ordinary people want. It's a very strange situation where -- and I think, you know, not least among them is, I think, the factor that you suggested, which is the kind of evaporation of leisure time and the opportunities to use that for political education, as well as kind of moral refreshment. But, yeah, it's a really totally unprecedented situation where you've got affluence, opportunity, and so on, and you have these kinds of frustrations, injustices, and really very diminished life prospects.

          HEDGES: You agree, I think, with Karl Marx that unfettered, unregulated corporate capitalism is a revolutionary force.

          WOLIN: Oh, indeed. I think it's been demonstrated even beyond his wildest dreams that it -- yeah, you're just -- you just have to see what happens when a underdeveloped part of the world, as they're called, becomes developed by capitalism -- it just transforms everything, from social relations to not only economic relations, but prospects in society for various classes and so on. No, it's a mighty, mighty force. And the problem it always creates is trying to get a handle on it, partly because it's so omnipresent, it's so much a part of what we're used to, that we can't recognize what we're used to as a threat. And that's part of the paradox.

          HEDGES: You take issue with this or, you know, point out that in fact it is a revolutionary force. And yet it is somehow, as a political and economic position, the domain of people as self-identified conservatives.

          WOLIN: Yeah, it is. I think they're conservative on sort of one side of their face, as it were, because I think they're always willing to radically change, let's say, social legislation that's in existence to defend people, ordinary people. I think they're very selective about what they want to preserve and what they want to either undermine or completely eliminate.

          That's, of course, the kind of way that the political system presents itself in kind of an interesting way. That is, you get this combination of conservative and liberal in the party system. I mean, the Republicans stand for pretty much the preservation of the status quo, and the Democrats have as their historical function a kind of mild, modest, moderate reformism that's going to deal with some of the excesses without challenging very often the basic system, so that it kind of strikes a wonderful balance between preservation and criticism. The criticism -- because the preservation element is so strong, criticism becomes always constructive, in the sense that it presumes the continued operation of the present system and its main elements.

          HEDGES: Of both corporate capitalism and superpower.

          WOLIN: Absolutely.

          HEDGES: And yet you say that at this point, political debate has really devolved into what you call nonsubstantial issues, issues that don't really mean anything if we talk about politics as centered around the common good.

          WOLIN: Yeah, political debate has become either so rhetorically excessive as to be beside the point, or else to be so shy of taking on the basic problems. But again you're back in the kind of chasing-the-tail problem. The mechanisms, i.e. political parties, that we have that are supposed to organize and express discontent are, of course, precisely the organs that require the money that only the dominant groups possess. I mean, long ago there were theories or proposals being floated to set up public financing. But public financing, even as it was conceived then, was so miniscule that you couldn't possibly even support a kind of lively political debate in a modest way.

          You know, politics has become such an expensive thing that I think really the only way to describe it realistically is to talk about it as a political economy or an economic kind of political economy. It's got those -- those two are inextricable elements now in the business of the national or state governments, too.

          HEDGES: And yet I think you could argue that even the Democratic Party under Clinton and under Obama, while it continues to use the rhetoric of that kind of feel-your-pain language, which has been part of the Democratic establishment, has only furthered the agenda of superpower, of corporate capitalism, and, of course, the rise of the security and surveillance state by which all of us are kept in check.

          WOLIN: Yeah, I think that's true, because the reformers have simply hesitated -- really, really hesitated -- to undertake any kind of a focus upon political reform.

          HEDGES: Haven't the reformers been bought off, in essence?

          WOLIN: I think it's the no-no subject. I don't think it even has to be bought off anymore. I think that it is such a kind of third rail that nobody wants to touch it, because I think there is a real in-built fear that if you mess with those kind of so-called fundamental structures, you're going to bring down the house. And that includes messing with them even by constitutional, legal means, that it's so fragile, so delicate, so this that and the other thing that inhibit all kinds of efforts at reforming it. As the phrase used to go, it's a machine that goes of itself -- so they think.

          HEDGES: Thank you.

          Stay tuned for part four, coming up, of our interview with Professor Sheldon Wolin.

          [Oct 28, 2015] The Full Details Of How Goldman Criminally Obtained Confidential Information From The New York Fed

          Zero Hedge
          Two days ago we reported that the saga of Rohit Bansal, Goldman's "leaker" at the Fed is coming to a close with the announcement of a criminal case filed against Goldman's deep throat who had previously spent 7 years at the NY Fed, and was about to spend some time in prison, and who had been providing Goldman with confidential information sourced from his contact at the NY Fed for months, as a result of which Goldman would be charged a penalty.

          Moments ago the NY DFS announced that the best connected hedge fund in the world would pay $50 million to the New York State Department of Financial Services and "accept a three-year voluntary abstention from accepting new consulting engagements that require the Department to authorize the disclosure of confidential information under New York Banking Law"

          Goldman Sachs would also admit that a Goldman employee engaged in the criminal theft of Department confidential supervisory information; Goldman Sachs management failed to effectively supervise its employee to prevent this theft from occurring; and Goldman failed to implement and maintain adequate policies and procedures relating to post-employment restrictions for former government employees.

          Below are the unbelievable, details of just how Goldman was getting material information from the NY Fed, from the FDS:

          Violation of Post-employment Restrictions

          On July 21, 2014, an individual began work at Goldman, Sachs & Co. as an Associate in the Financial Institutions Group ("FIG") of the Investment Banking Division ("IBD"). The Associate reported to a Managing Director and a Partner at Goldman.

          Prior to his employment at Goldman, from approximately August 2007 to March 2014, the Associate was a bank examiner at the U.S. Federal Reserve Bank of New York ("the New York Fed"). His most recent position at the New York Fed was as the Central Point of Contact ("CPC") – the primary supervisory contact for a particular financial institution – for an entity regulated by the Department (the "Regulated Entity").

          In March 2014, the Associate was required to resign from his position at the New York Fed for, among other reasons, taking his work blackberry overseas without obtaining prior authorization to do so and for attempting to falsify records to make it look like he had obtained such authorization, and for engaging in unauthorized communications with the Federal Reserve Board.

          The Associate was hired in large part for the regulatory experience and knowledge he had gained while working at the New York Fed. Prior to hiring him, the Partner and other senior personnel interviewed and called the Associate several times, and the Partner took him out to lunch and dinner.

          Prior to starting at Goldman, in May 2014, the Associate informed the Partner of potential restrictions on his work, due to his previous employment at the New York Fed, and specifically as the CPC for the Regulated Entity. The Partner advised the Associate to consult the New York Fed to obtain clarification regarding any applicable restrictions.

          Accordingly, the Associate inquired with the New York Fed Ethics Office and was given a "Notice of Post-Employment Restriction," which he completed and signed with respect to his supervisory work for the Regulated Entity. The Associate provided this form to Goldman. This Notice of Post-Employment Restriction read that the Associate was prohibited "from knowingly accepting compensation as an employee, officer, director, or consultant from [the Regulated Entity]" until February 1, 2015.

          On May 14, 2014, the Associate forwarded this notice of restriction to the Partner, the Managing Director, and an attorney in Goldman's Legal Department. In his email, the Associate also included guidance from the New York Fed, stating, in short, that a person falls under the post-employment restriction if that person "directly works on matters for, or on behalf of," the relevant financial institution.

          Despite receiving this notice and guidance, Goldman placed the Associate on Regulated Entity matters from the outset of his employment. As further detailed below, the Associate also schemed to steal confidential regulatory and government documents related to that same Regulated Entity in advising that client.

          Unauthorized Possession and Dissemination of Confidential Information

          During his employment at Goldman, the Associate wrongfully obtained confidential information, including approximately 35 documents, on approximately 20 occasions, from a former co-worker at the New York Fed (the "New York Fed Employee"). These documents constituted confidential regulatory or supervisory information – many marked as "internal," "restricted," or "confidential" – belonging to the Department, the New York Fed or the Federal Deposit Insurance Corporation (the "FDIC"). The Associate's main conduit for receiving information from the New York Fed was his former coworker, the New York Fed Employee, who has since been terminated for this conduct. While still employed at the New York Fed, the New York Fed Employee would email documents to the Associate's personal email address, and the Associate would subsequently forward those emails to his own Goldman work email address.

          On numerous occasions, the Associate provided this confidential information to various senior personnel at Goldman, including the Partner and the Managing Director, as well as a Vice President and another associate who perform quantitative analysis for Goldman. In several instances where the Associate forwarded confidential information to other Goldman personnel, the Associate wrote in the body of the email that the documents were highly confidential or directed the recipients, "Please don't distribute." At least nine documents that the Associate provided to Goldman constituted confidential supervisory information under New York Banking Law § 36(10). Pursuant to the statute, such confidential supervisory information shall not be disclosed unless authorized by the Department. The documents included draft and final versions of memoranda regarding and examinations of the Regulated Entity, as well as correspondence related to those examinations.

          At least 17 confidential documents that the Associate had improperly received from the New York Fed – seven of which constituted confidential supervisory information under New York Banking Law § 36(10) – were found in hard copy on the desk of the Managing Director. Additional hard copy documents were found on the desks of the Vice President and the other associate, including at least one document constituting confidential supervisory information under New York Banking Law § 36(10).

          On August 18, 2014, the Associate shared three documents pertaining to enterprise risk management with the Managing Director, writing, "Below is the ERM request list, work program and assessment framework we used for ERM targets. Again this is highly confidential as its not public and has not been issued a[s] guidance yet. Not sure where it is at anymore due to internal politics. I worked on this framework and guidance within the context of a system working group with the Fed system. We ran several pilots to test it was well. Please don't distribute." The Managing Director replied, "I won't. Will review on plane tomorrow to DC." The documents were marked as "Internal-FR" or "Restricted-FR."

          Part of Goldman's work for the Regulated Entity included advisory services with respect to a potential transaction. A certain component of the Regulated Entity's examination rating was relevant to the transaction. The Regulated Entity's examinations were conducted jointly by the FDIC, DFS and the New York Fed. As described below, the Associate used confidential information regarding the Regulated Entity's examination rating – obtained both from his prior employment at the New York Fed and from his contacts there – and conveyed this information to the Managing Director, who then conveyed the information to the Regulated Entity on September 23, 2014, in advance of it being conveyed by the regulators.

          On August 16, 2014, the Associate emailed the Managing Director regarding the regulators' perspective on the Regulated Entity's forthcoming examination rating, writing "You need to speak to [the CEO of the Regulated Entity] about scheduling a meeting with all 3 agencies ASAP. He needs to meet with them and display and discuss all the improvements and corrections they have made during the last examination cycle."

          On September 23, 2014, the Associate attended the birthday dinner of the New York Fed Employee at Peter Luger Steakhouse, along with several other New York Fed employees. Immediately after the dinner, the Associate emailed the Managing Director, divulging confidential information concerning the Regulated Entity, specifically, the relevant component of the upcoming examination rating. The Associate wrote, "…the exit meeting is tomorrow and looks like no [change] to the [relevant] rating. I heard there won't be any split rating… [The Regulated Entity] should have listened to you with the advice…hopefully [the CEO] will now know you didn't have phony info."

          In this email, the Associate also provided advice to relay to the Regulated Entity's management, stating that they should "keep their cool, not get defensive and not say too much unless the regulators have a blatant fact wrong" as it "will go off better for them in the long run. Believe it or not the regulator's [sic] look for reaction and level of mgmt respectiveness [sic] during these exit meetings." The Managing Director replied "Let's discuss . . . I'm seeing [the CEO of the Regulated Entity] tmw afternoon alone."

          Later that night, the Associate followed up with another email to the Managing Director, writing, "I feel awful not being there to wrap up 2013. I would have been able to pull all this through. I was a real advocate for all the work they have done." He also offered to join a meeting with the CEO of the Regulated Entity if the Managing Director wanted.

          On September 26, 2014, Goldman had an internal call regarding the calculation of certain asset ratios, during which there was disagreement over the appropriate method. During the call, the Associate circulated an internal New York Fed document – which the Associate had recently obtained from the New York Fed Employee – relating to the calculation, to the call participants, writing, "Pls keep confidential?" Following the group call, the Partner called the Associate to discuss the document, including where he had obtained it, and the Associate told him that he had obtained it from the New York Fed. The Partner then called the Global Head of IBD Compliance to report the matter and forwarded the document.

          Compliance Failures, Failure to Supervise and Violation of Internal Policies

          After receiving notice of the Associate's prohibition on working on matters for the Regulated Entity, Goldman, including the Partner and the Legal Department, failed to take any steps to screen the Associate from such prohibited work. Instead, Goldman affirmatively placed the Associate on matters for the Regulated Entity beginning on his first day, and added the Associate to the official Goldman database as a member of the Regulated Entity "Team" – a team led by the Partner.

          Goldman failed to provide training to personnel regarding what constituted confidential supervisory information and how it should be safeguarded. While Goldman policies provided that confidential information received from clients should only be shared on a "need to know" basis, Goldman did not distinguish between this broader category of confidential information and the type of confidential supervisory information belonging to a regulator or other government agency, which is protected by law, such as confidential supervisory information under New York Banking Law § 36(10). Indeed, Goldman policies failed to adequately address Department confidential supervisory information.

          As noted above, the Associate also violated Goldman's internal policy on "Use of Materials from Previous Employers," which states that work that personnel have done for previous employers, and confidential information gained while working there, should not be brought into Goldman or used or disclosed to others at Goldman without the express permission of the previous employer.

          * * *

          The Managing Director is safe, as are all other Goldman employees: nobody aside for Bansal who was merely trying to impress his superiors, has anything to worry about.

          Anyone else found to have obtained at least "35 confidential documents" from the Fed on at least "20 occassions" would be sent straight to jail with a prison sentence anywhere between several decades and life.

          Goldman's punishment? 0.6% of its 2014 Net Income.

          Duc888

          How could this happen? Seriously. Aren't the FED and GS separate entities?

          Oh, wait.....

          LetThemEatRand

          The fact that these documents were sent via email only tells me how widespread this is. Most of these guys are probably smart enough to put a paper copy in their briefcase and deliver it to Goldman the old fashioned way bankers do things (over drinks and coke at a strip bar).

          But when "everyone is doing it," a guy may get careless and start using email, figuring what the fuck.

          Urban Redneck

          Did Goldman's Marketing Department write that release for their FRBNY subsidiary??? They deserve the $50 million fine for being an embarrassment to scheming bankers everywhere. This is a company that has destroyed companies, entire economies, and countless (not so little) investors by placing their own financial interests above their clients and regularly using inside information and access to do so. Then Goldman is "caught" when they turn themselves in (not that they had a lot of choice given the amateur hour performance) for actually "helping" one of their clients (for once)... This whole thing stinks, in more ways than one.

          Sudden Debt

          What a joke!!!

          GS and JPM ARE THE FED!!!

          and that "fine"... THAT'S THEIR DONUT BUDGET!!

          J J Pettigrew

          Bagels....please!

          Elliott Eldrich

          "Feel sorry for the poor schmuck, cuffed and heading to a sallyport, to be booked, and serve 6 months in jail, for stealing a carton of ciggs..."

          Little crimes are punished with great fervor, while the biggest criminals get their wrists slapped. This is outrageous, and I just have to ask how much more we are supposed to bear before breaking?

          Lord Ariok

          I Love my Country and Hate Our Government. But If our government isn't "Gangster" well believe it there will be another "Government" that is even more "Gangster" then ours to take the number 1 spot in the Syndicate. The way I see it if we have to do this in order to compete with China's Level of Corruption. Damn Chinese Efficiency. ~ Lord Ariok

          venturen

          they have Bill Dudley...they were worried that this underling would do something. Heck Goldman gives the orders not the other way around

          Bay of Pigs

          The William Dudley is the main man at the FED (and the BIS), not Yellin or Fischer.

          "Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm's chief U.S. economist for a decade. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983.

          In 2012, Mr. Dudley was appointed chairman of the Committee on the Global Financial System of the Bank for International Settlements (BIS). Previously, Mr. Dudley served as chairman of the former Committee on Payment and Settlement Systems of the BIS from 2009 to 2012. He is a member of the board of directors of the BIS and chairman of the Economic Club of New York."

          http://www.newyorkfed.org/aboutthefed/orgchart/dudley.html

          [Oct 27, 2015] OECD Chief Economist: Its Time To Temper The Frothiness In Markets

          www.zerohedge.com
          "... if you look at what is supporting equity prices - how much of that support is coming from real economic activity versus from using stock buybacks, using cash on balance sheet for stock buybacks, or mergers and acquisitions, to reduced competition in the marketplace.

          These are the sort of stories that if there were a small increase in interest rates, you would temper some of that frothiness.

          Eliminating the incentive to engage in that kind of activity seems to me to be a good idea... There would be a proportion of the population that would have less capital gains - but they've been enjoying very big capital gains, and it is a narrow segment of the population."

          [Oct 24, 2015] How The U.S. Government Covers Up 72% Inflation Before Your Very Eyes

          Notable quotes:
          "... The Modern Survival Manual: Surviving the Economic Collapse, ..."
          Zero Hedge

          scatha

          ...Look at basic staples eggs, beef, chicken and other foods, rent/housing, education, even transportation and telecommunication cost are "effectively" raising, not to mention medical care, all those things people need to live are raising precipitously.

          Even those 1%-ters facing massive inflation forced to buy risky bonds at unbelievable high prices to get any yield at all. The global inflation bubble is here while global demand is dying and commodity nominal prices are collapsing as we speak since with such a high "real" prices everybody expects loss or severe decline of income or profit in the future expressed by a dead body of CapEx and consumption.

          On the top of it typical the inflation hiding maneuvers of the retailers producing serving size inflation, quality collapse inflation, component substitution inflation, choice narrowing inflation, package cost and quality inflation, air conditioning, freezing/heating power limitation inflation, shopping experience quality collapse inflation, and other manipulations to keep so called nominal "at the store" price marginal increase of few percent only per year but even that was impossible in 2015 so far.

          .. ... ...

          More on the scam of evaluating inflation in various forms including CPI I found at:

          https://contrarianopinion.wordpress.com/2015/01/29/invisible-hand-and-ot...

          nosam

          The reduction in product sizes and quality is not so much a measure of inflation as a measure of the declining wealth of the population. People can afford less so the manufacturers change product size/quality to match.

          The area I live in now has high inflation but salaries are growing at a faster pace. So I notice a gradual increase in quality and size of products. That said, if you can afford to pay premium prices, you can get good quality pretty much anywhere.

          Canoe Driver

          American culture is based on financial rape of the working class by a criminal elite. Always was. Part of the system is the illusion fed the common man that his interests are represented by the political class, who in reality are merely business agents for the rich. This illusion dies hard.

          ebworthen

          "1/2 gallon" of ice cream now 3 pints instead of 4 pints, canned vegetables going to 14 oz instead of 16 oz, "1 pound" bacon now transforming to 12 oz "healthier" packages with a "great price".

          I swear to God they are going to sell a "bakers dozen" of 10 eggs instead of 12 for the same price 'ere long.

          TeamDepends

          It's nuts, sometime over the summer the cans of tomatoes we buy went from 14.75 oz to 14.0. Are they going to start making the cans thicker? Will the cans shrink to G.I. Joe size? Times is tough, people!

          Whodathunkit

          Buy the imported brand from Europe. They haven't caught on to the smaller size package same amount of $. YET

          Escapeclaws

          Not true that Europe doesn't have the same problem. Just look at tuna: smaller can, half-full, higher price. Same with everything. Inflation gets going because of corporate greed, which they "justify" by saying their costs are going up. It's a scam through and through. About time someone does a study to analyze when their costs really go up as opposed to them "claiming" their costs are going up.

          This inflation is a form of SYSTEMIC PRICE FIXING. Because it is systemic it is not considered price fixing as such from a legal point of view, so they get away with it. Like everything the elite does, they have total control and we are obliged to accept it.

          Same story with "gotcha capitalism". They pump a bag of potato chips full of air and then use the excuse that the the chips, which are cozily nestled in the bottom quarter of the bag, are being protected that way. Kind of like the mafia killing one of your kids and then offering to protect the others for a small stipend.

          The Yurpeans also pay much higher prices due to how things are packaged. I buy dried beans and pressure cook them, but even there, you cannot buy beans in bulk. Instead you must pay an arm and a leg for a small package. It has gotten to the point that if a bean falls to the floor, I search for it like the widow searching for her lost penny. Pretty soon they will be packaging single beans. I figured that out using mathematical induction.

          Eventually, we former middle class people will enjoy the same standard of living as the poor in the third world.

          Normalcy Bias

          This reminds me of Ferfal's The Modern Survival Manual: Surviving the Economic Collapse, written by a guy who lived through the collapse in Argentina. There are so many paralells to what's going on in the US, they're hard to count. Highly recommended...

          http://www.amazon.com/The-Modern-Survival-Manual-Surviving/dp/9870563457

          seek

          That's "Ferfal." For what it's worth, he's super accessible via his own website forums and a couple of the larger survival forums (I think the ones on ar15.com and ovet at survivalistsboards.com) He's got a recent posting with information from people in the Ukraine that's especially interesting.

          If anyone has any doubts about these adjustments, just buy a roll of TP and compare it to the size of the TP holder in any house older than 10 years, it's quite obvious. I have TP that predates the '08 collapse of the identical brand and product line, and it's at least 1/2" wider and wrapped more densely as well.

          There is substantial inflation, and it's covered up, and there's no interest being paid by banks but they're charging the average credit card holder something around 14.9 percent. Meanwhile 51% of workers in the US now make under 30K a year. The financial system is absolutely raping the common people in the US, in part due to greed and in part in a desperate attempt to save itself from collapsed caused by their greed accumulated over the past 100 years.

          TBT or not TBT

          I am shocked, shocked, to find stealth inflation going on in this establishment!

          Supernova Born

          Every ZH'er should support FerFAL's books (it is the 7.62x51 rifle his "name" is referencing, FAL being an acronym for Fusil Automatique Léger ("Light Automatic Rifle"), and the first three letters are from his first name, Fernando).

          Surviving the Economic Collapse is filled with great insights and has proven prophetic.

          First thing I think when I see shrinking retail packaging and lowered quality (diluted in the case of SodaStream) was FerFAL said this would happen...

          OceanX

          Ya'll slam Castro and what he did was kick out the banksters you profess to hate. The way I see it, what happened to Cuba was the retalliation of the banksters. He was blocked from global trade and financing.

          In addition, the conservation of their natural resources have preserved Florida's fishing waters!

          http://www.amazon.com/Deep-Cuba-American-Oceanographic-Expedition/dp/082...

          When therre is an offshore oil spill in Cuba, it will be carried by the Gulf Stream all across the Atlantic and destroy a lot of Florida beach.


          [Oct 23, 2015] US. Shale Drillers Running Out Of Options, Fast

          Notable quotes:
          "... The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs. ..."
          "... However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article. ..."
          "... Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian. ..."
          oilprice.com

          Much has been made about the impressive gains in efficiency and productivity in the shale patch, as new drilling techniques squeeze ever more oil and gas out of new wells. But the limits to such an approach are becoming increasingly visible. The U.S. shale revolution is running out of steam.

          The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs.

          However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article.

          For evidence that the productivity gains have run their course, take a look at the latest Drilling Productivity Report from the EIA. Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian.

          [Oct 23, 2015] Saudi Arabia Russia, Iran Forge Energy Partnerships

          Oct 23, 2015 | Zero Hedge

          No, the "atmosphere is not well," because again, the Saudis are out to achieve "ancillary diplomatic benefits" (i.e. geopolitical advantages) by keeping crude prices low, and those benefits include squeezing the Russians and perhaps limiting the revenue Tehran can bring in when Iran returns to the market.

          As you can see, all of this is inextricably linked and it looks as though Russia and Iran may be on the verge of attempting to challenge the Saudis for domination of the oil market (don't forget Moscow surpassed Riyadh as the number one supplier to China for the second time this year in September).

          Is a "new oil order" in the works? We shall see.

          pot_and_kettle

          Can someone point out when Syria didn't sign off on the Qatar - Turkey pipeline and when the pipeline was first proposed? This is news to me and seems like the watershed event for what the zio-US fomented in that part of the world.

          Sergeiab

          http://ftmdaily.com/what-jerry-thinks/whysyria/

          4shzl

          Next step: open that eastern front on the Arabian Peninsula.

          Freddie

          Persia has been around thousands of years.

          A person may not like the Russians or Iranaians but they "ain't" going anywhere. They are also pretty tough on the battlefield (see Hezbollah). They also stood up for Syrian and the Syrian people including Syrian Christians.

          Persians are a lot smarter than Saudis too.

          alphahammer

          Yea lets take a look. Good of you to point that out.

          ---

          China Not So In Love With Russia After All

          JUN 17, 2015

          Shunned by the West, Russia may want to promote its new Chinese love affair to the world these days, but Czar Romeo shouldn't get his hopes up.

          Russia's second biggest lender, VTB Bank, said that most Chinese banks have foregone doing business with them. The reason? Western sanctions against VTB. China lenders don't want to get caught up in the drama and - having more business with the U.S. and Europe than with Russia - have opted to play it safe.

          "China's ambiguous position regarding Russian banks in the wake of US and EU sanctions is a key issue holding back progress toward greater bilateral cooperation," VTB Bank First Deputy Chairman Yuri Soloviev write in an op-ed published by the FinanceAsia news agency on Tuesday.

          Freddie

          Anything that smacks the shit out of the Saudis or Qatar makes me happy. What they did to Syria with the help of the USA, Turkey, UK, Israel and others is sickening.

          [Oct 23, 2015] Is Russia The King Of Arctic Oil By Default

          This is a very expensive oil that Russians now selling at loss. Financial capitalism in action.
          Notable quotes:
          "... Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). ..."
          "... No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields. ..."
          Oct 23, 2015 | Zero Hedge
          ... ... ...

          A cursory search of 'Arctic' and 'oil' elicits little in the way of positivity. Certainly, Shell's failure in the Chukchi Sea is notable. Combined with the Obama administration's waffling distaste for future offshore Arctic development, it marks what should be a period of relative dormancy in U.S. waters. Still, it's not indicative of the sector globally, which is seeing progress, albeit at a glacial pace.

          The shining example of such development to date is Gazprom Neft's Prirazlomnaya platform. Located nearly 40 miles offshore in the Pechora Sea, the rig is the world's first Arctic oil project involving a stationary platform – though the general concept itself has been employed before (see: BP's Northstar Island).

          Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). With production well number two (of 19) now online, output should reach somewhere between 10,000-15,000 bpd by year's end.

          To be fair, several important tests lie ahead for Prirazlomnaya and Russia's Arctic shelf development in general. Chief among them is rapidly addressing its import dependence – one of the primary targets of U.S. and EU sanctions. No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields.

          Attention, domestic and international, has been given to the courting of China, India, and other backers – both financial and technological – but all eyes should be on the Russian solution, which will seek to demonstrate its efficacy by 2020.

          At the Prirazlomnoye field, the Russian institute Omskneftekhimproekt has begun work on the modernization of the rig's drilling installations, technological equipment, and safety and telecommunications systems. The primary objectives are to boost production capacity (to ~120,000 bpd) toward 2020 and lay the building blocks for the future development of Russian-sourced platforms.

          The work by Omskneftekhimproekt mirrors that of several institutes, companies, and universities across the country, rallying around the call for import substitution. However, just how much can actually be accomplished is the billion dollar question.

          [Oct 23, 2015] Economic effects of shocks to oil supply and demand

          Notable quotes:
          "... Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016. ..."
          "... Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues. ..."
          "... If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex? ..."
          "... Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. ..."
          "... But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas. ..."
          "... In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase. ..."
          Oct 17, 2015 | Econbrowser
          Jeffrey J. Brown October 17, 2015 at 5:15 am

          Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016.

          Louisiana is an interesting case history. As drilling activity declined in the Hayneville Shale Gas Play, gas production from the play production initially continued to increase (as operators worked through the backlog of drilling but uncompleted wells), but production from the play ultimately showed a sharp decline, with annual marketed natural gas production falling at a rate of 20%/year from 2012 to 2014. Measured from the monthly peak in December, 2011, it took about two and a half years for the exponential rate of decline in Louisiana's monthly marketed gas production (from both shale gas + conventional production) to fall below 20%/year. The three year 12/11 to 12/14 rate of decline was 18.5%/year.

          Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues.

          And the question that I have periodically posed, to-wit:

          If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI & Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex?

          Jeffrey J. Brown October 17, 2015 at 8:37 am

          Re: US Crude and/or Condensate Exports

          As noted above, it's more than a little ironic that there are so many claims that oil exports from a net oil importer, the US, will have a material impact on global oil markets, even as US Crude + Condensate (C+C) production is declining.

          In any case, I just noticed something very interesting in the EIA Annual Energy Review data tables, which provide monthly and/or annual data back to 1950:

          http://www.eia.gov/totalenergy/data/monthly/pdf/sec3_3.pdf

          Note that US total liquids net imports were up year over year, from 4.9 million bpd in August, 2014 (2014 annual average of 5.1) to 5.6 million bpd in August, 2015, a 14% year over year increase in net total liquids imports.

          Anonymous October 17, 2015 at 12:12 pm

          Saw some analyst meeting (Genscape maybe) where the person projected rigs continuing to drop through 1Q16, ending up 200 more down (or about 400 remaining). This was based on prices staying in this ~$47-50 band, with commensurate strip. [A drop down to ~$40, with commensurate strip would lead to an additional 200 rigs going away.]

          I think the Haynesville is a nice example to show the "lag" effect when rigs drop. And really, we can already use the US oil production as an example of this already. Another easy example is 2009 in the Bakken.

          I would be leery of thinking too much that the Haynesville is some sort of example of Hubbert peak because a lot of the drop is price caused, not exhaustion. [In a classic Hubbert peak case for global oil or national gas, you would have the normal curve AND would have Hotelling price increase. In this case, it's not even constant price…it's reaction to a price crash.] Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. [This is Adelman's point of how you don't just eat away at lower cost oil and move to higher…yes, you may be doing that. But in addition, knowledge can grow the pool of available low cost oil or reduce the price of getting out what you already know about. Both effects can occur and they fight each other and you have to get into the specifics to see which is winning.]

          In addition, concentrating on the Haynesville, when the Marcellus and Utica have occurred is missing the main story from an economic impact perspective. After all, volume is up and price is down for natural gas. So for all the H or the B dropped, the M and U more than made up for it. "The App" is the key place to look at in US natural gas.

          In addition, FWIW, H did drop very beautifully in a Hubbert-like manner from the peak of 7, BUT for the last 18 months has been near flat at 4 BCF/day. Download the excel data (last figure at bottom of page) and graph it and you will see that. Peak oilers discussing the Haynesville as some sort of organic product life cycle analogy (born, grow, mature, die), never mention this key insight (how it has flattened out dramatically now). But it's in the data. Just graph to see it.

          http://www.eia.gov/naturalgas/weekly/ (note this shows the shale only, not the conventional production. EIA DPR as a data source makes the fat tail look even more prominent, but includes conventional in the region.)

          Jeffrey J. Brown October 18, 2015 at 12:01 pm

          So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that individually peak and decline–will never peak and decline?

          In any case, in regard to price versus production, we have an interesting case history when it comes to actual crude oil production (generally defined as 45 API and lower crude oil). Following is an essay, which I sent to some industry acquaintances a few weeks ago:

          Regarding oil prices, I may be one of the worst prognosticators around, especially when it comes to demand side analysis. My primary contribution has been as an amateur supply side analyst, especially in regard to net exports.

          In any case, earlier this year I thought that we had hit the monthly low in Brent prices for the current oil price decline ($48 monthly average in January, 2015), and I thought we were more or less following an upward price trajectory, from the 1/15 low, similar to the price recovery following the 12/08 monthly oil price low ($40 for Brent).

          However, a key difference between the 2008/2009 price decline and subsequent recovery and the 2014/2015 decline is that Saudi Arabia cut production from 2008 to 2009 while they increased production from 2014 to 2015.

          But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas.

          The bottom line for me is that depletion marches on.

          A few years ago, ExxonMobil put the decline from existing oil wells at about 4% to 6% per year. A recent WSJ article noted that analysts are currently putting the decline from existing oil wells at 5% to 8% per year (in my opinion, the 8% number is more realistic). At 8%/year, globally we need about 6.5 MMBPD of new Crude + Condensate (C+C) production every single year, just to offset declines from existing wells, or we need about 65 MMBPD of new C+C production over the next 10 years, just to offset declines from existing wells. This is equivalent to putting on line the productive equivalent of the peak production rate of about thirty-three (33) North Slopes of Alaska over the next 10 years.

          It appears quite likely that global crude oil production (45 and lower API gravity crude oil) has been more or less flat to down since 2005, as annual Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014)–while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

          Following are links to charts showing normalized production values for OPEC 12 countries and global data. The gas, natural gas liquids (NGL) and crude + condensate (C+C) values are for 2002 to 2014 (except for gas, which is through 2013, EIA data in all cases). Both data charts show similar increases for gas, NGL and C+C from 2002 to 2005, with inflection points in both cases for C+C in 2005. My premise is that condensate production, in both cases, accounts for virtually all of the post-2005 increase in C+C production.

          Global Gas, NGL and C+C:
          http://i1095.photobucket.com/albums/i475/westexas/Global%20Gas%20NGL%20C%20amp%20C_zpskb5bxu6d.jpg

          OPEC 12 Gas, NGL and C+C:
          http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Gas%20NGL%20C%20amp%20C_zpsox3lqdkj.jpg

          Currently, we only have crude oil only data for the OPEC 12 countries and for Texas (note that what the EIA calls "Crude oil" is actually C+C).

          Also following is a link to OPEC 12 implied condensate (EIA C+C less OPEC crude) and OPEC crude only from 2005 to 2014 (OPEC data prior to 2005 was for a different set of exporters than post-2005). Obviously, data quality is an issue, and the boundary between actual crude and condensate is sometimes fuzzy. In any case, we have to deal with the data that we have.

          OPEC 12 Crude and Implied Condensate:
          http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Crude%20and%20Condensate_zps12rfrqos.jpg

          As of 2014, OPEC and the US accounted for 53% of global C+C production (41 MMBPD out of 78 MMBPD). Implied OPEC condensate production increased by 1.2 MMBPD from 2005 to 2014 (1.2 to 2.4). The EIA estimates that US condensate production increased by about 1.0 MMBPD from 2011 to 2014. I'm estimating that US condensate production may have increased by around 1.2 MMBPD or so from 2005 to 2014. Based on the foregoing, increased condensate production by OPEC and the US may have accounted for about 60% (about 2.4 MMBPD) of the 4 MMBPD increase in global C+C production from 2005 to 2014.

          Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD.

          In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

          If it took trillions of dollars of upstream capex to keep us on an "Undulating Plateau" in actual global crude oil production, what happens to crude production given the large and ongoing cutbacks in global upstream capex?

          And given the huge rate of decline in existing US gas production (probably on the order of about 24%/year from existing wells), it's possible that we might see substantially higher North American gas prices this winter, given the decline in US drilling.

          Furthermore, through 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that appears to have continued in 2014. GNE fell from 46 MMBPD in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids). The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.

          Here are the mathematical facts of life regarding net exports:

          Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.

          In addition, while we are currently seeing signs of weak demand in China, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

          For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

          And a massively under-appreciated aspect of what I call "Net Export Math" is that the rate of depletion in the remaining cumulative volume of net oil exports, after a net export peak, tends to be enormous. Saudi Arabia is showing a year over year increase in production and net exports, but based on available annual data through 2014, Saudi Arabia's net exports fell from 9.5 MMBPD in 2005 to 8.4 MMBPD in 2014 (total petroleum liquids + other liquids), and I estimate that Saudi Arabia may have already shipped close to half of their total post-2005 supply of cumulative net exports of oil.

        3. "So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that individually peak and decline–will never peak and decline? "

          So again, the argument for imminent decline is some eventual limit to the amount of hydrocarbons on the entire planet? it is not cherrypicking to emphasize the Haynesville and Barnett as gas plays "peaking" when overall gas production in the US has grown 40%, even in the face of a huge price drop????

          "In any case, in regard to price versus production, we have an interesting case history when it comes to actual crude oil production (generally defined as 45 API and lower crude oil)."

          Nope. Lease condensate (~55) is legally considered crude oil. EF 47 is a normal listed form of oil in Platts price lists. Light oil and condensate is used to make gasoline and other products and runs through a refinery. It is easily and routinely blended with heavy oil and is actually needed for that (not just as a diluent for transport but for optimizing the subunits of complex refinery (non complex refineres, e.g. those without cokers or visbreakers or with less cracking actually function better on just light blends to start…the extreme are teakettle refineries).

          Condensate and EF crude is withing a few dollars of WTI and correlates with price moves very closely. EF 47 is actually pricier than heavy sour crudes. Talk to any trader, refinery buyer, or even just a microeconomist familiar with looking at substitutes. It is crazy to say that growth of 45+ oil has not affected overall oil prices. Perhaps some small shrinking of spreads between qualities, but often not even a directionality change. The much larger impact though is on the overall supply demand balance for C&C. Does any economist think the goods are sufficiently different to justify a separate P-Q curve for 45- and 45+ oil? [Oh…and the extra funny thing is the peak oil meme of mid 2000s was that we wouldn't find more light sweet!]

          P.s. If you really think 45+ isn't oil, then why not agree to remove the export restriction on at least them?

          "Following is an essay, which I sent to some industry acquaintances a few weeks ago:"

          Your cut and pasting the things on the net (ELM stuff, net export arguments) is almost spammy. Total conversation killer and often ignored by even your compatriots.

          Erik Poole

          Nony: You make good arguments for lumping crude oil and condensates.

          The problem with a net export perspective is that it ignores the global nature of the market place and at some point, an indifference to whether heavy oil imported into the US refinery complex hails from western Canada, Venezuela, Mexico or Colombia. Or even Iran some day.

          If we could draw and compare distribution curves of oil grades over the last , I suspect we would see the distributions flattening out over time as extreme grades become more prominent. It may even be bi-modal at this point.

          Given the expense of retooling refineries and the robust growth in US condensate production, one can see the interest in securing more pipeline access to Canadian bitumen. And perhaps the interest in hoping/praying for growth in Colombian heavy oil production as Mexican production declines and the populist Neo-Marxist experiment in Venezuela violently implodes stagnating heavy oil production in that country.

          Jeffrey Brown: I don't want to suggest that the net export perspective is not useful. It clearly illustrates symptoms of the Resource Curse and the general difficulty experienced by citizens in weak societies to play and cooperate well together. It does not however say much about the US cheap energy entitlement and how that attitude has hurt US national security and economic performance over time. America's well earned reputation for killing grandchildren and grandparents in part stems from this ill-advized quest for cheap energy security (sic).

          Jeffrey J. Brown

          Erik,

          I'm not arguing the relative merits of crude oil versus condensate, although distillate yield begins to drop off precipitously over an API gravity of about 40 or so.

          I am arguing that the available data strongly suggest that global crude oil production probably peaked in 2005, while global natural gas production and associated liquids, condensate and natural gas liquids, have (so far) continued to increase.

          In regard to net oil exports, here's the problem: Given an ongoing, and inevitable, decline in production in a net oil exporting country, unless they cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty that the resulting rate of decline in net exports will exceed the rate of decline in production and that the net export decline rate will accelerate with time.

          Nony

          I don't think it makes economic sense to put lease condensate with NGLs and away from crude. NGLs are more gas like, so you can put them with gas if you want instead of oil or just make a third grouping. [But don't forget them! If you cut the total liquid products to being C&C, they still belong somewhere…have use!]

          NGLS are mostly (c2-c4) molecularly pure, separated, gaseous products. [minor amount of C5+ liquid ("plant condensate" obtained at the gas refrigeration separation plant].

          Lease condensate is just the associated entrained liquid oil from a primarily gas well. It is obtained at the atmospheric, three phase separator at the wellhead. Similarly, wet gas is separated from predominantly oil streams. Eagle Ford 47 isn't even coming out of "gas wells" (in terms of phase) but single phase liquid oil wells that are very light. Lease condensate and Eagle Ford 47 look like oil, smell like oil, mess up your Nomex coveralls in a similar manner to 30 API oil. They are each that glorious natural product that contains a soup of hundreds of different molecules, of different lengths, aromaticities, branching. Oh and less sulfur (which makes them BETTER oil) but still with some. Lease condensate also tends to be a bit lower API and more variable in composition versus plant condensate (although higher than oil), but still pretty similar.

          There is a reasonable argument to exclude NGLs entirely from crude time series or at least C3 and C2 from being lumped in with crude. Ethane in theory competes with naphtha and is an occasional substitute (and some crackers are convertible), but given the glut, prices have diverged and started to follow C1 a couple years ago. And like C1, it is quite difficult to transport across oceans. C3 is more exportable, but still has a pretty different market (mostly heating) than premium liquid petroleum products (mostly transport fuels: gasoline, diesel, jet). [In a sense, C1 is a substitute for oil, but it's a pretty weak substitute!]

          So yeah, sure, strip out the NGLs. And throw in the C4 and C5+ with being stripped out, since they are minor…even though ARE mostly used for transport. Either direct gasoline mixing for butane or for C5+ mixed into crude (at refineries or upstream at heavy oil sites) or used as naphtha in crackers (thus competing with a refined liquid stream. But fine keep them all apart.

          But keeping condensate (or Eagle Ford 47 oil) apart from other grades of crude makes no sense. That stuff goes through refineries and makes gasoline…a lot of gasoline, which is generally what the refinery is optimized for. (Other products have value and you go for a global optimum, not a local. Like you don't optimize production of RFO and make little gasoline! Diesel and jet have value of course and at times, pricing of diesel can beat out gasoline, but generally gasoline is top in both value. And certainly in volume (typical refinery cracks some product that could have been diesel to make more gasoline). Just look at Platts prices and the correlation of EF47 and DJ condensate versus WTI. It's the same stuff, but slightly different flavors, man. If you look at it on a world basis (where the explosion of light and super light is export-ban trapped on a continent that wants to refine 28 API), the correlations will be even stronger. But I bet even in the US, you find a very consistent correlation: maybe just look at annual average prices for 2008, 2009, 2014 and 2015 YTD. Condensate belongs with crude, from a supply-demand standpoint. Not with NGLs or with NG.

          Nony

          Here's a link showing Saudi 50 API crude selling in the same setting as other grades of crude (i.e. considered a similar good, not considered an NGL). AND at a premium to medium grade Gulf oil. AND even at a greater premium than other light, but less light oils.

          http://www.bloomberg.com/news/articles/2014-05-04/saudi-aramco-raises-all-june-crude-price-differentials-to-u-s- [scroll down to the header "Asia"]

          [Oct 23, 2015] The Devils Chessboard Allen Dulles, the CIA, and the Rise of Americas Secret Government

          Notable quotes:
          "... Talbot focusses extensively on James Jesus Angleton, the shadowy counterintelligence figure at the heart of the domestic assassinations of the 1960s, and examines the inner-workings of Dulles' ambitious (and dastardly) plot to consolidate and control global political power. "The Devil's Chessboard" is a startling and revelatory masterwork. In terms of easy-to-access assassination research, this book is second only to James Douglass' "JFK and the Unspeakable." In terms of biographies of Dulles and Angleton, two of history's most infamous figures, this work is second to none. ..."
          "... A heretofore unanswered question about the JFK assassination is what was Allen Dulles was doing between the time he was fired by JFK as Director of the CIA in 1961 until the moment of the assassination on November 22, 1963. A related question is how was it conceivable for Dulles to have been appointed to the Warren Commission that eventually produced the conclusions that are still accepted by mainstream historians and the media? Talbot's intensive research helps to shed on light on those questions by tracing the arc of development of the career of Allen Dulles as a high-powered attorney at the center of the elitist East Coast establishment, his shocking collaboration with the Nazis while working in the OSS, and his career in clandestine activities at the CIA ..."
          "... Talbots research probes not merely the activities of Dulles as Director of the CIA, but explores the broader context of his function over three decades as a power broker, whose efforts were directed not against hostile governments but against his own. ..."
          "... the more recent book on Dulles covers the broader scope of how the American government was transformed into the national security state in the years following World War II. Talbots goal in preparing this book is to demonstrate the urgency of coming to terms with our past and how it is essential that we continue to fight for the right to own our history. (p. xii) An excellent place to begin that quest is to own this book. ..."
          Amazon

          J. Roth on October 14, 2015

          A Groundbreaking Resource, Second Only to "JFK and the Unspeakable"

          A tremendous resource of breathtaking depth and clarity. Talbot builds on the now decades-old body of research - initiated by investigative reporters Tom Mangold ("Cold Warrior") and David Wise ("Molehunt"), and largely developed by assassination researchers James DiEugenio and Lisa Pease ("The Assassinations") - and adds groundbreaking new information.

          Talbot focusses extensively on James Jesus Angleton, the shadowy counterintelligence figure at the heart of the domestic assassinations of the 1960s, and examines the inner-workings of Dulles' ambitious (and dastardly) plot to consolidate and control global political power. "The Devil's Chessboard" is a startling and revelatory masterwork. In terms of easy-to-access assassination research, this book is second only to James Douglass' "JFK and the Unspeakable." In terms of biographies of Dulles and Angleton, two of history's most infamous figures, this work is second to none.

          Note: Be wary of one-star reviews for this book. Some trace back to commissioned-review services, the same services that give five-star reviews to shady/suspicious health and beauty products. Go figure.

          James Norwood on October 14, 2015

          The Shadow Government of Allen Dulles: Organized Irresponsibility

          To read this magnificent book by David Talbot is to understand how the JFK assassination occurred and how the truth was concealed by officialdom in the Warren Report. Unlike his brother, John Foster Dulles, the younger Allen Welsh Dulles rarely makes it into American history textbooks. In this extremely detailed study, the singular importance of Allen Dulles is demonstrated as being central to a watershed period in the American Century.

          First and foremost, "The Devil's Chessboard" is a beautifully written and meticulously researched volume. Talbot drew upon archives at Princeton University, where the Allen Dulles papers are housed. He also conducted research in other archives across the country. The documentary work is buttressed and amplified by interviews with the surviving daughter of Dulles, as well as interviews with the children of Dulles' colleagues and over 150 officials from the Kennedy administration. Nearly forty pages of notes serve to document the author's sources.

          One of the most revealing moments about Allen Dulles was when he was ten years old and spending time at the family's lake home in upstate New York. After his five-year-old sister fell into the lake and was drifting away from him, Allen stood stock still, "strangely impassive. The boy just stood on the dock and watched as his little sister drifted away." (p. 19) Fortunately, the child was rescued by the mother. The behavior of young Allen is representative of a lifelong predilection for observing the imponderables of life as an insider while looking to others to "risk their skins." For this little boy, the world was already forming into a chessboard with pawns to manipulate for his self-serving needs. Talbot describes Dulles' rogue actions in allowing Nazi war criminals to avoid prosecution at the Nuremberg Trials in these chilling words: "Even in the life-and-death throes of wartime espionage, Dulles seemed untouched by the intense human drama swirling around him." (p. 120)

          In one of the most riveting moments of the book, Talbot describes an interchange between Dulles and researcher David Lifton at a colloquium on the JFK assassination at the campus of UCLA in 1965. Lifton came prepared to challenge Dulles on major deficiencies of the Warren Report. By the end of the evening, the students attending the session were more interested in Lifton's findings than Dulles' unsuccessful attempts to deflect the tough questions. In retrospect, Lifton apparently claimed that he "was in the presence of 'evil' that night." (p. 591)

          A heretofore unanswered question about the JFK assassination is what was Allen Dulles was doing between the time he was fired by JFK as Director of the CIA in 1961 until the moment of the assassination on November 22, 1963. A related question is how was it conceivable for Dulles to have been appointed to the Warren Commission that eventually produced the conclusions that are still accepted by mainstream historians and the media? Talbot's intensive research helps to shed on light on those questions by tracing the arc of development of the career of Allen Dulles as a high-powered attorney at the center of the elitist East Coast establishment, his shocking collaboration with the Nazis while working in the OSS, and his career in clandestine activities at the CIA

          Talbot's research probes not merely the activities of Dulles as Director of the CIA, but explores the broader context of his function over three decades as a power broker, whose "efforts were directed not against hostile governments but against his own." (p. 3) Talbot cites revelations from the Columbia University sociology professor C. Wright Mills about the secret government of Allen Dulles, which was comprised of a "power elite" and based on the anti-Constitutional premise of "organized irresponsibility."

          In many ways, "The Devil's Chessboard" is a companion volume to Talbot's essential study "Brothers," which focuses on the relationship of John and Robert Kennedy, the assassination of JFK, and the aftereffects on RFK. But the more recent book on Dulles covers the broader scope of how the American government was transformed into the national security state in the years following World War II. Talbot's goal in preparing this book is to demonstrate the urgency of coming to terms with our past and how "it is essential that we continue to fight for the right to own our history." (p. xii) An excellent place to begin that quest is to own this book.

          [Oct 23, 2015] Unemployed and Older, and Facing a Jobless Future

          Notable quotes:
          "... "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity. I still look for jobs, but I feel better about myself." ..."
          "... More and more I have to accept this is the Third Act in Life and working for a traditional company in a traditional job is no longer a reality ..."
          "... Without real income, you eventually become another victim of our perverse, experience-averse corporate economy. ..."
          Jul 26, 2013 | The New York Times

          For those over 50 and unemployed, the statistics are grim. While unemployment rates for Americans nearing retirement are lower than for young people who are recently out of school, once out of a job, older workers have a much harder time finding work. Over the last year, according to the Labor Department, the average duration of unemployment for older people was 53 weeks, compared with 19 weeks for teenagers.

          There are numerous reasons - older workers have been hit both by the recession and globalization. They're more likely to have been laid off from industries that are downsizing, and since their salaries tend to be higher than those of younger workers, they're attractive targets if layoffs are needed.

          Even as they do all the things they're told to do - network, improve those computer skills, find a new passion and turn it into a job - many struggle with the question of whether their working life as they once knew it is essentially over.

          This is something professionals who work with and research the older unemployed say needs to be addressed better than it is now. Helping people figure out how to cope with a future that may not include work, while at the same time encouraging them in their job searches, is a difficult balance, said Nadya Fouad, a professor of educational psychology at the University of Wisconsin-Milwaukee.

          ... ... ...

          Sometimes simply changing the way you look at your situation can help. My friend Shelley's husband, Neal, who also asked that I use his middle name, said the best advice he received from a friend was "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity. I still look for jobs, but I feel better about myself."

          He also has friends facing the same issues, who understand his situation. Such support groups, whether formal or informal, are very helpful, said Jane Goodman, past president of the American Counseling Association and professor emerita of counseling at Oakland University in Rochester, Mich.

          "Legitimizing the fact that this stinks also helps," she said. "I find that when I say this, clients are so relieved. They thought I was going to say, 'buck up.' "

          And even more, "they should know the problem is not with them but with a system that has treated them like a commodity that can be discarded," said David L. Blustein, a professor of counseling, developmental and educational psychology at the Lynch School of Education at Boston College, who works with the older unemployed in suburb of Boston. "I try to help clients get in touch with their anger about that. They shouldn't blame themselves."

          Which, of course, is easy to say and hard to do. "I know not to take it personally," Neal said, "but sure, I wonder at times, what's wrong with me? Is there something I should be doing differently?"

          It is too easy to sink into endless rumination, to wonder if he is somehow standing in his own way, like a cancer patient who is told that her attitude is her problem, he said.

          Susan Sipprelle, producer of the Web site overfiftyandoutofwork.com and the documentary "Set for Life" about the older jobless, said she stopped posting articles like "Five Easy Steps to get a New Job." "People are so frustrated," she said. "They don't want to hear, 'Get a new wardrobe, get on LinkedIn.' "

          As one commenter on the Facebook page for Over Fifty and Out of Work said, "I've been told to redo my résumé twice now. The first 'expert' tells me to do it one way, the next 'expert' tells me to put it back the way I had it."

          Some do land a coveted position in their old fields or turn a hobby into a business. Neal, although he believes he'll never make as much money as in the past, recently has reason to be optimistic about some consulting jobs.

          But the reality is that the problem of the older unemployed "was acute during the Great Recession, and is now chronic," Ms. Sipprelle said. "People's lives have been upended by the great forces of history in a way that's never happened before, and there's no other example for older workers to look at. Some can't recoup, though not through their own fault. They're the wrong age at the wrong time. It's cold comfort, but better than suggesting that if you just dye your hair, you'll get that job."


          Flatlander, August 5, 2013

          Age discrimination is a sad reality today and always has been. It is also very difficult to prove in a legal action. From what I have heard,...

          Jay, August 5, 2013

          Ok, I took some knocks on this, one that I deserve. I really do feel badly for the guys that didn't make it. I was wrong on that one. Yes,...

          Walter, August 5, 2013

          This is a great article. I'm in this situation but worse. Trying to entice myself to nowadays corporations I went and enrolled in a MBA program and got myself into a $40K student loan debt. I had already paid my previous loans long time ago so I figure, if I update myself educational-wise and prove these people that my mind is still fresh and sharp at a high level that I could raise my chances.

          Now, I am 56 and I still cant get a job. Taking a minimum wage position is out of the question for me since all my salary would actually go to pay my debt and I would not have money even for transportation back and forth to work.

          What I find amazing is that employer are failing to understand that old folks like us would really appreciate the opportunity and work harder to try to excel than probably any of nowadays young kids, that, like the article mentioned, are more prone to leave the company to get promotions. I keep telling my friends that I would even sign a contract guaranteeing that I would work for them until the day I die or retire.

          I like the idea presented by one of the readers here that the government should provide some kind of economic incentive in the way of lower taxation for businesses that hire people over 50. They do it for career criminals. Why not for qualified and educated/trained people.

          This is totally age discrimination and it is a federal offense. However, I try that channel also and I got no response from the Labor Dept. I thank the NYT for bringing this up.


          Jovality, Las Vegas, NV. August 5, 2013

          I'm 57 and have or had been employed in the high tech industry for over 25 years with never a period of more than two weeks unemployment until now. During that time I rose from a software developer to product manager, to VP of Sales and Marketing. I was laid off from that position at the end of 2012, but luckily I was able to reach out to an old colleague who was able to sneak me into a marketing position in his company at less than half my previous salary.

          I was surprised by the younger people's reaction to me. They said things to me I had to take as compliments such as, "You're really cool for an older guy." "I would never expect someone your age would know so much or be so talented".

          Unfortunately the company had a major layoff which I was caught in. Now I am like many of the others who have posted her, "A ghost with a resume". Since being laid off in June of 2013 I have sent out 100's of resumes with only a very limited response.

          More and more I have to accept this is the "Third Act in Life" and working for a traditional company in a traditional job is no longer a reality. It's time to take the vast experience and talents I've built up or an entire career and use them to open my own business. It's a frighten challenge to be sure.

          But as someone once told me there is only one real form of security in life, when life knocks you down you must have the drive and self-confidence to get up handle the situation and both survive and succeed.

          Jon K. Polis, East Greenwich, Rhode Island August 3, 2013

          Bohemienne: In answer to your question; look up the movie " Soylent Green " from 1973, that starred Charlton Heston and Edward G. Robinson....and see what fate be-fell Mr. Robinson's character....if our government today offered me the same options/opportunities to me that they offered to him; I would take advantage of them in a heartbeat...

          Glenn, Cary, NC July 31, 2013

          "People's lives have been upended by the great forces of history...."

          Nonsense. People's lives have been upended by soulless capitalists and their lackeys in Congress (read Republicans). There are no great forces of history at work here, just good, old-fashioned GREED.

          Rhea Goldman, Sylmar, CA July 31, 2013

          I find it strange, very strange indeed, that all of us have so easily accepted our plight of hardship. Have we been so cowed that collectively we take no action to put a stop to this harsh treatment from employers? Re-read Dickens' Christmas Carol.....we are allowing the economics of the United States to make Bob Cratchets of us all.

          J. Campbell, Chicago, IL July 31, 2013

          I'm amazed that an article from the NYT (to which I subscribe) actually suggests that people in their 50's who are unemployed can somehow just "accept that they may *never* work again". How could we live? What legal source of income could we obtain that would bridge us to Social Security (even for those of us eventually eligible for SS retirement)? What are the people responsible for this article (including the NYT editors who released it) thinking? What if someone suggested that *they* accept a future where they never worked again, and had no income?

          If there were several major American riots, that involved hundreds of thousands of unemployed people (a fraction of the millions of current long-term unemployed in the US), the NYT would be out front in demanding that order be restored *at any cost*. Where is the mainstream press demand that *economic stability for the working class* be restored at any cost?

          Or do you think, because of our current corporate/NSA state, such riots are impossible? If so, look at Europe--right now.

          Sam, Florida July 31, 2013

          My husband was just laid off due to company merger. His entire department was eliminated. The only good news, is that we've been expecting the lay off for about a year or so, as such we had time to prepare. We also, have worked very hard to get our finances in order since we got married. We killed all our unsecured debt in 2007, $55,000+, and we have saved a good chunk every year since then. I'm still working on our lay off budget, but I hope that we will be able to cover our regular monthly expenses on my salary.

          http://adventures-of-sam.blogspot.com/

          Glenn, Cary, NC August 3, 2013

          Been there. Done that. It didn't work. The money disappeared - slowly but surely. Without real income, you eventually become another victim of our perverse, experience-averse corporate economy.

          MJ, New York City August 5, 2013

          Actually, it is possible to live on one salary. Best way is to start early on in the marriage, keeping your first home rather than moving "up." Even if you have moved "up" it is possible and no shame at all to move "down." It is a brave journey and takes real guts, but in many cases it can be done.

          Sam, Florida July 31, 2013

          In addition to the costs to the individual and the families, their is a cost to society. Obviously there is a cost to support many of these people in their later years, but there is also an uncalculated cost to workers in their peak earning years, the height of their careers falling out of the job market.

          There is a cost to society to lose this knowledge, to losing their mentoring and training skills for the next generation, to losing their consumer spending power, etc.

          Melanie Dukas, Saugus, mass July 31, 2013

          I am 59 years old, and I lost my job during the high tech bust in 2002 as marketing communications manager at a fiber optic start-up. In Massachusetts, this was for many of us worse than the Great Recession. At the height of my career at 48 years old, I was determined to get a job and interviewed for 5 years. I drove a taxi and limo 6 days a week, but still couldn't make ends meet, so I moved in with my parents 5 years ago and started my own business developing websites and marketing. I just couldn't take interviewing anymore! It was like heartbreaking, kind of like dating - I would go on the interview and get so excited and they never called.

          It's been a long road, but at I am happy to be working in my field and making a living. Luckily, I had done this before and although I would have preferred to work at a company full time, at my age in marketing the jobs are few are far between and I need to work for the rest of my life because I have no retirement. Even if I get a job, it is unlikely to last and then I would be back in the same boat. Now I am in.

          Henry, New York July 31, 2013

          I think people must understand that the nature of WORK is changing. - In the past you worked from 9-5 for a Company and as long you performed adequately you continued on your Job...

          Well, welcome to the New Economy ...

          Companies can no longer afford to Hire all the people they need "full time" people. The cost is becoming prohibitive, especially if you add on the benefits costs ( avg. est. 30 % above salary).

          In the future, I believe most people will become Independent Contractors and/or work on a Part-time basis - to be utilized when needed and working Jobs or "Gigs" for many different employers- with periods of " downtime."

          This type of flexible Work will, soon become the mainstay. Therefore the "grayling" workforce must adapt and think and plan accordingly. - In fact, there are many Employment Firms or " Headhunters" who are already adapting this model. - and as the Baby Boomers retire en masse, they will be looking for people since, in my opinion, there will not be enough "younger" to fill all the jobs needed.

          Splenetix, Muskegon August 3, 2013

          The conversion of full-time workers into freelancers is an exploitation of capitalism, forcing you to waste your time self-marketing and administering. You won't have any of the scales of economy that larger businesses enjoy so you won't be competitive.You won't succeed, you won't be able to manage and get the work done. It's all about worker repression.

          [Oct 23, 2015] Workers over 50 are the new unemployables

          Notable quotes:
          "... Older workers were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute study published last year. ..."
          "... The point made in several articles of this nature revolve around lack of knowledge and experience with newer technologies. In an effort to address this issue, I went back to school (again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that my education is of no value since I do not have the requisite 'Real World' experience using these newly acquired skills. ..."
          Feb. 26, 2013 | money.cnn.com
          On one hand, they're too young to retire. They may also be too old to get re-hired.

          Call them the "new unemployables," say researchers at Boston College.

          Older workers were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute study published last year.

          "Once you leave the job market, trying to get back in it is a monster," said Mary Matthews, 57, who has teetered between bouts of unemployment and short temp jobs for the last five years. She applies for jobs every week, but most of the time, her applications hit a brick wall.

          Employers rarely get back to her, and when they do she's often told she is "overqualified" for the position. Sometimes she wonders: Is that just a euphemism for too old?

          Her resume shows she has more than 30 years of experience working as a teacher, librarian, academic administrator and fundraiser for non-profits.

          "I've thought about taking 10 years off my resume," she said. "It's not like we're senile. The average age of Congress is something like 57. Joe Biden is 70. Ronald Reagan was in his 70s when he was president. So what's the problem?"

          ... ... ...

          About 23,000 age discrimination complaints were filed with the Equal Employment Opportunity Commission in fiscal 2012, 20% more than in 2007.

          Proving discrimination is next to impossible, though, unless it's blatant.

          "It's very difficult to prove hiring discrimination, because unless somebody says, 'you're too old for this job,' you don't know why you weren't hired," said Michael Harper, a law professor at Boston University.

          Related: Am I too old to be hired?

          EconomistNC, May 5, 2015

          As a former public servant teaching University Level Econometrics for nearly 15 years and possessing numerous 'Excellence' awards, this development is nothing short of shameful. I have had dozens of recruiters and HR 'specialists' debase my public service as not being 'Real World' experience despite the fact that without my commitment to 'Real World Applications' education, many of those with whom I apply for employment would not hold a college degree. Indeed, I find many of the hiring managers with whom I speak regarding positions for which I have both technical and applications experience, there is impenetrable discrimination once they meet me in person.

          The point made in several articles of this nature revolve around lack of knowledge and experience with newer technologies. In an effort to address this issue, I went back to school (again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that my education is of no value since I do not have the requisite 'Real World' experience using these newly acquired skills.

          Indeed, to meet the criteria for many positions I find open requires that I be a 'recent college graduate.' When I point out that I have been continually retraining and taking online courses to keep my IT skills current, I am once again met with the lack of 'Real World' experience requirement. For a society that purports itself to value education and hard work, for those among us that have worked very hard for substandard pay and benefits to be so casually cast aside is absolutely inexcusable.

          Paul Stukin, Apr 24, 2015

          This is nothing new, especially if you are in IT. I was laid off from IBM in August 2001, then 9/11, and the bottom fell out of the jobs market. I have not worked in IT since. I truncated my resume to show the last 10 years of "relevant" experience and then got interviews, but never the job.

          DJM22, Apr 24, 2015

          @Richard Thwaites

          Where does this group turn; what is this demographic to do. For instance in my case based on the type of work I've done for a lifetime I've been laid off a total of 5 times. The monies you've had saved during these periods had to be used for survival and take care of family. No it wasn't wasted.

          But now boomers are going into that area where as they are tooyoung to retire in order to just obtain social security. And then this won't be a whole bunch.

          Are we suppose to give up everything we've worked for and live a less than mediocre livelihood? That's a good 10/15 years away. Then they will say next how the boomers are becoming more of a problem and mooching in order to survive. I'm not suggesting hand outs, but if ageism is going to be the problem for boomers then boomers need to press somewhere, someone, something so we don't end up with problems that will become even more major problems. What a way to end your career and what a legacy to leave your children.

          Look at all the characters in our government. None of them worked, simply kept chairs warmed and signed papers they were told to sign and as stated they're up in their 70's + and have enough money to aid their next 10 generations and the normal joe can't even complete his generation.

          [Oct 23, 2015] The unemployed and over-50 need help

          Notable quotes:
          "... The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing. When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no penalty for it in these times. ..."
          May 15, 2013 | MarketWatch.com

          When the most recent employment report was released, PBS NewsHour presented a segment on a group of people over 50 who had been out of work. The participants said that employers had little interest in even talking to them. Sometimes, when applying for jobs, these older applicants deleted up to 15 years of experience from their resumes to get through the door, but as soon as the interviewers saw how old the applicants were, their faces dropped and they cut the interview short.

          ... ... ...

          Add to this mix the results of a recent study that explored the relationship between the number of weeks of unemployment and the likelihood of receiving a callback after submitting an application. The researchers submitted fictitious resumes to real online job postings in each of the largest U.S. metropolitan areas. They sent roughly 12,000 resumes to roughly 3,000 job postings in sales, customer service, administrative support and clerical job categories. They tried to make their fictitious resumes look as close as possible to real resumes posted on job boards. In some cases, the resumes showed the applicant as currently employed, in other cases as unemployed for spells of between one and 36 months. They found that the callback rate sharply declined during the first eight months of unemployment – from 7% to 4% – and then stabilized. This 45% decline compares to the results of another study where black-sounding names received 33% fewer callbacks than white-sounding names.

          ... ... ...

          The problem is that when the stigma of being unemployed is added to the stigma of being old, the chance of getting a job becomes very, very small. This outcome is not only unfair, but also wasteful from a national perspective as a substantial amount of experience and talent goes unused. Extended periods of unemployment also destroy the lives of the individuals affected. They use up their savings, they tap their 401(k)s, they sell their homes, and then they are left with nothing. And the number of older unemployed workers is large. As of 2012, almost 2 million people over 50 had been unemployed for more than six months; 1.3 million for a year or more. We need a jobs corps for these individuals and we need it fast.

          Robert E. Pin, May 15, 2013

          I applied for one of the numerous jobs online and they asked point blank - what year did you graduate HS? OMG! It was a required field so it was either lie, or put 1979. I felt it was good Karma to say the truth.

          So hard to prove age discrimination in this case but boy would I love to give them a piece of my mind.

          Doc y, May 15, 2013

          @Brady White What would it do to your karma if you told them you were a child prodigy and graduated at six years old? Also, for the math challenged, I often give my age as 28 years old, when counting in base 20.

          Sort of like there are 10 types of people: Those who understand binary and those who don't.

          Wayne MacNeil, May 15, 2013

          Bravo Alicia. Finally someone who understands what is going on. Only the numbers are probably much higher. Age discrimination is supposed to be against the law. This needs to be enforced just as strongly as discrimination against women or religion. There is a crisis in unemployment for those over 50. Many of these people are the best educated and would be among the most capable workers in the country. Someone has to pave a path requiring companies to employ older capable workers. This is criminal and as mentioned by the author is destroying people, families, retirements. People who have been productive for 30 years are losing everything. And younger workers dont seem to get it. If they dont stand up to this - their time is coming too.

          People think they will need to work until they are 70 to pay their debts. The shock comes when the system wont let the majority work after they are about 50.

          Rainier Rollo, May 15, 2013

          Wayne -- I once asked a friend in her late 50s who was lamenting her long term unemployment how many people over the age of 40 she hired when she was in a position to hire --- the answer was ZERO. So don't just say that today's young people are afflicted with this way of looking at people. Most of those now unemployed 50+ in poisitons of hiring also passed over older candidates.

          Lois Land, May 15, 2013

          In that PBS segment, it was amazing to watch that university woman (clearly over 60) talk about how people become less productive after the age of 40.

          Then doesn't she owe it to the university to resign/retire? Or does she think she's special/different?

          I might be special/different too. I'm 64 and I've never been sharper or more productive.

          Doc y, May 15, 2013

          @Lois Land I hate to admit it, but something that has enhanced my productivity now that I am 50+ is I no longer have to leave work to attend kids' events, or take them to their appointments, etc. I miss my children very much, but they are grown and on their own. I loved doing stuff with them, and I made their activities my number one priority while they were growing up. Being laid off three years after the youngest left home was never in the financial plan, and like others on this site, employers have not been breaking my door down to come work for them.

          The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing. When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no penalty for it in these times.

          richard harris, May 15, 2013

          The root cause of massive unemployment in the over 50 crowd is legal immigration. The 2010 census reported 40 million legal immigrants were residing in the US. These 40 million immigrants translate to about 24 million potential workers. The real unemployment level is 23 million people. Thus the real unemployment level of 23 million people is approximately equal to the work force inflation caused by legal immigration.

          Thus the only hope for the over 50 chronically unemployed is to ban all further legal immigration.

          [Oct 22, 2015] Felix Zulauf Bear Market Is Coming Soon

          Zulauf this that this is bear market rally and the slide will resume the next year. His forcast is at the beginning of the video clip. He expects S&500 drops to 1600 the next year.
          Notable quotes:
          "... Zulauf says he expects a global stock swoon next year. ..."
          finance.yahoo.com

          Speaking at Barron's Art of Successful Investing conference, Zulauf says he expects a global stock swoon next year. He sees short-term gains for e-commerce beneficiaries Amazon, Facebook and Google; longer term, hold bonds.

          James 37 minutes ago

          "What the American people cant take is their government not being square with them"

          When the #$%$ have they EVER been square with us...the hypocrisy in this statement hurts my brain

          [Oct 22, 2015] Peak Oil is a Function of Oil Price

          Notable quotes:
          "... The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar. ..."
          "... My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way. ..."
          "... In hindsight, our view on peak oil was pretty naďve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected. ..."
          "... "Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized. You can't talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like ..."
          "... ... ... ... ..."
          "... we can say with a pretty high degree of certainty "The world has passed peak $20 oil." ..."
          "... That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn't a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices. ..."
          "... But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe ..."
          "... When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up. ..."
          "... This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. ..."
          "... While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices. ..."
          "... At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. ..."
          "... What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. ..."
          "... Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldnt use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. ..."
          "... You are right as far as the EROEI of oil is concerned, but I believe that Joes comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. ..."
          "... Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the worlds historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubberts models. ..."
          "... One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such. ..."
          "... I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the worlds oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like? ..."
          "... I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the oceans depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient. ..."
          "... Climbing for decades would not make PO bunk , it would only make Hubbert´s estimate a bit more inaccurate and drag the decline out by a generation. ..."
          "... But even ignoring climate for a second: Humans have not evolved much in the past millennia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again. ..."
          "... Isnt it so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? That would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel.... ..."
          "... The global economy can not afford $100/bl oil and producers can not increase production without it. It is debt that has filled the void and that too is peaking. Next will be peak population. ..."
          "... I agree that the issue with Peak Oil isnt that were going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online. ..."
          "... If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment. ..."
          "... And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you? ..."
          "... I think thats going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world. ..."
          "... The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups. ..."
          "... what you wrote above hit me: Its such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption. ..."
          "... Peak oil isnt just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability. ..."
          www.energytrendsinsider.com

          The Origins of Peak Oil Awareness

          The scientific study of peak oil began in the 1950′s, when Shell geophysicist M. King Hubbert reported on the evolution of production rates in oil and gas fields. In a 1956 paper Hubbert suggested that oil production in a particular region would approximate a bell curve, increasing exponentially during the early stages of production before eventually slowing, reaching a peak when approximately half of a field had been extracted, and then going into terminal production decline.

          Hubbert applied his methodology to oil production for the Lower 48 US states and offshore areas. He estimated that the ultimate potential reserve of the Lower 48 US states and offshore areas was 150 billion barrels of oil. Based on that reserve estimate, the 6.6 million barrels per day (bpd) extraction rate in 1955, and the 52.5 billion barrels of oil that had been previously produced in the US, Hubbert's base case estimate was that oil production in the US would reach maximum production in 1965. He also estimated that global oil production would peak around the year 2000 at a maximum production rate of 34 million bpd.

          Hubbert calculated a secondary case that if the US oil reserve increased to 200 billion barrels (about which he expressed doubts), peak production would occur in 1970, a delay of five years from his base case. Oil production in the US did in fact peak in 1970, so Hubbert is widely credited with precisely calling the US peak, but few know that he was actually skeptical that the peak would take place as late as 1970.

          The US has now surpassed Hubbert's most optimistic estimate for US oil production. Through 2014, cumulative US production stands at ~ 215 billion barrels, with a remaining estimated proved reserve of 48.5 billion barrels (but with the caveat this reserves estimate is based on crude prices near $100/bbl).

          The Modern Peak Oil Debate

          In the ensuing decades since Hubbert's original work, discussion of peak oil ebbed and flowed. But the modern peak oil debates really heated up a decade ago. In 2005 the late Matt Simmons, an investment banker to the oil industry, published Twilight in the Desert. The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar.

          ... ... ...

          Peak Oil Camps

          At one extreme of this debate was the camp that believed peak oil was happening at that time (~2005), and that it was going to spell the end of civilization. This camp was often referred to as "doomers", because they believed that humanity was doomed. (And many haven't changed from that position). At the other extreme were those who believed technology could continue to squeeze ever more oil out of the ground. This camp was sometimes referred to as the "technocopians."

          Most of us were somewhere in the middle. In 2005 I felt like we still had a few years to go before we reached peak oil. My general position was that we were 3-5 years away at that time, and I spent a lot of time debating the evidence with the imminent peakers. I wrote a number of articles addressing the topic of peak oil (e.g., Five Misconceptions About Peak Oil). My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way.

          Overconfidence in these discussions over peak oil (and peak natural gas) was prevalent. For instance, in 2003 Matt Simmons predicted, with "certainty," that by 2005 the US would begin a long-term natural gas crisis for which the only solution was "to pray." This sort of confidence was prominent in the debates. If you had argued at that time that by 2015 US and world oil production would be where they are today, you would have been deemed certifiably insane.

          In hindsight, our view on peak oil was pretty naďve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected.

          I had this idea bouncing around my head that higher prices would spur more oil production, but I agreed with those who argued that there were limits to this and we had to take steps to address the risks. The limits wouldn't necessarily be technological, but would rather depend on the amount of energy required to extract and process the oil. At some point it simply becomes too energy-intensive, and even if you are using a cheaper source of energy to do the extraction, there comes a point that the cost of energy inputs exceeds the cost of energy extracted. Since the energy inputs and outputs are related via price, it's a pretty good argument.

          It's Not That Simple

          Jeff Rubin - the former chief economist at CIBC World Markets - eventually crystallized in my mind the relationship between peak oil and oil prices. I saw Rubin give a presentation in 2011, and he said something like "Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized. You can't talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like

          ... ... ...

          ,,,the bottom line is that there is a lot of oil that will come online at higher oil prices. How much is truly unknown, but it is estimated to be in the 10′s of millions of barrels per day. (For those who believe this is unlikely, think back to 2005 and how much chance you would have given for the current levels of oil production). Similar graphics have been produced for the break-even price in shale oil plays, and the message is similar: Higher oil prices will spur oil production in more marginal areas.

          So we should really talk about peak oil as a function of oil prices. In that case, we can say with a pretty high degree of certainty "The world has passed peak $20 oil." If we could magically freeze the price of oil at $20, we would see the sort of peak that the imminent peakers projected. That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn't a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices.

          But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe we have past peak $50/bbl oil.

          The peak oil story turned out to be more complex than most of us who were debating it could have imagined back in 2005. What many thought was peak oil at that time was just one more cycle in the gyrations of the oil industry. When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up.

          But what we have seen in this most recent cycle is that the trough isn't as deep as it has been in the past. This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. The world is highly unlikely to return to an era of $20 oil. The floor has moved higher. Peak oil has moved past the $20 threshold, and most likely the $50 threshold.

          ... ... ...

          Link to Original Article: Peak Oil is a Function of Oil Price

          Joe Clarkson a month ago

          While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices.

          At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. If so, we will know that we have passed peak oil when oil prices again rise to record highs (over $100/bbl) and production fails to respond and exceed the volumes that were produced the last time oil was $100/bbl.

          What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. If they haven't happened already for other reasons, debt deflation and financial panic will then exacerbate all our other resource depletion predicaments. It won't be pretty.

          Robert Rapier Mod Joe Clarkson a month ago
          "people can afford to pay is a function of the EROEI of oil extraction."

          Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldn't use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. So EROEI is something that tells us about the relative efficiency, but it doesn't address the economics. Nor does it include a time factor. I could run a society on a process with an EROEI of 1.1 -- as long as I returned that on a daily basis.

          Advocatus Diaboli -> Robert Rapier a month ago
          Robert,

          "You wouldn't use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline."

          You are right as far as the EROEI of oil is concerned, but I believe that Joe's comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. Your example assumes that coal will continue to have a much higher EROEI than (marginal) oil, but to the extent oil needs to be cross-subsidized in energy terms, it ceases to be an energy source to the economy, it just becomes an expensive energy carrier. And the more we subsidize oil with coal (in energy terms), the faster will the EROEI of coal decline and more of society's resources will have to be invested in the energy sector.

          "I could run a society on a process with an EROEI of 1.1 -- as long as I returned that on a daily basis."

          Let's assume you can run your economy on the "right kind of energy" (let's call it gasoline) that has an EROEI of 1.1 I.e., every day you need to invest one unit of this energy to get 0.1 unit available to (and sufficient for) the rest of the economy. But if you need three units of the "wrong kind of energy" (coal) to produce one unit of this gasoline (meaning that gasoline has an EROEI of 1/3, i.e. it is not a net "source" of energy) and the actual process you are running the economy on (coal production) has an EROEI of 1.1, then returning that every day would only give you 1/30 units of gasoline a day, which is only a third of what you need for the rest of the economy. You would therefore have to return the 1.1 coal energy not on a daily basis, but every 8 hours to get your fix of gasoline. That would mean having to triple the throughput of coal, meaning three times more mines, rail transport, power capacity, etc.

          Joe's argument may have been simplistic, but I think it is clear that there are limits that monetary cost cannot represent. Measuring the price of oil in dollars seems to assume that somehow dollars can represent a value independent of the cost of oil, which is questionable. Higher oil price cannot postpone peak oil indefinitely, as it can just crush society's ability to maintain the complexity needed to maintain (let alone increase) oil production from increasingly difficult places.

          davidgmills1 -> Glen McMillian 24 days ago
          I guess its high time on this board that people learn about Liquid fluoride thorium reactors (maybe you do but you don't act like it). This was the nuclear power we should have had and never got because a decision was made by the US government to breed Uranium 238 instead of breeding Thorium 232. We proved at Oak Ridge that breeding 232 was feasible. But Uranium 238 won out because it could be used to make bombs easily while breeding thorium couldn't make bombs easy. Using uranium we got a two-fer. But a number of Uranium 238 breeder reactors were built and no one ever made them work successfully. By then though, the Oak Ridge program had been shut down and all of the developers of the program were either dead or retired.

          People need to know that this form of energy is available to us, and it is capable of powering the world for thousands of years.

          Ten major attributes of thorium:

          http://energyfromthorium.com/2...

          Solar and wind are fine for many applications, but if you want to power ships or go to deep space or even colonize the moon or other places, there are many times they just don't work.

          Russ Finley -> davidgmills1 24 days ago
          We can't hang our hats on unproven technology, but we certainly should be trying much harder to prove it. These reactors are not a done deal:

          http://euanmearns.com/molten-s...

          This is the kind of technology the Google Engineering team was talking about when they concluded that we don't have the weapons to fight climate change.

          http://www.energytrendsinsider...

          davidgmills1 -> Russ Finley 24 days ago
          We ran a reactor for 20,000 hours in the 60's and 70's. It would not take that much to get them going again if we had the will. I would say that 20,000 hours was a pretty good start at proving the technology.

          And I looked at Euan Means' article. It clearly does not address LFTRs. LFTRs run in the thermal spectrum, not the fast spectrum.

          The reason uranium breeders were not successful is that they ran in the fast spectrum, which has a target 1/25 the size of the thermal spectrum's target that a neutron has to hit.

          It is much easier to breed fertile elements when having a neutron hit a target 25 times as big and splitting an atom 2/3 of the time than it is to hit a target 1/25 the size and splitting the atom 90% of the time. That is the difference between breeding in the thermal spectrum and the fast spectrum. The people who wanted to breed uranium believed uranium could be bred in the fast spectrum. It proved to be very difficult.

          Only thorium breeds in the thermal spectrum. Uranium does not. Breeding thorium was much easier and consequently it is not surprising we were able to do it at Oak Ridge for 20,000 hours.

          The only thorium reactor discussed in Means' article runs in the fast spectrum. Euan Means' article proves he does not know what LFTRs are and consequently his article is not a valid analysis of LFTR's capability.

          Rob Andrews a month ago
          Peak Oil is also a function of demand, if alternate energy sources create an energy price that is lower than the $20 peak oil price you may end up with a lot of trapped oil that not extractable. Of course research on both sides seeks innovation to beat the floor price of the competition

          davidgmills1 -> Robert Rapier 24 days ago

          Maybe not today. But China has begun work on Liquid Fluoride Thorium Reactors which we pioneered in the 60's. They hope to have one operational by 2020.

          See my post about 4 comments above and the link I cited.

          If the world starts to make them in the 2020's, by 2035 or 40, the world will drastically change from what it is now. The thorium age will be vastly different from the fossil fuel age.

          Ed Dodge a month ago
          Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the world's historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubbert's models.

          There are more unconventional resources to be tapped, so reserves can continue to grow. Tight oil recovery rates are very low with huge margin for improvement. CO2-EOR opens up billions of barrels, methane hydrates are massive and yet to be tapped (gas not oil but the point remains), and synthetic fuels can be produced from coal, biomass and garbage.

          I agree that prices drive development, and obviously environmental concerns are huge, so we must be smart and manage carbon emissions and everything else, but we are certainly not about to run out of hydrocarbons though they would not be as cheap as they once were.

          Robert Rapier Mod Ed Dodge a month ago
          "Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models..."

          He was WAY off on his numbers. He vastly underestimated future production rates. So his peak predictions are based on production rates that were much lower than they actually were. If he had plugged in what the numbers actually ended up being, he would have forecast peak years earlier than he did.

          Cracker -> Robert Rapier 21 days ago
          Robert, I suspect he underestimated reserve growth (increase of proven reserves over time) in US oil over those decades, as well. Variables and unknowns are why long term numbers are seldom correct.

          One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such.

          I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the world's oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like?

          Forrest 18 days ago
          Would it be more accurate to say oil production is a factor of price? As the market will be energized by future profits that in turn will spur innovation, technology, investment, R&D, tax incentives, etc..

          I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the ocean's depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient.

          I can think of no reason the petrol fossil fuel supply will run out. It will get more expensive, but the earth makes a good storage container as such the supply will quietly and safely sit in place until needed. I remember reading of natural gas reserves of 100 or 200 years out, depending on exports and consumption.

          That's the known (current) recoverable reserves of which should increase. Also, coal was rated the same. Maybe GW concerns will eliminate or limit the fuel source, but the enthusiast of such planet killing phenomenon seem to be fickle bunch that only concern themselves with political leadership and solutions of their choosing. For example they claim corn ethanol is worse than gasoline per CO2. The EPA follows suit with outdated data and unproven penalties and utilize illegal rule governing power to limit the production of the fuel. Contrast this with Energy department's evaluation of ethanol fuel upon GW very positive as compared and gaining strength wile the EPA buries it's head to avoid reality check. Think of the taxpayer cost and politics invested to promote wind and solar energy without accurate analysis and comparison. Think of the same costs and quality of evaluations of BEV. Then compare the taxpayer cost of the ethanol fuel solution and hydro power already in the position of solving problems and reducing cost. What's the holdup if as they say GW will destroy the planet. Shouldn't environmentalist be shouting for joy, for example, that a new auto company utilizing all American built material is about to debut it's 2016 production and drive a spike in auto pollution problems. A simple low cost safe and reliable auto that's rated at 84 mpg. A $6,800 vehicle that needs no taxpayer subsidy and should replace a large segment of the used car market. A market of 90 million clunkers that average less than 20 mpg. I don't hear shouts of joy? Why is that? You could double the GW emission benefit of this vehicle with mid level blend ethanol fuel. An easy move up to E85 fuel engine that would decrease carbon pollution 85% if fueled with cellulosic ethanol. The Energy Department's rating of Miscanthus grass ethanol drives the carbon rating to negative. Meaning you actually improve. Shouts of Joy per not needing horrendous taxpayer investment and no need to lose citizen and private market freedoms per government regulation should soon spout. Don't hold your breath as they will attempt to kill such solutions not aligned with their ideals.

          Optimist 20 days ago
          More to the point, Peak Oil is bunk, thanks to markets.

          When production dips below demand, price increases until either demand drops or supply increases (or both). May take months or years, but that's inevitably how it works. There are many options for adding to liquid fuel supply that have not even been seriously explored and therefore remains available as future options, including gas-to-liquid, coal-to-liquid, biomass-to-liquid, etc.

          The main threat to the system are foolhardy politicians, a species that seem to be out-breeding the other kind at a most disconcerting rate. When, and only when, one of these dimwits attempt to put a ceiling on fuel prices, shortages ensue.

          At least we still have Nixon to kick around, jackass...

          Advocatus Diaboli -> Optimist 18 days ago
          Are you suggesting that the Earth has infinite reserves of oil? If there is no peak oil, then oil production would need to increase monotonously forever. That is only possible if the Earth has infinite amounts of the stuff. The volume of the Earth is finite, and most of it is not oil (consider the core, the mantle, most of the crust, etc.).
          TimC -> Advocatus Diaboli 17 days ago
          "The volume of the Earth is finite, and most of it is not oil..."

          Okay, so how much of it IS oil?

          Modern drilling equipment can reach a depth of about 12 thousand meters beneath the surface of the earth. This makes the volume of the portion of the crust that can be explored by drilling about 6.2x10^18 cubic meters, equal to 3.9x10^19 barrels. The earth's ultimate recoverable reserves (URR) of oil has been estimated at two trillion (2x10^12) barrels. If that URR estimate is true, then the pre-industrial concentration of oil in the earth's crust was about 51 ppbv, or fifty-one parts per billion by volume.

          It isn't possible to quantify any concentration accurately near the detection limit of the quantitative method. No one knows how to analyze the earth's crust to accurately quantify the concentration of recoverable oil remaining. It could be 25, 50, 100, 200, or 400 ppbv. When petroleum engineers or geologists estimate the global oil URR value, they use crude accounting methods that have very poor sensitivity, so the estimate that they produce is at or below the detection limit of any analytical method. Instead of two trillion barrels, there may be four trillion, or eight trillion barrels of recoverable resources yet to be discovered.

          You are certainly correct that the earth's crust can only contain a finite quantity of fossil hydrocarbon resources. But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries.

          Advocatus Diaboli -> TimC 16 days ago
          "But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries."

          Whether decades or centuries; it will peak (=reach an all-time maximum) at some point (if it hasn't done so already).

          Rereading my earlier comment, I have to correct myself: a monotonous increase would not be necessary to disprove PO, as production could fluctuate or stabilise. But it would need to be infinite, which it won´t be.

          Climbing for "decades" would not make PO "bunk", it would only make Hubbert´s estimate "a bit" more inaccurate and drag the decline out by a generation.

          Climbing for "centuries" would probably require our understanding of the climate system to be proven wrong. I´d welcome that, but doubt that we are that lucky. I consider it more likely that we shall give up going after oil way before that, either deliberately (less likely) of for the lack of ability to maintain production.

          Optimist -> Advocatus Diaboli 16 days ago
          Basically, as far as your lifespan is concerned, the supply of oil is infinite. It's just a matter of developing the technology that enables us to tap into those supplies. This is where the markets serve as an active encouragement to research when demand exceeds supply.

          But let's take a step back and look centuries or millennia down the line, to the point where we really have exhausted all the planet's available oil: at this point oil prices increase, until some smart inventor, probably working for Big Oil discovers a process for converting ________* into liquid fuels. Crisis averted yet again. PO believers repeat their claim that PO will destroy civilization in the next 25 years. Some things never change.
          * For _____ insert your choice of coal, natural gas, agricultural waste, solids municipal waste, sewage sludge, the one energy crop that might make sense: algae grown in the open ocean or any combination of the above.

          Claims of Peak Oil, Peak Soil, Peak Water, etc. all rely on two assumptions: (1) we keep our consumption at the same levels as in the past and (2) we aren't able to expand supply beyond what we use today. Both are foolish assumptions. Both ignore the impact of markets on innovation.

          Advocatus Diaboli -> Optimist 16 days ago
          You seem to ignore even the possibility that climate change may play an important role in our ability to cope or choice of energy. That alone disqualifies you from a civilized discussion. Not because climate change is a certainty (I think it is as certain as it gets, but it is always legitimate to ask questions), but to ignore a vast body of evidence that has made even stalwart skeptics shut up or even convert is simply not serious or honest (yoir choice).

          But even ignoring climate for a second: Humans have not evolved much in the past millennia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again.

          Everything you eat comes from soil and oceans. Oceans are wrecked, even cornucopians don't predict an increase of food from the oceans. You'd better respect soil. Or suggest you eat your coal.

          Optimist -> Advocatus Diaboli 15 days ago
          Wait, you are going to exclude people from the discussion who don't have the same priorities as you do? I hope you like talking to yourself.

          Nice bait and switch, by the way. We were talking about Peak Oil and suddenly you want to exclude me for not mentioning climate change. The point remains: Peak Oil is bunk.

          Climate change is a different topic. No doubt it needs some attention. We need to find a way to beam more heat into outer space. Where is NASA when you need them? Stop fooling around on Mars, already!

          Food production is yet another matter. Japan better get used to importing rice, because sushi is going off the menu fast, as you point out. It is unfortunate that some cultures are so short-sighted, but what are you going to do? Have the US navy sink fishing boats taking more then their quota? The good news is that nature has a capacity to rebound.

          BTW, who needs soil? Ever heard of hydroponics? There are even plants being developed that can grow using seawater while producing normal food. Hard to keep up with all the science, I know.

          And, you're right future generations may eat coal, though I suspect natural gas would be the first fossil fuel to be converted to food. Basically you'd do a conversion of methane to something more biodegradable like methanol or one of the volatile fatty acids. Grow some fungus on that mix (think of it as related to mushrooms) and viola...

          Science won't limit the future of mankind. If science was the only concern the future would be exceedingly bright.

          Advocatus -> Diaboli Optimist 15 days ago

          Science is just science, a way to understand nature, and perhaps use it better.

          The limitation is not imposed by science, but by the laws of nature, the limitations of our natural endowment and the needs of humans. Science can help us live better within the constraints, but cannot lift the constraints. Science allows us to understand and make use of the laws of thermodynamics, but it will never allow us to change those laws. It is utterly unscientific to expect that it would. Science can tell us about the role of phosphorous, it can help us find deposits of phosphorous, but cannot create those deposits.

          I won't go into detail on your points as I do not have the time and don't see the point. Don't take it personally. I think you are delusional, but I wish you were right.

          Optimist -> Advocatus Diaboli 15 days ago

          That's OK.

          Typical, when a pessimist can't make his point, he just claims the optimist is delusional. End of argument.

          You'll excuse me if I remain unconvinced.

          Advocatus Diaboli -> Optimist 15 days ago
          No. All I dared to suggest was that science can tell us about the laws of nature, but cannot change the laws of nature. You and Forrest seem to believe otherwise, as suggested by your last comment (dismissing my argument) and a number of your expectations from science, which are unscientific. Beaming more heat into space without warming the planet? You don't even need NASA for that: Simply reducing GHGs in the atmosphere would do that. Too bad that you want to 'beam' so that you can continue releasing CO2.

          Science tells you to to stop digging, and you propose buying a bigger excavator.

          Forrest -> Advocatus Diaboli 16 days ago
          Diaboli, Optimist is right on this one. Your premise is correct, "the earth is finite", but given the scale, technology, etc. a poor restriction or arbitrary talking point. Just to many unknowns and the power of the market will make the transition automatically and effortlessly. Your 2rd premise of eating coal, totally wrong. We're actually upon a great historical revolution that is yet to be named. Every aspect of societal need is currently being evaluated, improved, reinvented. Think of the current magnitude of change upon us. All of it is very positive, unless one is a suffering pessimist. Farming is just entering the beginning stages of empowering the biological world by design. Agronomics, GMO, global positioning, drone workers, robotic workers, soil engineering, fungi exploitation, and the rest. Their is no limit in sight for improving production per acre, quality of food, and fuel feed stock. Most of it directed to negative carbon rating.

          Metals and metallurgy continues to accelerate progress. Nuclear physics continue to accelerate, engineering skills and tools continue to accelerate improvements. Think of the short time span predicted for autonomous vehicles and resulting light vehicle fleet.

          Miles per energy unit will no doubt be a magnitude improved. Heavy transportation and distribution equally being radically improved. Same for grid and green power. Fuel cell and bio energy chemistry making strides that will gradually offset petrol. Hydroponics, aquaponics, fish farming, and the rest already enable privatization of food production for those so motivated. Even to the extent of power and fuel supplies for those so motivated even upon small suburban house lots. The biggest threat to humanity is radicalism of terrorist that attempt to destroy society or destabilize. This will limit invention and progress and result in suffering. Same with radical ideals of "change" per some perceived danger. Politics can be very destructive if citizens lose historical understanding and clamor for quick solutions that require no work.

          Advocatus Diaboli -> Forrest 16 days ago
          I agree on the " privatization of food production". You should have added water. As for the rest, I cannot quite tell whether you are being sarcastic or you really believe all this, but if the latter: dream on.
          Optimist -> Advocatus Diaboli 15 days ago
          Forrest is serious. And right. The main challenge for mankind is the fact that democracy is giving us the leadership we deserve. Worldwide the results are utterly depressing...

          Glen McMillian a month ago

          I think a lot of regular readers would like to see you update some of your older articles now that the costs of renewables have fallen so much in the last few years.
          Advocatus Diaboli a month ago
          Robert,

          I wonder what (if any) assumption Hubbert made on oil prices. I don't know his writings, but I do not suppose that he would discount the possibility that higher efforts could shift his curves. Isn't is so that he assumed (explicitly or implicitly) that prices would remain relatively stable. That would have been reasonable for his analysis of the US production, as he could assume that the (presumably much larger) production of other regions could take over (i.e., reduced supply from the US would not push prices up). In that case the US would essentially be a price taker, and its production would develop along a depletion curve as he predicted (although not necessarily at that level).

          Such an assumption of relative price stability would be more difficult to assume for the global supply (with no alternative sources of oil). However, optimists who believe that other energy sources (renewables or CTL) would fully substitute oil above a certain price level could still assume a relative oil price stability at the global level.

          I believe that the problem comes in when oil is considered critical and not practically substitutable. Then demand becomes inelastic and prices get volatile, represented by boom-and-bust cycles with an increasing overall trend, as you describe. I take this volatility as a sign of instability.

          Isn't it so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? That would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel....

          Forrest a month ago

          Some of the commentators, share the idea that the days of no compete high cost of oil products may be numbered. This is juxtaposed with alternative energy decreasing in cost over time. This is new phenomena with no historical path to predict new trends. History is full of examples of supply problems such as war, threat to environment, high cost of capital, etc that impacted price. The economic ramifications always shot oil prices to extreme as traders worked the pricing to new highs. This threw the economies of the world into harsh inflation of energy costs that dampened economic growth.

          Oil was the economic life blood and took much military investment to ensure the supply. Also, because of the crucial need for ample supply, gov't artificially amped up supply per subsidy such as regulated by tax code. So, are entering into a brave new world without this holdup reliance of corp oil supply? Appears so, with a positive trend line of diverse and renewable energy supply. Currently, most consumers do have some choice at the pump.

          Limited, but economic analysis have studied this "competition" and have found a powerful dampening effect of gasoline per the U.S. ability to produce a million barrels of ethanol a day. It's not limited to FFVs either as the driving public have learned to utilize higher blends within entire light vehicle fleet. Also, diesel engine testing with ethanol describe a path way if diesel fuel price zooms up. Adding a alternative E85 fuel system to offset the diesel fuel consumption per intake air injection. Apparently, a quicker lower cost alternative as compared to CNG conversion. Ethanol processing plants have stored feed stock that can come to the rescue for short term increase supply needs. BEV's play into this alternative choice as consumers are increasing expected to have one of these vehicles sitting in garage. Same with small ultra efficient cars sitting next to the SUV that can take over transportation needs upon high price of fuel times.

          Harquebus a month ago

          The global economy can not afford $100/bl oil and producers can not increase production without it. It is debt that has filled the void and
          that too is peaking. Next will be peak population.
          Glen McMillian a month ago
          Robert , what is your personal opinion on the minimum necessary energy return on energy invested as a practical matter given the nature of our present day economy?

          I have seen figures as low as four to one and as high as ten to one or even higher.

          fozzydabear a month ago
          "Oil prices did in fact rise sharply in the 2nd half of 2015" - Don't you mean 2005?
          Robert Rapier Mod fozzydabear a month ago
          It seems that no matter how many times I proofread an article a typo always makes it through. Thanks for that. It's fixed.
          Over the Hill a month ago
          I agree that the issue with "Peak Oil" isn't that we're going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online.

          It won't be the end of the world. It will be a different world that we will have to make a commitment to adapt to, however.

          Sam Taylor a month ago
          Robert,

          If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment.

          Then the question becomes, when do we reach this ceiling? Peak $20 oil was perhaps around the early 2000's, and maybe peak $50 is around now (inflation adjuested). The costs facing the majors appear to be accelerating quite rapidly, and if that breakeven chart is accurate the price curve seems to accelerate quite steeply, so perhaps an optimistic estimate might give us a decade or two.

          And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you?

          Robert Rapier -> Sam Taylor a month ago
          "what is the highest oil price that the world can sustain."

          I think that's going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world.

          Dipchip -> Robert Rapier a month ago
          The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups.

          10% increase for one is $1.10 the other is 6 cents per day. A 5% increase in world consumption will bring back $100 oil. Who do you suspect will cause the increased consumption, developed or undeveloped nations?

          Robert Rapier -> Dipchip a month ago
          Of course. I have written lots on this. A decade ago I thought poor countries would be priced out of the market. As prices rose, I saw that it wasn't impacting demand in developing countries. I also went to India in 2008 and saw 7 people on a motorcycle. And what you wrote above hit me: It's such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption.

          It was an example of the data causing a 180 degree shift in my opinion.

          Glen McMillian -> Robert Rapier a month ago
          A gallon of diesel fuel burnt in a tractor or irrigation pump generates hundreds of times more economic return than a gallon burnt fetching beer in an oversized pickup truck.
          Forrest -> Glen McMillian a month ago
          What's the return on Prius owner driving coast to coast to demonstrate against use of oil? Maybe she or he is smoking pot and wrecks an expensive asset that cost the environment dearly. So, the multi use pickup driving to neighborhood grocery not so bad after all. The pickup utilized in providing services and supplemental income. The pickup life cycle extends multiples of the Prius and powered upon environmentally friendly fuel that per gallon provides more jobs and economic stimulus. The fuel supply will never diminish per continued use of processing plant and solar powered feed stock. No need to be on a continuous search and development cycle of diminishing supplies of raw material.
          Dipchip -> Robert Rapier a month ago
          R Squared: The first time I ran across your name was back in 2005. I was having a disagreement with some Minnesota renewable fuel agency folks, when suddenly you came into the conversation. They were trying to say that ethanol was more efficient to produce than Gas; after reading your comment I decided to let you take over, as you seemed to be someone from the tail end of energy production and I was on the front end.

          Been following your opinions ever since. Seems the internet is a good way to keep from becoming obsolete since retiring twenty years ago. Thanks for your years of effort to inform.

          Robert Rapier -> Dipchip a month ago
          I remember that. It was one of those things that inspired me to start writing more. So much misinformation. I actually got the state of Minnesota to change that claim on their website after having several exchanges with them.
          davidgmills1 -> Forrest 24 days ago
          For a different kind of nuclear technology, one which we developed at Oak Ridge in the 60's, see Liquid Fluoride Thorium technology. It's top ten attributes and why it will change the world:

          http://energyfromthorium.com/2...

          LuapLeiht1 a month ago
          I agree that peak oil is a function of price rather than raw supply numbers. However, I think that drawing conclusions from the price is still a bit naive. Prices spiked in the late 70s, early 2000's, and early 2010's. What do those three time periods have in common? The Middle East was on fire in all three periods (Arab oil embargo, Iraq war, and the "Arab Spring").

          Peak oil isn't just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability.

          Like most things in life, reality is much harder to predict than theory would indicate.

          [Oct 21, 2015] Devastating Shale Oil Losses

          October 19, 2015 | Peak Prosperity

          Sometimes it helps to examine one narrow slice of the pie as a means to understanding the entire pie. In the case of the shale oil Ponzi scheme, we can both wrap our minds around the scale of the predicament and also answer the question of who the losses will be foisted on.

          Once we've done that, you should be able to simply apply the same logic and learning to other sectors of the financial universe. Learn one sub-bubble, learn them all; like a fractal foam of misadventure.

          [Oct 21, 2015] How Much Longer Can The Oil Age Last

          Notable quotes:
          "... I wish the author had discussed his current estimates of recoverable oil in the $50-70 range rather than just implying it's there for the taking. A lot of countries have had their own individual peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like how high prices lead the US to increase energy extraction w/fracking). ..."
          "... One question I'd really love to see tackled: if you could calculate the true, total cost of production and use of a barrel of oil, including all the costs currently externalized (such as the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and financial restitution to affected people from pipeline breaks, etc) and compare that to the market price, are a greater percentage of costs externalized than in the past? And where does that trend go in the future? ..."
          "... including all the costs currently externalized ..."
          "... With all the mountains of BS on the internetz, this fundamental mat'l you will not find. BTW add the cost of attributable MIC and Failed States to the list. ..."
          "... differently ..."
          "... responsible ..."
          "... responsible ..."
          "... Population will plateau at some point during this century. ..."
          "... The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now. ..."
          "... It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets ..."
          "... First, a big piece of what's going on stems from happy memories among Western policy makers of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping, but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His objectives include showing that Russian policy can't be jerked around via the oil price, and ideally setting up consequences so painful to the Saudis that they'll never want to try this again. So events won't follow the path you'd expect in a normal OPEC cartel management exercise – either in time or in plot line. ..."
          "... Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians and Iranians engineer something kinetic around the export facilities and trade routes on the western shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer – settle for some kind of mutually livable compromise. In either case the capex cuts now in train will flip the oil supply from its present "glut" (very small in percentage terms as compared to the 1980's experience) to a shortage at least as severe as the one in the middle years of the last decade.. ..."
          "... Oil price feedback will eventually kick in, though this is far in the future. High oil prices increase the prices of all things dependent on oil for production or transport. Eventually, the high price of oil starts to affect the price of oil itself. Those spikes will be numerous and rapid, for a while. ..."
          "... My take in Oil Dusk was to leave global warming out of the book and focus on the importance of oil to the current infrastructure in the developed world and what a disruptive transition might look like. Also, oil is truly scarce and took many millions of years to produce a quantity that will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate change. ..."
          "... Within the next five years, we will almost certainly see oil prices return to at least $90 a barrel – and perhaps considerably more. ..."
          "... The real alternative right now to oil is natural gas and it's likely that we transition from a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure. ..."
          "... The Saudis have the largest reserves of high quality cheaply extractable oil. They are the highest rent producer. (There are likely further reserves of such cheap, high quality oil to be found in a couple of places, Libya and Iraq, but you can see the problem there, and after that there's nothing left to be found of conventional reserves). But they must also realize that the age of oil is coming to a close over the next few decades. Hence it is in their interest to make sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out higher cost unconventional producers. In the meantime, they also have an interest in keeping the global economy from recession, since the value of their immense financial reserves depend on the health of the global economy, which can readily be sent into recession by high oil prices. SO likely they will try to keep the oil price from rising above , say, $70 for quite some time. so as to balance out their various objectives. ..."
          "... Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick look at physical fundamentals would reveal that there is simply not the means to continue industrial civilization in anything vaguely like its current configuration. ..."
          "... Civilization will be seriously disrupted–more likely, ended. Any technology or process that would mitigate the resulting suffering would need to be robust against disruption. High technologies and complex systems will not be robust, and will be of no use. ..."
          "... Capitalism has been mentioned. The key point is that return on investment (on loans) is in fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with" usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are at an end usury just means destroying the economy that already exists in the name of trying to pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it accelerates decline. If we eliminated return on investment tomorrow, we would open a window for addressing our problems. But usury will not be eliminated, and thus the chance of addressing our problems is nonexistent. Won't happen–end of story. ..."
          "... Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy and stuff (delivered in an environmentally friendly way, of course)–are about to become their own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the unicorns won't appear? This industry will be very profitable until we run out of suckers. I give it a decade. ..."
          Oct 21, 2015 | naked capitalism
          Will

          I wish the author had discussed his current estimates of recoverable oil in the $50-70 range rather than just implying it's there for the taking. A lot of countries have had their own individual peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like how high prices lead the US to increase energy extraction w/fracking).

          One question I'd really love to see tackled: if you could calculate the true, total cost of production and use of a barrel of oil, including all the costs currently externalized (such as the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and financial restitution to affected people from pipeline breaks, etc) and compare that to the market price, are a greater percentage of costs externalized than in the past? And where does that trend go in the future?

          optimader

          including all the costs currently externalized

          With all the mountains of BS on the internetz, this fundamental mat'l you will not find. BTW add the cost of attributable MIC and Failed States to the list.

          jgordon

          Rather than rehash things I've said before many times, I'll just provide a link to this classic post from Nicole Foss at the Automatic Earth website. I think it offers context and interpretation that's quite a contrast from the rosy and perhaps ill informed post above:

          http://www.theautomaticearth.com/2012/10/renewable-energy-the-vision-and-a-dose-of-reality/

          DanB

          I agree with you, but this is a hard sell at this site due to deeply entrenched mythological beliefs about 1. what money is and can do and 2. about infinite growth on a finite planet (collectively, we're at the bargaining stage on this latter one as the signs of the end of growth and ecological overshoot abound but are blocked from recognition by a paradigm that explains them as aberrations or human failures). I'd add to the Nichole Foss post the book "Green Illusions: The Dirty Secrets of Clean Energy and the Future of Environmentalism (Our Sustainable Future)," the webiste of Gail Tveberg, Our Finite World," and the site "Economic Undertow".

          jsn

          It's not such a hard sell, I read plenty of comments here that understand what is in your references. The issue is how you get where we need to go from where we are. Calling everyone who disagrees ignorant doesn't help much: we all know what we know and don't know exponentially more. But it is very hard to propose actionable ideas beyond "personal virtues" which on their own have no chance. This is possibly the ultimate coordination problem: agreement on goals is much further along than agreement on means.

          MikeNY

          +1

          very perceptive comment

          DanB

          Please note I use "collectively" to refer to our culture, not to NC readers. Perhaps that was not clear. And i've been reading and commenting here since 2009.

          washunate

          This is a great exchange. Perhaps what I might add is I'm not so sure we do have agreement on goals. I think that does a disservice to those voices that quite passionately advocate moar.

          They genuinely believe that more work, more output, more deficit spending, more higher education, more home equity, more development and infrastructure, more aggregate activity, will improve society. It is a moral calling they see, and it is quite distinct from the perspective that we should live differently. We can't paper over how deep that chasm is between those that want full employment and those that want a world where less is more. One irony of the post-Keynesian (and post-Bretton Woods) MMT world is that Keynes himself thought we'd only need to be working a few hours a week by now. Capital accumulation was the great liberator of our time, to allow us human beings to do more important and exciting (and less polluting) things than go to work. But the secularization of the puritan work ethic – the notion that human life is directionless without an authoritative (and fatherly) figure to give direction – dies hard.

          bdy

          And for whatever reason, the less-is-more crowd isn't so much in the habit of proposing actionable ideas. We might consider that dismissal and scorn are nothing more than rhetorical tools in a conversation about power. (See Ghandi or Nicholas Klein: "first they ignore you…")

          – We can tax excessive consumption at the rate of its externalities, even (and especially) for necessities like food, water and housing
          – We can publicly fund taking people and institutions off of the grid.
          – We can publicly fund light industry and massive agricultural infill in our cities.
          – We can lift property taxes and subsidize rents for anyone who walks or bicycles to work.
          – We can tax energy in direct proportion to the loss rate of whatever grid carries it.
          – We can enable the State to enter the Market wherever a discernible demand is not being met, as consumer or provider (see giving medicine to sick children or eating unadulterated food)
          – We can scrunch city streets to the size of cart paths, confiscate any vehicle that exceeds 25 mph, shade everyone's windows, turn off our a/c, criminalize the use of drinking water for anything but drinking, locally compost all our bio-waste, end the industry of converting sunlight to meat, criminalize bulk possession of any bio-toxin, enforce a 25 hr / 3 day work week with no overtime, revoke the commerce clause (or not), buy back guns at triple the sticker price and melt them into strollers and windmills…

          It's simply a matter of keeping the conversation on point (what works within the limits of our solar income?) and being willing to discuss policies that might or might not reduce our level of comfort and privilege.

          Naomi Klein reads like USA Today, but The Shock Doctrine is right. The inevitability of scarcity means that crises will escalate. And with each escalating crisis, the most unthinkable ideas will become potentially acceptable (including comic-book nastiness like a nuclear first strike; ethnic cleansing in Kansas; a 0% capital gains tax; or declaring global, never-ending war against non-christians terror).

          If enough of us agree that shit is really going South in a bucket, and that the Fiat dollar allows us to spend relatively freely on things like war in Iraq; QE; or mitigating the disruption of mass industrial shrinkage, then we should also agree that the "actionable" in actionable ideas is all encompassing. Because the next time someone flies a false flag or blows up a critical asset class, the table will be in dire need of transformative food for thought.

          washunate

          It's simply a matter of keeping the conversation on point (what works within the limits of our solar income?) and being willing to discuss policies that might or might not reduce our level of comfort and privilege.

          Yep. I think that's one of the characteristics that makes proposals to do less (for example, tax the rich or end the drug war or scale back IP law) the most realistic in a system as corrupt intellectually and financially as ours is today.

          It's the first rule of holes: stop digging. Almost all of the big ideas to do more require an infrastructure of good faith management that simply doesn't exist.

          Brooklin Bridge

          Thanks for the link. That is a very interesting and well written article, worth reading and re-reading since it gives a good perspective on many issues. But you should also take into account that it (and all the links inside it) was written in 2012 and the costs of producing renewable energy are dropping to such an extent (like compound interest) that they are changing the nature of the issue.

          Moreover, the argument the article makes doesn't negate the need to transition to renewables; rather it acknowledges that need but emphasizes the gains of doing so locally in support of (as alleviation to) the current centralized power model rather than immediately replacing it. My argument about corruption below, I think, is one of the reasons that this effort has not gone further. Example, Hawaii, where electric utilities have had considerable success in halting renewables at the local level by individuals due to fear of reduction in profits.

          Brooklin Bridge

          Note, the fear of reduction in profits isn't entirely without merit. But what is without merit is the capitalist system that makes it possible for the utilities to win a battle for profits in a war for existence.

          jgordon

          The article is even more relevant than it was in 2012; the issue is not the cost of a solar panel, which is perhaps the least important cost in the process. Rather, it's the way our infrastructure is set up. The centralized utility/grid model is still just as incompatible with renewable energy today as it was in 2012.

          It's possible that we could all have a solar panel array and a windmill directly adjacent to the demand–but we'll still have to cut our energy consumption by 95%. In that kind of a world, things like personal passenger vehicles and the internet will not exist. I'm looking forward to it.

          hidflect

          The primary issue is one polite society refuses to address: population.

          jsn

          That is the issue that makes it "possibly the ultimate coordination problem". The moral reality of billions of lives lie in the balance of the actions one takes or doesn't take. That weight may be among the biggest barriers to responsible action: those who aspire to be responsibleare the most unnerved by this issue.

          washunate

          I'm much more optimistic on that front. Population is not a large coordination problem because there is no scaling needed to have fewer kids later in life (at least until the authoritarians perfect their Huxley Bokanovsky groups, I guess). Those are individual choices that can be made at the ultimate local level.

          It's already happening all around the globe, and outside of China, it's mostly happening as a genuinely free choice made available by the intersection of reproductive healthcare and a basic standard of living. It's almost like our species subconsciously recognizes the value of reducing the total population. Even against the stern worrying of the Serious People that declining birth rates threaten The Economy(TM).

          Ignacio

          +1, an other perceptive comment.

          Also the 'population problem' is a relative problem to consumption, resources and distribution. Population will plateau at some point during this century.

          There is no such thing as 'population problem' with the appropriate policies if the population does not go beyond 10 bill. (and old people consumes much less, by then humanity will be aging, damn, it already is in developed nations).

          The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now.

          jsn

          Right now the real resources ratchet is producing civil wars and mass migrations, for instance, among other problems that are just beginning to blossom.

          It isn't population per se that is the coordination problem, it is equitable distribution of diminishing real resources in real time to support it without mass die offs that is.

          So far industrial overshoot is playing out with all the harbingers of collapse which will solve the distribution problem by natural selection. The coordination problem is to solve the distribution problem ethically to prevent nature taking its course.

          Nature bats last, so the trick is to keep the inning going.

          MikeNY

          I think this is true, and there are two big reasons for it:

          1. It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets
          2. If flies in the face of certain religious teachings on sexuality

          Both of these need to be rethought.

          Eric Patton

          The article does not mention the word "capitalism" even once.

          Private enterprise market economies - capitalism - are literally incompatible with reduced emissions. As long as we have a private enterprise economy with market-based allocation, we will simply continue to destroy the planet.

          Private enterprise centrally planned economies, public enterprise centrally planned economies, and public enterprise market economies have all existed in real life: Nazi Germany, the former Soviet Union, and the former Yugoslavia. None of these are viable alternatives to capitalism, if the goal is reduced carbon emissions.

          People are not yet ready to discuss the alternative though. This is not good.

          JTMcPhee

          …it's not "market based allocation," unless one does a little trick with definitions and categories– I'd call it "corruption based allocation," with a secondary diagnosis of terminal metastatic idiotic greed…

          Pwelder

          This post is OK as far as it goes, but it misses a couple of realities in the current situation that are relevant to finance and politics when viewed – as Yves does – from 50,000 feet.

          First, a big piece of what's going on stems from happy memories among Western policy makers of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping, but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His objectives include showing that Russian policy can't be jerked around via the oil price, and ideally setting up consequences so painful to the Saudis that they'll never want to try this again. So events won't follow the path you'd expect in a normal OPEC cartel management exercise – either in time or in plot line.

          Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians and Iranians engineer something kinetic around the export facilities and trade routes on the western shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer – settle for some kind of mutually livable compromise. In either case the capex cuts now in train will flip the oil supply from its present "glut" (very small in percentage terms as compared to the 1980's experience) to a shortage at least as severe as the one in the middle years of the last decade..

          Why should progressives care? Many good reasons, but the big one I haven't seen mentioned is this: There's a good chance the spike lands smack in the middle of the 2016 election. That being the case, this is probably not a great time to be parading around bragging about successes in blocking pipelines and keeping the oil on trains.

          MrColdWaterOfRealityMan

          There are a number of issues not mentioned that factor into any prediction:

          1) Oil isn't electricity. It's not used the same way and currently can't be used the same way. There are no electric airplanes, freight trains or cargo ships. Despite innumerate claims to the contrary, no current battery technology is capable of replacing hydrocarbon fuels. The volumetric energy density is not there and won't be for the foreseeable future.

          2) Price is a proxy for energy return. Prior to the current overproduction glut (the equivalent of squeezing a sponge harder for a few seconds), oil became expensive because acquiring it from fracking or drilling in deep water is more expensive, both energetically and economically. Despite the current overproduction blip, the upward pricing trend will inevitably continue.

          3) Production breakdown will be nonlinear. The world's current interdependent, global, just-in-time supply chains depend on *cheap* oil to be economical. When oil prices jump again, as they inevitably will, these will start breaking down in unpredictable ways as production and transportation costs increase. This affects everything, including the price of oil

          4) Oil price feedback will eventually kick in, though this is far in the future. High oil prices increase the prices of all things dependent on oil for production or transport. Eventually, the high price of oil starts to affect the price of oil itself. Those spikes will be numerous and rapid, for a while.

          Oildusk

          I was involved in a book entitled the Carbon Conundrum, by Bob Kelly. Bob has a PDH in economics from Harvard. He mapped out the anticipated volume of fossil fuels remaining and it's impact on the world climate. His take was that we'd run out of oil in the not too distant future and that it would take the world about 500 years to get back to pre-industrial carbon levels.

          My take in Oil Dusk was to leave global warming out of the book and focus on the importance of oil to the current infrastructure in the developed world and what a disruptive transition might look like. Also, oil is truly scarce and took many millions of years to produce a quantity that will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate change.

          While a book about oil scarcity might seem unrealistic at this juncture with world prices hovering in the $45 – $50 range, I remember twelve years ago when I couldn't persuade the bank to provide me with a price deck above $30 a barrel so that I could make some energy investments. Within the next five years, we will almost certainly see oil prices return to at least $90 a barrel – and perhaps considerably more.

          The real alternative right now to oil is natural gas and it's likely that we transition from a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure.

          Energy transitions are difficult and the actual path will make a huge difference in where we are as a species in the next 100 years.

          Ignacio

          There are different ways of looking at the energy issue depending on where do you live and I appreciate very much the insigths from Mumbay, India. I live is Spain and I have a different view. India is growing briskly while spain is stagnated and will be so for years to come it seems. Instead of growing fossil fuel consumption we have seen a quite noticeably decline, particularly for petrol products. Since the beggining of the crisis, petrol products consumption has declined by 28% (From 75 million tons annually in 2015-2017 to 54 million tons in 2014). Domestic oil production covers less than 1% of total consumption. We depend almost totally on oil imports.

          The observed decline has been caused of course by the financial crisis and high oil prices. Nevertheless, I bet that in Spain we have already seen an all-time peak oil consumption. Of course, lower oil prices are now playing in reverse and 2015 will see a modest rise in petrol products consumption for the first time since 2007. Nevertheless the observed decline shows clearly that an economy can function with much lower oil energy input. And there is still a lot of room to reduce consumption.

          A country like Spain, totally dependent on oil imports and crushed by bad debt is very sensitive to oil price volatility and there are many economic incentives to reduce oil consumption and replacement with renewables. In a depressed economy like ours, every euro/dollar saved on imported petrol products has a multiplier effect on growth. Besides, pressure is mounting from the side of public health (toxic emissions from gasoil, fueloil and kerosene) and climate protection. Spain has not the size nor the population of India and its international impact is small. But it migth become an advanced laboratory trial to test the end of the Oil Age.

          DanB

          You write, "While a book about oil scarcity might seem unrealistic at this juncture with world prices hovering in the $45 – $50 range…" Actually, the reason the price is low is due to the scarcity of cheap light sweet crude oil. We're seeing more and more people unable to afford more and more of life's necessities while simultaneously the cost of extracting oil is increasing (along with bankruptcies and mergers among energy companies to fend off the inevitable consequences of peak oil on debt, finance and the economy.) Low prices do not mean a glut of oil; they signal just the opposite. And then we have a neoliberal political/economy that worsens the matter.

          susan the other

          I agree and I'm convinced that every government on Earth agrees. What I see playing out between the Saudis-Qataris and the Russians is a struggle to control natural gas. The Gulf wants to pipe gas thru Syria and turkey to the EU. Russia wants to pipe gas from the Caspian to southern Europe. France wants to gain a share of the gas fields belonging to Egypt and get in on the action. It looks like Iran intends to supply China with natural gas via a pipeline thru Pakistan. What this looks like is a pact among the producers to leave oil in the ground after a certain window of time needed to switch to natural gas and then the reduction of the use of natural gas as it is replaced by renewables. The Saudis are using their natural advantage to sell as much of their oil as they can before the window closes. Maybe.

          john c. halasz

          The Saudis have the largest reserves of high quality cheaply extractable oil. They are the highest rent producer. (There are likely further reserves of such cheap, high quality oil to be found in a couple of places, Libya and Iraq, but you can see the problem there, and after that there's nothing left to be found of conventional reserves). But they must also realize that the age of oil is coming to a close over the next few decades. Hence it is in their interest to make sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out higher cost unconventional producers. In the meantime, they also have an interest in keeping the global economy from recession, since the value of their immense financial reserves depend on the health of the global economy, which can readily be sent into recession by high oil prices. SO likely they will try to keep the oil price from rising above , say, $70 for quite some time. so as to balance out their various objectives.

          Gaianne

          One hesitates to add to an overly long thread.

          Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick look at physical fundamentals would reveal that there is simply not the means to continue industrial civilization in anything vaguely like its current configuration.

          Civilization will be seriously disrupted–more likely, ended. Any technology or process that would mitigate the resulting suffering would need to be robust against disruption. High technologies and complex systems will not be robust, and will be of no use.

          Photovoltaic technology is a mid-term, niche, small-scale amelioration. It cannot power the grid, and it cannot replace the grid. Until panels can be made without rare-earth elements, the supply is seriously constrained by geology. Even if they are freed from rare-earths, the high technology and long suppy chains mean they will not go more than a few decades into the future.

          The grid itself will go down, region by region, never to return.

          Those of us who use photovoltaics know they are wonderful for the small-scale low-power applications to which we put them. And of no use for the high-energy large-scale schemes we keep hearing about.

          Capitalism has been mentioned. The key point is that return on investment (on loans) is in fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with" usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are at an end usury just means destroying the economy that already exists in the name of trying to pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it accelerates decline. If we eliminated return on investment tomorrow, we would open a window for addressing our problems. But usury will not be eliminated, and thus the chance of addressing our problems is nonexistent. Won't happen–end of story.

          There is much to be done nonetheless. Learning to live will less, and on things which can obtained locally, is both possible and necessary. Managing local, available sunlight for heating and cooling was well researched (and ignored) back in the 1970s. Much can be done on a small, local scale.

          Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy and stuff (delivered in an environmentally friendly way, of course)–are about to become their own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the unicorns won't appear? This industry will be very profitable until we run out of suckers. I give it a decade.

          –Gaianne

          Steven

          Just about the best take I've found on this subject – and on money and economics – is Frederick Soddy's "Wealth, Virtual Wealth and Debt" (2nd edition). Here are some samples:

          • …though as yet the applications of the knowledge to the economics of life are not generally realised, life in its physical aspect is fundamentally a struggle for energy,… p. 49
          • As Ruskin said, a logical definition of wealth is absolutely needed for the basis of economics if it is to be a science. p. 102
          • The vast potential productivity of the industrialised world, particularly in the engineering and chemical industries, must find an outlet. If that outlet is by financial folly denied it in the building up and reconstruction of the home-life of nations, it remains as a direct and powerful incentive to the fomenting of war. p. 303

          The first bullet obviously goes far beyond mere oil wars. Ecology 101 says we can't turn the earth into one wriggling mass of humanity, that other forms of life are necessary to sustain our existence. You've heard variations of the second bullet before, e.g. Oscar Wilde describing the Anglo Saxon version of economics: "they know the price of everything and the value of nothing."

          If the third bullet doesn't ring a bell, you have been listening to too much Fox news. The military industrial complex gained its death grip on the American economy in the aftermath of a Great Depression that left America's financial and political leadership with a profound fear of the return of peace. At stake was not just unparalleled political and military hegemony but the power to create money ex nihilo and exchange it for the world's wealth.

          [Oct 21, 2015] If Caterpillars Data Is Right, This Is A Global Industrial Depression

          Zero Hedge
          Caterpillar has seen 34 consecutive months of declining global sales, and 11 consecutive months of double digit declines!

          Why is this important? Because a month ago we asked: "What On Earth Is Going On With Caterpillar Sales?"

          We have been covering the ongoing collapse in global manufacturing as tracked by Caterpillar retail sales for so long that there is nothing much to add.

          Below we show the latest monthly data from CAT which is once again in negative territory across the board, but more importantly, the global headline retail drop (down another 11% in August) has been contracting for 33 consecutive months! This is not a recession; in fact the nearly 3 year constant contraction - the longest negative stretch in company history - is beyond what most economists would deem a depression.

          We got the answer just three days later when the industrial bellwether confirmed the world is now in an industrial recession, when it not only slashed its earnings outlook, but announced it would fire a record 10,000.

          Moments ago, CAT reported its latest monthly retail sales and they were even worse than last month: in the month of September there was not a single region that posted either a increase of an unchanged print. This was the first month in all of 2015 in which every region posted a drop.

          Putting CAT's result in context, the Great Financial Crisis resulted in 19 consecutive months of sales declines. We are currently at 34 months and showing no signs of any pick up.

          As such, based on CAT's ongoing shockingly bad retail sales we wonder if it is no longer merely a global recession: perhaps that time has come to call it what it really is - a global industrial (at first) depression, which has so far been hidden from plain view thanks to $13 trillion in central bank liquidity, whose marginal impact is evaporating by the day and a Chinese credit machine which recently hit a brick wall.

          [Oct 21, 2015] US oil output on brink of dramatic decline

          Notable quotes:
          "... world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. ..."
          "... We are about to see a pretty dramatic decline in U.S. production growth, the former head of oil firm EOG Resources Mark Papa, told the conference. ..."
          "... U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments ..."
          "... The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future. Producers are now looking for new cash to survive and they will probably struggle to get it, Ben van Beurden said. ..."
          "... Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said. ..."
          "... Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity. But this process could not continue forever. ..."
          "... The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment. ..."
          "... But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd - or around half the record growth rates observed in the past few years. I see the United States as a long-term growth producer, he said. If low oil prices prevail - then the correction in oil prices will be much more severe. ..."
          Oct 6, 2015 | af.reuters.com
          • World prices seen too low to support U.S. shale oil output
          • Lack of bank financing seen for new shale developments
          • Risk low production levels may cause price spike
          • U.S. oil sector productivity improvements seen near limit (Recasts; adds U.S. production forecasts)

          Oil executives warned on Tuesday of a "dramatic" decline in U.S. production that could pave the way for a future spike in prices if fuel demand increases.

          Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade.

          "We are about to see a pretty dramatic decline in U.S. production growth," the former head of oil firm EOG Resources Mark Papa, told the conference.

          Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments.

          Official data show that nationwide U.S. output has already begun to decline after reaching a peak of 9.6 million barrels per day (bpd) in April, although production in some big shale patches, including North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday that output would reach a low of around 8.6 million bpd next year.

          Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million bpd of new supply each year thanks to the introduction of new drilling techniques that have released oil and gas from shale formations. But oil prices have almost halved in the last year on oversupply in a drop that deepened after the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

          Benchmark Brent crude was up 5 percent, or $2.50 a barrel, at $51.75 on Tuesday as investors digested news from the London conference. It peaked in recent years above $115 a barrel in June 2014.

          SPIKE

          The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future. "Producers are now looking for new cash to survive and they will probably struggle to get it," Ben van Beurden said.

          Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said.

          If prices remained low for a long time and oil production outside OPEC and the United States declined due to capital expenditure cuts, there was not likely to be any significant spare capacity left in the system, he said.

          "This could cause prices to spike upwards, starting a new cycle of strong production growth in U.S. shale oil and subsequent volatility," van Beurden said.

          Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity. But this process could not continue forever.

          "Now we are seeing the limits at least in the near term and it is beginning to impact production," Sieminski said. "We see (U.S. oil production declines) continuing into next summer."

          The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment.

          But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd - or around half the record growth rates observed in the past few years. "I see the United States as a long-term growth producer," he said. "If low oil prices prevail - then the correction in oil prices will be much more severe."

          [Oct 21, 2015] Economic Impossibilities For Our Grandchildren Examining Secular Stagnation

          Video of the lecture by lecture! O'Rourke's: Economic impossibilities for our grandchildren? A lecture by Professor Kevin O'Rourke
          Notable quotes:
          "... I would suggest that right wing policy shoveling all the income and wealth gains into the pockets of a few rich plutocrats are incompatible with economic growth. ..."
          "... But why is inequality rising in nearly all societies worldwide (including the northern European societies)? Could it be that sovereign governments are trapped in a race for current-account surpluses and improve their current-account balances by transferring income from consumer households to saver/investor households (and in some cases, such as Saudi Arabia or China, governments)? See Michael Pettis, The Great Rebalancing ..."
          Oct 21, 2015 | Economist's View

          RC AKA Darryl, Ron said...

          I listened for quite a while hoping for something that sounded like an actual insight but never got past why Hansen became Keynesian. Capitalists do not need to be euthanized. Capitalists are suicidal. They would rather bet their money in a Wall Street casino than pay wages high enough for their customers to buy their goods because they keep forgetting that their workers ARE their customers. Trade deficits driven by offshoring are one of the most effective ways of making capital more efficient while simultaneously lowering wages and aggregate demand including even for those goods our corporations produce offshore.

          If per capita income/demand falls, prices are stable, and profit margins increase then volume is bound to fall.

          Jan said...

          Great lecture! O'Rourke's close attention to both the history of economic thought and economic history sets him apart (above) most of the debate on secular stagnation.

          According to Martin Wolf, world interest rates were unusually low from about 1895 until WWI and lower still during the 1920s. This suggests that secular stagnation might be a chronic problem. Perhaps Hansen is right that humans normally save too much. Or perhaps the interaction among sovereign states in a global economy causes a secular trend of rising world savings. Or perhaps something else. What do you think?

          DeDude said in reply to Jan...

          I would suggest that right wing policy shoveling all the income and wealth gains into the pockets of a few rich plutocrats are incompatible with economic growth. There is a reason that the Scandinavian countries are so wealthy (in spite of 5-6 week annual vacation etc.).

          DeDude said...

          The economy IS consumption. Even the 30% of GDP that is not direct consumption is not going to grow unless consumption is growing. So to grow the economy you either increase private sector consumption or you increase public sector consumption. The only way to obtain a sustainable increase in private sector consumption is to get a better income and wealth distribution away from investor class and into consumer class pockets. Alternatively, when the private sector resist increased consumption you have to increase public sector consumption (financed either by debt or by taxing the investor class). GDP is not rocket science, it is 5th grade math.

          Jan said...

          I totally agree (and so does Summers) that growing income inequality is a proximate cause of excess saving and, hence, secular stagnation.

          (By the way, although the USA is commonly perception as a profligate spender, the USA private sector's ratio of wealth (accumulated saving) to consumption has risen by about 5% since 1980. So contrary to the common perception, the USA's private sector has been contributing to the growth of the world saving glut.)

          But why is inequality rising in nearly all societies worldwide (including the northern European societies)? Could it be that sovereign governments are trapped in a race for current-account surpluses and improve their current-account balances by transferring income from consumer households to saver/investor households (and in some cases, such as Saudi Arabia or China, governments)? See Michael Pettis, The Great Rebalancing, on how sovereigns improve their current account balances. (Warning: you won't find Pettis's brilliant exposition in an International Economics textbook, which is stuck in the neoclassical obsession with allocative efficiency and, hence, "free trade.")


          [Oct 20, 2015] Crude Tumbles As API Reports Another Huge Inventory Build

          Notable quotes:
          "... What this implies is that limitations on future supplies may result from the price of oil being too low. Contrary to the public perception that such limits would be accompanied by high prices, it is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable today. ..."
          "... Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis first advanced by energy analyst and consultant Steven Kopits. ..."
          "... ... ... ... ..."
          Zero Hedge
          Escrava Isaura

          This post is by Gail Tverberg. Worth reading:

          I was also mystified by Kurt Cobb's statement,

          What this implies is that limitations on future supplies may result from the price of oil being too low. Contrary to the public perception that such limits would be accompanied by high prices, it is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable today.

          Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis first advanced by energy analyst and consultant Steven Kopits.

          ... ... ...

          [Oct 19, 2015] Is Money Corrupting Research?

          Notable quotes:
          "... Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their opinions are bought and paid for. ..."
          "... Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of funding sources, is stock in trade. Scientific research has become so capital intensive that large grants from government and large foundations are necessary to carry it out. For the most part, the biases of the granting institutions are known and discounted. ..."
          economistsview.typepad.com
          Luigi Zingales:
          Is Money Corrupting Research?: The integrity of research and expert opinions in Washington came into question last week, prompting the resignation of Robert Litan ... from his position as a nonresident fellow at the Brookings Institution.

          Senator Elizabeth Warren raised the issue of a conflict of interest in Mr. Litan's testimony before a Senate committee... Senator Warren was herself criticized by economists and pundits, on the left and right. ... But at stake is the integrity of the research process and the trust the nation puts in experts, who advise governments and testify in Congress. Our opinions shape government policy and judicial decisions. Even when we are paid to testify..., integrity is expected from us. ...

          Yet it is disingenuous for anybody (especially an economist) to believe that reputational incentives do not matter. Had the conclusions not pleased the Capital Group, it would probably have found a more compliant expert. And the reputation of not being "cooperative" would have haunted Mr. Litan's career as a consultant. ...

          Reputational ... concerns do not work as well with sealed expert-witness testimony or paid-for policy papers that circulate only in small policy groups. ... A scarier possibility is that reputational incentives do not work because the practice of bending an opinion for money is so widespread as to be the norm. ...

          He goes on to suggest some steps to strengthen the reputational incentive.

          pgl said in reply to Larry...

          "Businesses sometimes finance policy research much as advocacy groups or other interests do," the economists wrote. "A reader can question the source of the financing on all sides, but ultimately the quality of the work and the integrity of the author are paramount." They praised Litan's quality and integrity as having been "impeccable over a career of four decades."

          The fact of the matter is that funding comes from all sorts of places. One should always disclose the sourcing of funding and then let one's writings stand scrutiny.

          Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their "opinions" are bought and paid for.

          anne said in reply to Larry...
          http://www.reuters.com/article/2015/09/30/us-brookings-warren-resignation-idUSKCN0RU00B20150930

          September 29, 2015

          Brookings fellow resigns after Senator Warren accuses him of conflicts
          By SARAH N. LYNCH - Reuters

          WASHINGTON

          A prominent Brookings Institution fellow resigned on Tuesday, after Massachusetts Senator Elizabeth Warren accused him of failing to fully disclose industry funding tied to a study that criticized the U.S. Labor Department's plan to regulate brokerages.

          The resignation of Robert Litan came just one day after Warren, a Democrat, sent Brookings' president a letter demanding to know more about the think tank's policies on financial conflicts and details about the communications between Litan and Capital Group, an investment firm that funded his research paper.

          "He has acknowledged that he made a mistake in not following Brookings regulations designed to uphold the independence of the institution," Brookings President Strobe Talbott said in a statement provided to Reuters.

          Warren's concerns center a study that Litan and researcher Hal Singer jointly conducted which examined a controversial plan by the Labor Department to try and rein in conflicts posed by brokers who offer retirement advice.

          The proposal has garnered fierce opposition from Wall Street, and Litan's study concluded that the plan could harm consumers.

          Litan testified about the study's findings in a July hearing before a U.S. Senate panel, in which he represented himself as a fellow at Brookings.

          The study was conducted by Litan and Singer in their capacity as staffers for Economists, Inc., a consulting firm.

          Although his testimony and his study did disclose that Capital Group provided funding, Warren said that she later learned this was not the full story.

          In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed that Capital Group also provided feedback and editorial comments on a draft.

          This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible" for the study's conclusions.

          In addition, he disclosed that Capital Group had paid Economists Inc $85,000 for the study, and his share was $38,800.

          In her letter to Brookings, Warren said the lack of disclosure raises "significant questions about the impartiality of the study and its conclusions."

          Litan, a former top official in the Clinton administration, did not respond to an email seeking comment.

          He is a well-known economics expert in Washington who has authored or co-authored over 25 books.

          "We greatly appreciate all the good work Bob has done for Brookings over the 40-plus years he has been connected to this institution," Talbott said.

          mulp said in reply to Larry...
          What did Brookings do to Litan???

          According to Reuters, he failed to disclose his relationships when presenting his report and when testifying, and seems to have lied:

          "Although his testimony and his study did disclose that Capital Group provided funding, Warren said that she later learned this was not the full story.

          "In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed that Capital Group also provided feedback and editorial comments on a draft.

          "This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible" for the study's conclusions."

          Can I edit anything you write and claim as solely your own work? I want to have my point of view endorsed by a much larger group of writers, and the best way is for me to fix their writings.

          It was not Litan being paid that was the problem, but the fact he claimed the words written for him were his own as an "independent" authority.

          Second Best said...
          Money corrupts research as sure as the Pope is Catholic...
          greg said in reply to anne...
          Rumors of Thomas Malthus' irrelevance to humanity's future are greatly exaggerated.

          Consider instead: "Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies"
          http://www.sciencedirect.com/science/article/pii/S0921800914000615

          Authors: Safa Motesharreia, Jorge Rivasb, Eugenia Kalnayc

          This is the actual paper of the model, but do not be afraid. Here are the highlights:

          " HANDY is a 4-variable thought-experiment model for interaction of humans and nature.
          The focus is on predicting long-term behavior rather than short-term forecasting.
          Carrying Capacity is developed as a practical measure for forecasting collapses.
          A sustainable steady state is shown to be possible in different types of societies.
          But over-exploitation of either Labor or Nature results in a societal collapse."

          There are equations. And graphs. The concluding paragraph of the abstract:

          "The measure "Carrying Capacity" is developed and its estimation is shown to be a practical means for early detection of a collapse. Mechanisms leading to two types of collapses are discussed. The new dynamics of this model can also reproduce the irreversible collapses found in history. Collapse can be avoided, and population can reach a steady state at maximum carrying capacity if the rate of depletion of nature is reduced to a sustainable level and if resources are distributed equitably."

          This made the press about a year and a half ago, was commented on, but has since been ignored. Google "Handy Model" for popular presentations and critiques.

          You decide whether it should continue to be ignored, given the remarkable progress the world has made towards remedying inequality, conserving resources, and controlling population growth. (That's sarcasm.)

          reason said...

          There is another solution to this issue. Financing should never be direct to the researcher. That way there is a funding body (say a university) that decides who researches what, and the funding is channeled through them (through a public application process). If a firm is really interested in disinterested research, no problem.

          If it wants to control the research, they have a problem. Of course the whole funding body could be corrupted but if there is a public review process that can be minimised.

          cm said in reply to reason...

          It is more subtle than asking for or implying a preference for specific results. Regardless how the funding is distributed, except perhaps by lottery, there is the issue of "repeat business" or expert shopping (cherry-picking research organizations that are known to fall in a particular camp).

          Then there is the issue of fads - even in relatively apolitical tech science, funding and research flocks to certain hot topics, as people hunt for funding by trying to tie their proposal to the current hot topics. But then this is perhaps more a consequence of an already corrupted funding process that only supports R&D that conforms to current preconceived notions and business interests.


          bakho said...

          Money supports bias.

          RC AKA Darryl, Ron said...

          Money is power. Power corrupts.

          mrrunangun said...

          Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of funding sources, is stock in trade. Scientific research has become so capital intensive that large grants from government and large foundations are necessary to carry it out. For the most part, the biases of the granting institutions are known and discounted.

          Even in science, when research into a controversial area has been ambiguous enough for sustained disagreement, it is common to find that a given research shop's work consistently comes down on one side of the controversy and another shop's work consistently on the opposing side of the controversy. In such cases, only people who follow the research in the area closely are likely to be aware of this. Usually time and technical improvements in measuring equipment puts controversies to rest, but the time is often measured in years. In these cases, the biases come from the leaders of the research shops rather than the grantors.

          There are politics among granting institutions as well. These are less often political biases and more often they are of a personal nature, and since the people on a granting committee are necessarily expert in the field that the grantee will be working in, they will often be personally acquainted with the grant applicants. Not uncommonly, former students of the members of the committee.

          Economics and long range climate science are necessarily model-based. Their short-term predictions are often proven wrong which casts doubt on the reliability of their long-term predictions. As a result, there may be legitimate differences of opinion as to the applicability of a particular model to a particular situation.

          In the case of Mr Litan, the fact that he acknowledged that his study was funded by Capital and that he was testifying on behalf of the industry announce his bias.

          GeorgeK said...

          Tainted research is the norm in most industries, research dollar come from corporations that expect their interest to be served. Currently Monsanto emails show how heavy handed this pay for research problem has become. ...""Professors/researchers/scientists have a big white hat in this debate and support in their states, from politicians to producers," Bill Mashek, a vice president at Ketchum, a public relations firm hired by the biotechnology industry, said in an email to a University of Florida professor. "Keep it up!"...

          http://www.nytimes.com/2015/09/06/us/food-industry-enlisted-academics-in-gmo-lobbying-war-emails-show.html

          DeDude said...

          The antidote to this kind of crap is the public funded University with tenured professors and sufficient resources (endowed Chairs) to conduct research without need to go out and get external funding for a study. As the public funding is reduced in order to give tax cuts to the rich plutocrats such truly independent research become more rare -and the plutocrats increasingly manage to own the facts.

          [Oct 19, 2015] Halliburton Cuts More Jobs as Fracking Hit Worst in Downturn

          Notable quotes:
          "... The pumping business in North American is clearly the most stressed segment of the market today, but it's also the market we know the best, President Jeff Miller told analysts and investors Monday on a conference call. This is the segment that we expect to rebound the most sharply. ..."
          Bloomberg Business

          Halliburton Co. cut another 2,000 jobs in the past month as the worst oil market slump in decades saps demand for work at the world's largest provider of fracking services.

          The Houston-based company said the first quarter of next year may represent the lowest point for its North American profit margin as customers start fresh with new spending budgets for 2016 and tap Halliburton's pressure-pumping expertise to start new wells. The comments came after the company reported a third-quarter loss of $54 million.

          "The pumping business in North American is clearly the most stressed segment of the market today, but it's also the market we know the best," President Jeff Miller told analysts and investors Monday on a conference call. "This is the segment that we expect to rebound the most sharply."

          Oil has swung between a bear and a bull market in North America this year as the drilling rig count slid. Explorers have cut more than $100 billion from global spending plans for the year after crude prices fell by more than half since June 2014.

          Quarterly Loss

          Halliburton had a loss of 6 cents a share in the third quarter compared with net income of $1.2 billion, or $1.41, a year earlier, according to a statement Monday. Excluding certain items, the per-share result was 4 cents more than the 27-cent average of 34 analysts' estimates compiled by Bloomberg. Sales dropped 36 percent to $5.6 billion.

          The company has now cut its workforce by 18,000, or about 21 percent, since its peak last year, Emily Mir, a spokeswoman, said Monday in an e-mail.

          Prices that service companies charge for hydraulic fracturing, which blasts water, sand and chemicals underground to release trapped hydrocarbons, are projected to fall as much as 37 percent in North America this year, according to IHS Inc. Fracking represents about 70 percent of the cost for an average U.S. well, Chief Executive Officer Dave Lesar said on the call.

          [Oct 18, 2015] Everything You Need to Know about Laissez-Faire Economics -- Economist View discussion

          Alan Kirman is a great economist. Amazingly clear exposition of complex subjects.
          Notable quotes:
          "... I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950s, to try to show that a market or an economy would converge on that. But we gave up on that in the 70s when there were results that showed that essentially we couldnt prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. ..."
          "... Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad thing? Anything you would like to say on that topic. ..."
          "... The idea that anything even close to laissez faire ever exisited is silly ..."
          "... Laissez faire has never existed; it is code for when the govt allows the rich to trample the poor, and the govt actively sides with the rich ..."
          "... Too often, efficiency is modeled too simply, failing to capture important benefits. You may make widgets with fewer workers and more unemployed but at the loss of workforce training, most of which is on the job. ..."
          "... You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. ..."
          "... If industry is freed by reducing their investment in human capital, replacement investment in human capital must come from elsewhere in higher taxes on business to pay for training that may be less effective. Else workforce quality declines and becomes a drag on overall economic efficiency. ..."
          economistsview.typepad.com

          A few excerpts from a much longer interview of Alan Kirman (it was in yesterday's links)

          Everything You Need to Know about Laissez-Faire Economics: ... DSW: I'm so happy to talk with you about the concept of laissez faire, all the way back to its origin, which as I understand it is during the Enlightenment. ...

          AK: I think the basic story that really interests us is that with the Enlightenment and with people like Adam Smith and David Hume, people had this idea that somehow intrinsically people should be left to their own devices and this would lead society to a state that was satisfactory in some sense for everybody, with some limits of course–law and order and so on. That's the idea that is underlying our whole social and philosophical position ever since. ... I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950's, to try to show that a market or an economy would converge on that. But we gave up on that in the 70's when there were results that showed that essentially we couldn't prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. On the other hand, since we can't show that it gets there, we talk about economies that are in equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism that gets us there. And that's what we're lacking–a mechanism. ...

          DSW: ...This has been a wonderful conversation, by the way. Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad thing? Anything you would like to say on that topic.

          AK: I think that one obsession that economists have is with efficiency. We're always, always, worrying about efficiency. People like to say that this is efficient or not efficient. The argument is, we know that if you free up markets you get a more efficient allocation of resources. That obsession with efficiency has led us to say that we must remove some of these restraints and restrictions and this sort of social aid that is built into the Scandinavian model. I think that's without thinking carefully about the consequences. ...

          I think what has happened is, because of this mythology about totally free markets being efficient, we push for that all the time and in so doing, we started to do things like-for example, we hear all the time that we have to reform labor markets in Europe. Why do we want to reform them? Because then they'll be more competitive. You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. In model that is more complex, that sort of arrangement wouldn't necessarily be one that in your terms would be selected for. When you do that, you make many people temporary workers. You have complete ease in hiring and firing so that people are shifting jobs all the time. When they do that, we know that employers then invest nothing in their human capital. ... We're reducing the overall human capital in society by having an arrangement like that. ... Again, the idea that people who are out of work have chosen to be out of work and by giving them a social cushion you induce them to be out of work-that simply doesn't fit with the facts. I think that all the ramification of these measures-the side effects and external effects-all of that gets left out and we have this very simple framework that says "to be competitive, you just have to free everything up." That's what undermining the European system. European and Scandinavian systems work pretty well. ... The last remark I would make is that to say "you've got to get rid of all those rules and regulations you have"-in general, those rules and regulations are there for a reason. Again, to use an evolutionary argument, they didn't just appear, they got selected for. We put them in place because there was some problem, so just to remove them without thinking about why they are there doesn't make a lot of sense. ...

          DSW: There's no invisible hand to save the day.

          AK: (laughs). Joe Stiglitz used to say that we also need a visible hand. The visible hand is sometimes pretty useful. For example in the financial sector I think you really need a visible hand and not an invisible hand. ...

          e abrams said...

          The idea that anything even close to laissez faire ever exisited is silly

          at all stages, the gov't actively intervened in the economy; eg, look at the rules for labor unions....

          Laissez faire has never existed; it is code for when the gov't allows the rich to trample the poor, and the gov't actively sides with the rich

          bakho said...

          I enjoyed the interview with Kirman. Thanks for posting.

          Too often, efficiency is modeled too simply, failing to capture important benefits. You may make widgets with fewer workers and more unemployed but at the loss of workforce training, most of which is on the job. This is important:

          You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. In model that is more complex, that sort of arrangement wouldn't necessarily be one that in your terms would be selected for. When ... you make many people temporary workers.... so that people are shifting jobs all the time. ..employers then invest nothing in their human capital. ... We're reducing the overall human capital in society .. If you're working for ... all your lifetime, they probably invest quite a lot in you. ... it is a much more stable arrangement. .. the ramification of these measures-the side effects and external effects... gets left out and we have this very simple framework that says "to be competitive, you just have to free everything up."

          If industry is freed by reducing their investment in human capital, replacement investment in human capital must come from elsewhere in higher taxes on business to pay for training that may be less effective. Else workforce quality declines and becomes a drag on overall economic efficiency.

          [Oct 18, 2015] Alan Kirman interview: everything You Need to Know about Laissez-Faire Economics

          Notable quotes:
          "... That's the idea that is underlying our whole social and philosophical position ever since. Economics is trying to run along side that. Initially the idea was to let everybody do what they want and this would somehow self-organize. But nobody said what the mechanism was that would do the self-organization. John Stewart Mill advanced the same position. He had the idea that people had to be given, as far as their role would permit, the possibility of doing their own thing, and this would be in the interests of everybody. And gradually we came up against this difficulty that we couldn't show economically, in a market for example, how we would ever get to such a position. I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950's, to try to show that a market or an economy would converge on that. But we gave up on that in the 70's when there were results that showed that essentially we couldn't prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. On the other hand, since we can't show that it gets there, we talk about economies that are in equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism that gets us there. And that's what we're lacking–a mechanism. Is that clear more or less? ..."
          "... Theory of Moral Sentiments ..."
          "... Nowadays, if you take a very primitive version of the invisible hand, people say something like "greed is good". Somehow, if everyone is greedy and tries to serve their own interest, it will get to a good position socially. Adam Smith didn't have that view at all. He had the view that people have other things in mind. For example he said that one of the strongest motivations men have is to be seen to be a good citizen and therefore would do things that would appear to other people to be good. If you have motivations like that then you can be altruistic and you're not behaving like the strict Homo economicus ..."
          "... Walras wasn't someone who pushed hard for laissez faire, but he started to build the weapons for trying to understand whether all markets could get into equilibrium. He wasn't so interested, himself, on whether the equilibrium was good for society; in other words, Adam Smith's original position. I would say that Walras was more a person who was worried about the very existence of equilibrium and he tried desperately at various points to show how we might get there. I don't think he was arguing in favor of laissez faire. I wouldn't regard Walras as being strictly in that tradition. ..."
          "... Pareto was concerned about the idea of the invisible hand himself. He said: "Look, what I want to show you is that the competitive equilibrium is a social optimum. He was the person to define what we now call a Pareto optimum, a situation in which you cannot make one person better off without making somebody else worse off-which is a pretty weak criterion, but still is a criterion for some sort of social efficiency. He was interested in the relationship between the two, so he brought us back on track to what I interpret as the invisible hand. Then, we can make a huge jump it you want to the first theorem of welfare of economics. That, mistakenly, is often referred to as the invisible hand theorem. But it is nothing about the invisible hand. It just says that if you are in a competitive equilibrium, then that will be a Pareto optimum, in the sense that I have just mentioned. You couldn't make someone better off without making someone else worse off. That's all it says. It does not say that if you leave a society alone it will get there, but thousands of people have interpreted it in that way. ..."
          "... He had a different position from Walras company and he wasn't very consistent in his views. According to Hayek, Walras said that nobody influences prices but take prices as given, and then somebody, not specified, adjusts them until they get to equilibrium. There is some mechanism out there. ..."
          "... The Road to Serfdom ..."
          "... He believed that people with little information of their own, like ants, would somehow collectively get it right. It was a very different view of the world than Walras. ..."
          "... he was a pioneer in two respects. First of all, he grasped the idea of self-organizing and decentralized processes-that the intelligence is in the system, not in any individual, and secondly cultural group selection, that the reason economic systems were like this is because of some past history of better systems replacing worse systems. The wisdom of the system was the product of cultural group selection, as we would put it today, and that we shouldn't question its wisdom by tampering with it. Is that a fair thing to say? ..."
          "... Yes, that's a fair thing to say and I think it is what Hayek believed. He didn't actually show how it would happen but you're absolutely right-I think that's what he believed and he thought tampering with this system would make it less perfect and work less well, so just leave it alone. I don't think he had in mind, strictly speaking, group-level selection, but that's clearly his idea. A system that works well will eventually come to outstrip other systems. That's why he was advising Thatcher. ..."
          "... He was much less naďve than Friedman. Friedman has a primitive natural selection argument that if firms aren't doing better than other firms they'll go bust and just die. That's a summary of Friedman's evolutionary argument! But Hayek is much more sophisticated-you're absolutely right. ..."
          "... Friedman and Hayek didn't see eye to eye at all, as I understand it. Hayek was actually very concerned that Friedman and other mathematical economists took over the Mont Pelerin Society, if I understand it correctly, but now let's put Friedman on center stage, and also the society as a whole and the creation of all the think tanks, which caused the society to become politically influential. ..."
          "... "Greed is Good" sounds so simplistic, but what all of this seems to do is to provide some moral justification for individuals or corporations to pursue their own interests with a clear conscience. It's a moral justification for "Greed is Good", despite all of the complexities and all of the mathematics-that's what it seems to come down to. Am I wrong about that? ..."
          "... Macroeconomic models are still all about equilibria, don't worry about how we got them, and their nice efficient properties, and so forth. They are nothing to do with distribution and nothing to do with disequilibrium. Two big strands of thought-Keynes and all the people who work on disequilibrium-they're just out of it. We're still working as if underlying all of this, greed-we don't want to call it greed, but something like greed-is good. ..."
          "... Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. ..."
          "... We're always, always, worrying about efficiency. People like to say that this is efficient or not efficient. The argument is, we know that if you free up markets you get a more efficient allocation of resources. That obsession with efficiency has led us to say that we must remove some of these restraints and restrictions and this sort of social aid that is built into the Scandinavian model. I think that's without thinking carefully about the consequences. ..."
          "... just to make my position clear, the idea of no regulations is absurd. For a system that is basically well adapted to its environment, then most of its regulations are there for a reason, as you say, but one of the things that everyone needs to know about evolution is that a lot of junk accumulates. There is junk DNA and there is junk regulations. Not every regulation has a purpose just because it's there, and when it comes to adapting to the future, that's a matter of new regulations and picking the right one out of many that are wrong. The question would be, how do you create smart regulations? Knowing that you need regulations, how do you create smart ones? That's our challenge and the challenge of someone who appreciates complexity, as you do. How would you respond to that? ..."
          evonomics.com

          What you always wanted to know about the "let it be" philosophy

          I'll bet money that Alan Kirman is the only economist with animated ants running around his email signature. Highly regarded by mainstream economists, he is also a critic of equilibrium theory and proponent of new economic thinking that takes complex systems theory into account. It was my privilege to work with Alan and Germany's Ernst Strungmann Forum to organize a conference titled "Complexity and Evolution: A New Synthesis for Economics" that was held in February 2015 and will result in a volume published by the MIT press in 2016.

          After the conference was over, I sought Alan out to help me understand the complex history of laissez faire, the "let it be" philosophy that underlies mainstream economic theory and public policy.

          DSW: I'm so happy to talk with you about the concept of laissez faire, all the way back to its origin, which as I understand it is during the Enlightenment. Then we can bring it up to date with some of its formalized versions in economic theory. Tell me what you know about the early history of laissez faire.

          AK: I think the basic story that really interests us is that with the Enlightenment and with people like Adam Smith and David Hume, people had this idea that somehow intrinsically people should be left to their own devices and this would lead society to a state that was satisfactory in some sense for everybody, with some limits of course–law and order and so on. That's the idea that is underlying our whole social and philosophical position ever since. Economics is trying to run along side that. Initially the idea was to let everybody do what they want and this would somehow self-organize. But nobody said what the mechanism was that would do the self-organization. John Stewart Mill advanced the same position. He had the idea that people had to be given, as far as their role would permit, the possibility of doing their own thing, and this would be in the interests of everybody. And gradually we came up against this difficulty that we couldn't show economically, in a market for example, how we would ever get to such a position. I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950's, to try to show that a market or an economy would converge on that. But we gave up on that in the 70's when there were results that showed that essentially we couldn't prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. On the other hand, since we can't show that it gets there, we talk about economies that are in equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism that gets us there. And that's what we're lacking–a mechanism. Is that clear more or less?

          DSW: Yes, but it was very fast! I want to pull us back to the early times and make a couple of observations. First of all, that the first thinking about laissez faire came at a time when government was monarchy and absolutist rule. The whole struggle of the Enlightenment, to have a more egalitarian and inclusive society, was part of this. Am I right about that?

          AK: Absolutely right. There was a social and philosophical revolution, precisely because of that. Men were trying to liberate themselves from a very hierarchical and monarchical organization. And economics tried to go along with that. There were good reasons and I think that even now there is no reason to say that there is anything wrong with the liberal position. On the other hand, what we can't show is that there is anything that would enable a liberal approach like that to get things under control. So you're right. It was a reaction to very autocratic systems that led the whole of the laissez faire and liberal position to develop.

          DSW: Right. So laissez faire made a lot of sense against the background of monarchy and controlling church and so on. Now I know that Adam Smith invoked the invisible hand metaphor only three times in the entire corpus of his work and it is said that his first book on moral sentiments is much more nuanced than the popular notion of the invisible hand. Could you speak a little more on Adam Smith? On the one hand he's an advocate of laissez faire but on the other hand he is very nuanced in both of his books but especially in his Theory of Moral Sentiments. What do you have to say about that?

          AK: Right. Adam Smith was fully cognizant of the fact that man is motivated by many things. Nowadays, if you take a very primitive version of the invisible hand, people say something like "greed is good". Somehow, if everyone is greedy and tries to serve their own interest, it will get to a good position socially. Adam Smith didn't have that view at all. He had the view that people have other things in mind. For example he said that one of the strongest motivations men have is to be seen to be a good citizen and therefore would do things that would appear to other people to be good. If you have motivations like that then you can be altruistic and you're not behaving like the strict Homo economicus. Adam Smith didn't take the strong position that people left entirely to their own selfish devices will make things OK. He had the view that man is much more complicated and governed by his emotions. He talks a lot about sympathy, which we would now call empathy.

          DSW: That's great! Now let's talk about Walras and what his ambitions were to come up with the first mathematical justification for laissez faire, as I understand it.

          AK: Actually, Walras himself didn't talk so much about laissez faire. He at that time had a very simple idea, that the amount of goods that people wanted to supply at a given price would be the amount that people would want to buy; i.e, demand at that price, so if those two were equal then that was the equilibrium price. Then he said that if we have many markets, how can we be sure that they will simultaneously be cleared, because after all if you raise the price in one market then that will effect the price in other markets. If you raise the price of bananas then the price of oranges will be effected, and so forth. He said "my problem is to solve the market clearing for all goods", but he was not so interested in the underlying philosophical context. Walras wasn't someone who pushed hard for laissez faire, but he started to build the weapons for trying to understand whether all markets could get into equilibrium. He wasn't so interested, himself, on whether the equilibrium was good for society; in other words, Adam Smith's original position. I would say that Walras was more a person who was worried about the very existence of equilibrium and he tried desperately at various points to show how we might get there. I don't think he was arguing in favor of laissez faire. I wouldn't regard Walras as being strictly in that tradition.

          DSW: OK, that's new for me. So what about the rise of so-called neoclassical economics. At what point did it become toward demonstrating what I understand is the first fundamental theorem of economics-laissez faire leads to the common good and that being justified by some mathematical apparatus. Where does that come from, if not from Walras?

          AK: We missed a very important step, which is [Vilfredo] Pareto. Pareto was concerned about the idea of the invisible hand himself. He said: "Look, what I want to show you is that the competitive equilibrium is a social optimum. He was the person to define what we now call a Pareto optimum, a situation in which you cannot make one person better off without making somebody else worse off-which is a pretty weak criterion, but still is a criterion for some sort of social efficiency. He was interested in the relationship between the two, so he brought us back on track to what I interpret as the invisible hand. Then, we can make a huge jump it you want to the first theorem of welfare of economics. That, mistakenly, is often referred to as the invisible hand theorem. But it is nothing about the invisible hand. It just says that if you are in a competitive equilibrium, then that will be a Pareto optimum, in the sense that I have just mentioned. You couldn't make someone better off without making someone else worse off. That's all it says. It does not say that if you leave a society alone it will get there, but thousands of people have interpreted it in that way.

          DSW: OK. So where do we go from here? Tell me a little about agency theory, which is also something that seems to imply, if I understand it, that the only responsibility of corporations is to maximize their profits. The economy will work well if that's their only obligation.

          AK: That's not exactly a sideline but a development where people are worrying about firms in addition to individuals. When you are just dealing with individuals in a simple economy, when they are exchanging goods there is no problem. When you get firms in there you need to ask "What's the objectives of these firms?" The objective, the argument is, is if they maximize profit then they are maximizing their shareholders' benefits and so therefore we get to the idea of increasing the welfare of society as a whole. But there is a huge leap there, because we haven't specified closely in our models who owns these firms and how ownership is transferred between these people. So I think there is a fuzzy area there, which is not completely included in the theory.

          DSW: Please give me a thumbnail history of the Mont Pelerin Society and the role it played in advancing economic theory and policy. So this would be Hayek, Friedman and all that.

          AK: The great hero of that society was Hayek. He had a different position from Walras & company and he wasn't very consistent in his views. According to Hayek, Walras said that nobody influences prices but take prices as given, and then somebody, not specified, adjusts them until they get to equilibrium. There is some mechanism out there. That was Walras. Hayek said "Not at all!" He said - actually he was a horrid man.

          DSW: Wait a minute! Why was he a horrid man? You can't just glide over that!

          AK: The reason I say that is-he had very clever ideas-but he was extremely bigoted, he was racist. There is a wonderful interview with him that you can find on You Tube, where he says (imitating Hayek's accent) "I am not a racist! People accuse me of being a racist. Now it's true that some of the Indian students at the London School of Economics behave in a very nasty way, typical of Indian people…" and he carries on like this. So that's one reason he is horrid. A second thing is that if you don't believe he is horrid, David, I will send you his book The Road to Serfdom, which said that if there is any planning going on in the economy, it will inevitably lead you to a fascist situation. When he produced that book it had a big success, particularly in the United States, and what is more, he authorized a comic book version of it, which is absolutely dreadful. One Nobel Prize winner, [Ronald] Coase, said "you are carrying on so much against central planning, you forget that a large part of our economy is actually governed by centrally planned institutions, i.e., big firms, and these big firms are doing exactly what you say they can't do. Hayek shrugged that off, but what he did in his book was say that if any planning goes on then eventually you are all going to wind up in a fascist state where you'll be shot if you don't do what you're told to do. At the end of the book there is some poor guy who's being shot because he wants to be a carpenter or a plumber, or something like that. It's terrible! And the irony of the whole situation is that comic book was issued and financed by General Motors, and GM of course is one of those corporations that Hayek didn't see were centrally planned institutions. That's way I say that Hayek was a dreadful person.

          Hayek's idea was, there is no way that people could know what was going on and could know what the prices of goods are. Everyone has a little piece of information of their own, and in acting upon it, this news gets out into the market. So, for example I buy something such as a share, and you say "Oh, Kirman bought a share, so something must be going on there, based on information that he had that I didn't have", and so forth. Hayek's idea was that this mechanism-people watching each other and getting information from their acts, would lead you to the equilibrium that would be a socially optimal state. But again, he never specified closely what the mechanism was. He has little examples, such as one about shortage of tin and how people would adjust, but never really specified the mechanism. He believed that people with little information of their own, like ants, would somehow collectively get it right. It was a very different view of the world than Walras.

          DSW: So he was a pioneer in two respects. First of all, he grasped the idea of self-organizing and decentralized processes-that the intelligence is in the system, not in any individual, and secondly cultural group selection, that the reason economic systems were like this is because of some past history of better systems replacing worse systems. The wisdom of the system was the product of cultural group selection, as we would put it today, and that we shouldn't question its wisdom by tampering with it. Is that a fair thing to say?

          AK: Yes, that's a fair thing to say and I think it is what Hayek believed. He didn't actually show how it would happen but you're absolutely right-I think that's what he believed and he thought tampering with this system would make it less perfect and work less well, so just leave it alone. I don't think he had in mind, strictly speaking, group-level selection, but that's clearly his idea. A system that works well will eventually come to outstrip other systems. That's why he was advising Thatcher. Just trust the markets and let things go. Get rid of the unions, and so forth. So it's clearly he had in mind that interfering with that system would just lead you to a worse social situation. He was much less naďve than Friedman. Friedman has a primitive natural selection argument that if firms aren't doing better than other firms they'll go bust and just die. That's a summary of Friedman's evolutionary argument! But Hayek is much more sophisticated-you're absolutely right.

          DSW: I think Hayek was explicit about cultural group selection, and Friedman-I've paid quite a bit of attention to his 1953 article on positive economics, in which he makes a very naďve evolutionary argument. Friedman and Hayek didn't see eye to eye at all, as I understand it. Hayek was actually very concerned that Friedman and other mathematical economists took over the Mont Pelerin Society, if I understand it correctly, but now let's put Friedman on center stage, and also the society as a whole and the creation of all the think tanks, which caused the society to become politically influential.

          AK: Yes, I think that it coincided very nicely with conservative ideology and people who had really strongly liberal-not in the Mills sense (you have to make this distinction particularly in the United States where these words have different meanings), but really completely free market leave-everybody-to-their own-thing libertarian point of view. Those people found it a wonderful place to gather and reinforce themselves. And Hayek was a strong member of that. Another was Gary Becker, but I don't know how directly. Becker had the economics of everything-divorce, whatever. You'd have these simple arguments, but not necessarily selection arguments, often some sort of justification in terms of a superior arrangement. The marginal utility of the woman getting divorced just has to equal the marginal utility of not getting divorced and that would be the price of getting divorced, and that sort of stuff. Adam Smith would have rolled over in this grave because he believed emotions played a strong role in all of this and the emotions that you have during divorce don't tie into these strict calculations.

          DSW: This is a tailor-made ideology for powerful interests, powerful people and corporations who simply do want to have their way. Is that a false statement to make?

          AK: No, I think that's absolutely right. They can benefit from using that argument to advance their own ends. As someone once said, if you think of saying to firms, we're going to diminish their taxes, no firm in its right mind would argue with that. Even though they might think deep down that there are other things that could be done for society. There are some things which are part of this philosophy which is perfect for firms and powerful interest groups. You're absolutely right. And so they lobby for this all the time, pushing for these positions that are in fact in their own interest.

          DSW: So, at the end of the day, "Greed is Good" sounds so simplistic, but what all of this seems to do is to provide some moral justification for individuals or corporations to pursue their own interests with a clear conscience. It's a moral justification for "Greed is Good", despite all of the complexities and all of the mathematics-that's what it seems to come down to. Am I wrong about that?

          AK: I think you're absolutely right. What's interesting is that if you look at various economic situations, like today the first thing that people tell you about the Greeks is that they are horrid ideological people. But the people on the other side have an equally strong ideology, which is being justified by the sort of economic models that we are building. Remember that even though we had this discussion about how this became a real difficulty in theoretical economics, in macroeconomics they simply carried on as if these theoretical difficulties hadn't happened. Macroeconomic models are still all about equilibria, don't worry about how we got them, and their nice efficient properties, and so forth. They are nothing to do with distribution and nothing to do with disequilibrium. Two big strands of thought-Keynes and all the people who work on disequilibrium-they're just out of it. We're still working as if underlying all of this, greed-we don't want to call it greed, but something like greed-is good.

          DSW: Could I ask about Ayn Rand and what role she played, if any? On the one hand she was not an economist, she was just a philosopher and novelist. On the other hand, she is right up there in the pantheon of free market deities alone with Smith, Hayek and Friedman. Do you ever think about Ayn Rand. Does any economist think about Ayn Rand?

          AK: That's an example of my narrowness that I never read Ayn Rand, I just read about her. I think it would be unfair now to make any comments about that because I'd be as uninformed as some people who talk about Adam Smith. What I should do at some point is read some of her work, because she is constantly being cited on both sides as a dark bad figure or as a heroine in the pantheon as you said, with Hayek and everybody else. I just admit my ignorance and I don't know if Rand had a serious position on her own or whether she is being cited as a more popular and easily accessible figure.

          DSW: Fine! I'd like to wrap this up with two questions. This has been a wonderful conversation, by the way. Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad thing? Anything you would like to say on that topic.

          AK: I think that one obsession that economists have is with efficiency. We're always, always, worrying about efficiency. People like to say that this is efficient or not efficient. The argument is, we know that if you free up markets you get a more efficient allocation of resources. That obsession with efficiency has led us to say that we must remove some of these restraints and restrictions and this sort of social aid that is built into the Scandinavian model. I think that's without thinking carefully about the consequences. Let me tell you my favorite and probably not very funny story about how economists are obsessed with efficiency. There were three people playing golf; a priest, a psychoanalyst, and an economist. The got very upset because the guy in front was playing extremely slowly and he had a caddy to help him. So these guys get very upset and they start to shout and say "Come on, can we play through please! You can't waste all of our afternoon!" They sent the priest up to find out what was going on and he came back absolutely crestfallen and said "You know why that poor guy is laying so slowly? It's because he's blind. I'm so upset because every Sunday I'm preaching to people to be nice to others." He turns to his psychoanalyst friend and say's "Joe, what do you think?" Joe says "I have these guys on my coach every week. I'm trying to help them live with this problem and here I am screaming at this guy. It's horrible!" Then they turn to the economist and say "Fred, what do you think?" Fred says "I think that this situation is totally inefficient. This guy should play at night!" As you can see, this is a very different attitude to how the world works.

          I think what has happened is, because of this mythology about totally free markets being efficient, we push for that all the time and in so doing, we started to do things like-for example, we hear all the time that we have to reform labor markets in Europe. Why do we want to reform them? Because then they'll be more competitive. You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. In model that is more complex, that sort of arrangement wouldn't necessarily be one that in your terms would be selected for. When you do that, you make many people temporary workers. You have complete ease in hiring and firing so that people are shifting jobs all the time. When they do that, we know that employers then invest nothing in their human capital. When you have a guy who may disappear tomorrow-and we have a lot of these temporary agencies now in Europe–which send you people when you need them and take away people when you don't. Employers don't spend anything on human capital. We're reducing the overall human capital in society by having an arrangement like that. If you're working for Toyota, Toyota knows pretty much that you'll be working all your lifetime, so they probably invest quite a lot in you. They make you work hard for that, but nevertheless it is a much more stable arrangement. Again, the idea that people who are out of work have chosen to be out of work and by giving them a social cushion you induce them to be out of work-that simply doesn't fit with the facts. I think that all the ramification of these measures-the side effects and external effects-all of that gets left out and we have this very simple framework that says "to be competitive, you just have to free everything up." That's what undermining the European system. European and Scandinavian systems work pretty well. Unemployment is not that high in the Scandinavian system. It may be a little bit less efficient but it may also be a society where people are a little bit more at ease with themselves, than they are in a society where they are constantly worrying about what will happen to them next. The last remark I would make is that to say "you've got to get rid of all those rules and regulations you have"-in general, those rules and regulations are there for a reason. Again, to use an evolutionary argument, they didn't just appear, they got selected for. We put them in place because there was some problem, so just to remove them without thinking about why they are there doesn't make a lot of sense.

          DSW: Right, but at the same time, a regulation is a like a mutation: for every one that's beneficial there are a hundred that are deleterious. So…

          AK: You are an American, deep at heart! You believe that all these regulations are dreadful. Think of regulations about not allowing people to work too near a chain saw that's going full blast, or not being allowed to work with asbestos and so forth. Those rules, I think, have a reason to be there.

          DSW: Well of course, but just to make my position clear, the idea of no regulations is absurd. For a system that is basically well adapted to its environment, then most of its regulations are there for a reason, as you say, but one of the things that everyone needs to know about evolution is that a lot of junk accumulates. There is junk DNA and there is junk regulations. Not every regulation has a purpose just because it's there, and when it comes to adapting to the future, that's a matter of new regulations and picking the right one out of many that are wrong. The question would be, how do you create smart regulations? Knowing that you need regulations, how do you create smart ones? That's our challenge and the challenge of someone who appreciates complexity, as you do. How would you respond to that?

          AK: I think you're absolutely right. It's absolutely clear that as these regulations accumulate, they weren't developed in harmony with each other, so you often get even contradictory regulations. Every now and then, simplifying them is hugely beneficial. But that doesn't mean getting rid of regulations in general. It means somehow managing to choose between them, and that's not necessarily a natural process. For example, in France when I arrived here it used to take about a day and a half to make my tax return. Now it takes around about 20 minutes, because some sensible guy realized that you could simplify this whole thing and you could put a lot of stuff already into the form which they have received. They have a lot of information from your employer and so forth. They've simplified it to a point where it takes me about 20 minutes a year to do my tax return. It used to take a huge amount of time.

          DSW: Nice!

          AK: What's interesting is that you have some intelligent person saying "let's look at this and see if we can't make these rules much simpler, and they did. I have conflicting views, like you. These things are usually there for a reason, so you shouldn't just throw them away, but how do you select between them. I don't think that they necessarily select themselves out.

          DSW: I would amend what you said. You said that some intelligent person figured out how to make the tax system work better in France. Probably not just a single intelligent person. Probably it was an intelligent process, which included intelligent people, but I think that gets us back to the idea that we need systemic processes to evaluate and select so that we become adaptable systems. But that will be systemic thing, not a smart individual.

          AK: You're absolutely right. I shouldn't have said smart individual because what surely happened was that there was a lot of pressure on the people who handle all of these things, and gradually together they realized that this situation was becoming one where their work was becoming almost impossible to achieve in the time available. So there was some collective pressure that led them to form committees and things that thought about this and got it together. So it was a natural process of a system, but it wasn't the rules themselves that selected themselves out, as it were. It was the collectivity that evolved in that way to make it simpler.

          DSW: There's no invisible hand to save the day.

          AK: (laughs). Joe Stiglitz used to say that we also need a visible hand. The visible hand is sometimes pretty useful. For example in the financial sector I think you really need a visible hand and not an invisible hand.

          DSW. That's great and a perfect way to end. I'm so happy to have had this conversation, Alan, and to be working with you at the conference we just staged and into the future.

          AK: A pleasure. Always good to talk with you.

          Alan Kirman is professor emeritus of Economics at the University of Aix-Marseille III and at the Ecole des Hautes Etudes en Sciences Sociales and is a member of the Institut Universitaire de France. His Ph.D. is from Princeton and he has been professor of economics at Johns Hopkins University, the Universite Libre de Bruxelles, Warwick University, and the European University Institute in Florence, Italy. He was elected a fellow of the Econometric Society and of the European Economic Association and was awarded the Humboldt Prize in Germany. He is member of the Institute for Advanced Study in Princeton. He has published 150 articles in international scientific journals. He also is the author and editor of twelve books, most recently Complex Economics: Individual and Collective Rationality, which was published by Routledge in July 2010.

          [Oct 18, 2015] What Prosperity Is, Where Growth Comes from, Why Markets Work

          Notable quotes:
          "... In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output." ..."
          "... In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. ..."
          "... Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society. ..."
          "... Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. ..."
          "... And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous. ..."
          "... This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems. ..."
          December 1, 2014 | Democracy Journal ( also reprinted in Evonomics )

          The Price of Everything, the Value of Nothing

          The most basic measure we have of economic growth is gross domestic product. GDP was developed from the work in the 1930s of the American economist Simon Kuznets and it became the standard way to measure economic output following the 1944 Bretton Woods conference. But from the beginning, Kuznets and other economists highlighted that GDP was not a measure of prosperity. In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output."

          In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. Some countries have experimented with other metrics to augment GDP, such as Bhutan's "gross national happiness index."

          Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society.

          Since the field's beginnings, economists have been concerned with why one thing has more value than another, and what conditions lead to greater prosperity-or social welfare, as economists call it. Adam Smith's famous diamond-water paradox showed that quite often the market price of a thing does not always reflect intuitive notions of its intrinsic value-diamonds, with little intrinsic value, are typically far more expensive than water, which is essential for life. This is of course where markets come into play-in most places, water is more abundant than diamonds, and so the law of supply and demand determines that water is cheaper.

          After lots of debate about the nature of economic value in the nineteenth and early twentieth centuries, economists considered the issue largely settled by the mid-twentieth century. The great French economist Gerard Debreu argued in his 1959 Theory of Value that if markets are competitive and people are rational and have good information, then markets will automatically sort everything out, ensuring that prices reflect supply and demand and allocate everything in such a way that everyone's welfare is maximized, and that no one can be made better off without making someone else worse off. In essence, the market price of something reflects a collective judgment of the value of that thing. The idea of intrinsic value was always problematic because it was inherently relative and hard to observe or measure. But market prices are cold hard facts. If market prices provide a collective societal judgment of value and allocate goods to their most efficient and welfare-maximizing uses, then we no longer have to worry about squishy ideas like intrinsic value; we just need to look at the price of something to know its value.

          Debreu was apolitical about his theory-in fact, he saw it as an exercise in abstract mathematics and repeatedly warned about over-interpreting its applicability to real-world economies. However, his work, as well as related work in that era by figures such as Kenneth Arrow and Paul Samuelson, laid the foundations for economists such as Milton Friedman and Robert Lucas, who provided a devastating critique of Keynesianism in the 1960s and '70s, and recent Nobel laureate Eugene Fama, who pioneered the theory of efficient markets in finance in the 1970s and '80s. According to the neoclassical theory that emerged from this era, if markets are efficient and thus "welfare-maximizing," then it follows that we should minimize any distortions that move society away from this optimal state, whether it is companies engaging in monopolistic behavior, unions interfering with labor markets, or governments creating distortions through taxes and regulation.

          These ideas became the intellectual touchstone of a resurgent conservative movement in the 1980s and led to a wave of financial market deregulation that continued through the 1990s up until the crash of 2008. Under this logic, if financial markets are the most competitive and efficient markets in the world, then they should be minimally regulated. And innovations like complex derivatives must be valuable, not just to the bankers earning big fees from creating them, but to those buying them and to society as a whole. Any interference will reduce the efficiency of the market and reduce the welfare of society. Likewise the enormous pay packets of the hedge-fund managers trading those derivatives must reflect the value they are adding to society - they are making the market more efficient. In efficient markets, if someone is willing to pay for something, it must be valuable. Price and value are effectively the same thing.

          Even before the crash, some economists were beginning to question these ideas. Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. Likewise, behavioral economists like Daniel Kahneman began showing that real people didn't behave in the hyper-rational way that Debreu's theory assumed. Other researchers in the 1980s and '90s, even Debreu's famous co-author Arrow, began to question the whole notion of the economy naturally moving to a resting point or "equilibrium" where everyone's welfare is optimized.

          An emerging twenty-first century view of the economy is that it is a dynamic, constantly evolving, highly complex system-more like an ecosystem than a machine. In such a system, markets may be highly innovative and effective, but they can sometimes be far from efficient. And likewise, people may be clever, but they can sometimes be far from rational. So if markets are not always efficient and people are not always rational, then the twentieth century mantra that price equals value may not be right either. If this is the case, then what do terms like value, wealth, growth, and prosperity mean?

          Prosperity Isn't Money, It's Solutions

          In every society, some people are better off than others. Discerning the differences is simple. When someone has more money than most other people, we call him wealthy. But an important distinction must be drawn between this kind of relative wealth and the societal wealth that we term "prosperity." What it takes to make a society prosperous is far more complex than what it takes to make one individual better off than another.

          Most of us intuitively believe that the more money people have in a society, the more prosperous that society must be. America's average household disposable income in 2010 was $38,001 versus $28,194 for Canada; therefore America is more prosperous than Canada.

          But the idea that prosperity is simply "having money" can be easily disproved with a simple thought experiment. (This thought experiment and other elements of this section are adapted from Eric Beinhocker's The Origin of Wealth, Harvard Business School Press, 2006.) Imagine you had the $38,001 income of a typical American but lived in a village among the Yanomami people, an isolated hunter-gatherer tribe deep in the Brazilian rainforest. You'd easily be the richest Yanomamian (they don't use money but anthropologists estimate their standard of living at the equivalent of about $90 per year). But you'd still feel a lot poorer than the average American. Even after you'd fixed up your mud hut, bought the best clay pots in the village, and eaten the finest Yanomami cuisine, all of your riches still wouldn't get you antibiotics, air conditioning, or a comfy bed. And yet, even the poorest American typically has access to these crucial elements of well-being.

          And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous.

          This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems.

          These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for deadly diseases. Ultimately, the measure of a society's wealth is the range of human problems that it has found a way to solve and how available it has made those solutions to its citizens. Every item in the huge retail stores that Americans shop in can be thought of as a solution to a different kind of problem-how to eat, clothe ourselves, make our homes more comfortable, get around, entertain ourselves, and so on. The more and better solutions available to us, the more prosperity we have.

          The long arc of human progress can be thought of as an accumulation of such solutions, embodied in the products and services of the economy. The Yanomami economy, typical of our hunter-gatherer ancestors 15,000 years ago, has a variety of products and services measured in the hundreds or thousands at most. The variety of modern America's economy can be measured in the tens or even hundreds of billions. Measured in dollars, Americans are more than 500 times richer than the Yanomami. Measured in access to products and services that provide solutions to human problems, we are hundreds of millions of times more prosperous.

          [Oct 18, 2015] Oil Market Showdown Can Russia Outlast The Saudis

          The author is pretty naive assuming the KAS can decide to move oil prices without the USA blessing and the US controlled financial market support of such a move. In a sense it's no longer KAS that determine the oil price, it's Wall street as volume of "paper oil" exceeds "real oil" by several times now. Making oil more like a play in another currency. Also probably some tangible or intangible compensation was promized for KAS for putting pressure on Russia.
          Oct 18, 2015 | OilPrice.com

          The Saudi government is also scrambling. After an eight year hiatus from issuing sovereign debt, the Saudi government announced a plan during the summer to borrow $28 billion in 2015 and launched the borrowing with a $5 billion offering in August. The Ministry of Finance has banned contracts for new projects, hiring and promotions, and purchase of vehicles or furniture in the fourth quarter, while the newly created Council for Economic and Development Affairs must now approve all government projects worth more than $27 million. The Saudi government also is preparing to privatize airports and contemplating seeking private financing for infrastructure projects.

          Related: Airstrikes Have Yet To Stop ISIS Oil Industry

          The budget situation puts the Saudi government in a difficult situation. On the one hand, the size of the deficits requires drastic cuts in spending, but such drastic cuts would impact politically sensitive areas such as energy subsidies, government employment opportunities for Saudi citizens, education, and economic development projects. On the other hand, depleting Saudi government reserves to finance the deficits will put the Saudi sovereign credit rating at risk, which would raise the cost of borrowing as well as pressure the Saudi currency (the consequences of which are discussed below).

          [Oct 17, 2015] Tobin Project Book on Regulatory Capture by James Kwak

          January 25, 2013 | baselinescenario.com | 70 Comments

          By James Kwak

          One of the last things I did in law school was write a paper about the concept of "cultural capture," which Simon and I discussed briefly in 13 Bankers as one of the elements of the "Wall Street takeover." The basic idea was that you can observe the same outcomes that you get with traditional regulatory capture without there being any actual corruption. The hard part in writing the paper was distinguishing cultural capture from plain old ideology-regulators making decisions because of their views about the world.

          Anyway, the result is being included in a collection of papers on regulatory capture organized by the Tobin Project. It will be published by Cambridge sometime this year, but for now you can download the various chapters here. It features a lineup including many authors far more distinguished than I, including Richard Posner, Luigi Zingales, Tino Cuéllar, Richard Revesz, David Moss, Dan Carpenter, Nolan McCarty, and others. Enjoy.

          [Oct 16, 2015] Wolf Richter Debt Fueled Stock Buybacks Now Eating into Earnings

          "... This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar , which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser , what we've accomplished in the last year , and our second target , funding for travel to conferences and in connection with original reporting. ..."
          "... These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. ..."
          "... last thing ..."
          "... As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased. ..."
          "... "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy. ..."
          "... But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering ..."
          "... It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living. ..."
          "... "trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering" ..."
          "... I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill ..."
          "... Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar. ..."
          "... 35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip. ..."
          "... Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win. ..."
          "... Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit? ..."
          Oct 16, 2015 | naked capitalism
          This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar, which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser, what we've accomplished in the last year, and our second target, funding for travel to conferences and in connection with original reporting.

          Yves here. As anyone who has been in finance know, leverage amplifies gains and losses. Big company execs, apparently embracing the "IBG/YBG" ("I'll Be Gone, You'll Be Gone") school of management, apparently believed they could beat the day of reckoning that would come of relying on stock buybacks to keep EPS rising, regardless of the underlying health of the enterprise. But even in an era of super-cheap credit, investors expect higher interest rates for more levered businesses, which is what you get when you keep borrowing to prop up per-share earnings. As Richter explains, the chickens are starting to come home to roost.

          Companies with investment-grade credit ratings – the cream-of-the-crop "high-grade" corporate borrowers – have gorged on borrowed money at super-low interest rates over the past few years, as monetary policies put investors into trance. And interest on that mountain of debt, which grew another 4% in the second quarter, is now eating their earnings like never before.

          These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. With impeccable timing: for S&P 500 companies, revenues have been in a recession all year, and the last thing companies need now is higher expenses.

          Risks are piling up too: according to Bloomberg, companies' ability pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009.

          Companies also have to refinance that debt when it comes due. If they can't, they'll end up going through what their beaten-down brethren in the energy and mining sectors are undergoing right now: reshuffling assets and debts, some of it in bankruptcy court.

          But high-grade borrowers can always borrow – as long as they remain "high-grade." And for years, they were on the gravy train riding toward ever lower interest rates: they could replace old higher-interest debt with new lower-interest debt. But now the bonanza is ending. Bloomberg:

          As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased.

          And the benefits of refinancing at lower rates are dwindling further:

          Companies saved a mere 0.21 percentage point in the second quarter on refinancings as investors demanded average yields of 3.12 percent to own high-grade corporate debt – about half a percentage point more than the post-crisis low in May 2013.

          That was in the second quarter. Since then, conditions have worsened. Moody's Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast.

          What's left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields.

          "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy.

          But these are the cream of the credit crop. At the other end of the spectrum – which the JPMorgan analysts (probably holding their nose) did not address – are the junk-rated masses of over-indebted corporate America. For deep-junk CCC-rated borrowers, replacing old debt with new debt has suddenly gotten to be much more expensive or even impossible, as yields have shot up from the low last June of around 8% to around 14% these days:

          US-junk-bonds-CCC-2014_2015-10-15

          Yields have risen not because of the Fed's policies – ZIRP is still in place – but because investors are coming out of their trance and are opening their eyes and are finally demanding higher returns to take on these risks. Even high-grade borrowers are feeling the long-dormant urge by investors to be once again compensated for risk, at least a tiny bit.

          If the global economy slows down further and if revenues and earnings get dragged down with it, all of which are now part of the scenario, these highly leveraged balance sheets will further pressure already iffy earnings, and investors will get even colder feet, in a hail of credit down-grades, and demand even more compensation for taking on these risks. It starts a vicious circle, even in high-grade debt.

          Alas, much of the debt wasn't invested in productive assets that would generate income and make it easier to service the debt. Instead, companies plowed this money into dizzying amounts of share repurchases designed to prop up the company's stock and nothing else, and they plowed it into grandiose mergers and acquisitions, and into other worthy financial engineering projects.

          Now the money is gone. The debt remains. And the interest has to be paid. It's the hangover after a long party. And even Wall Street is starting to fret, according to Bloomberg:

          The borrowing has gotten so aggressive that for the first time in about five years, equity fund managers who said they'd prefer companies use cash flow to improve their balance sheets outnumbered those who said they'd rather have it returned to shareholders, according to a survey by Bank of America Merrill Lynch.

          But it's still not sinking in. Companies are still announcing share buybacks with breath-taking amounts, even as revenues and earnings are stuck in a quagmire. They want to prop up their shares in one last desperate effort. In the past, this sort of financial engineering worked. Every year since 2007, companies that bought back their own shares aggressively saw their shares outperform the S&P 500 index.

          But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S&P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering

          Wolf Richter is a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.


          TomDority, October 16, 2015 at 8:01 am

          One wonders where all that "investment" goes…pretty much into the CEO's pockets and investors pockets because banks do not create money by investing in real legitimate capital formation or producing anything tangible…..i

          It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living.

          These trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering….at the expense of a habitable peaceful planet. Soon, I hope, this dislocation will be corrected. As I have said before, a good start would be to tax that which is harmful (unearned income and rent seeking) and de-tax that which is helpful – real capital formation, infrastructure and maintenance of a habitable planet and the absolutely necessary biodiversity that sustains us.


          david, October 16, 2015 at 8:57 am

          "trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering"

          I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill

          this is not "useless" from the standpoint of those who direct this game.

          Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar.

          the money is used for dividends and buybacks all that money is accumulated by the LBO firms and management to maneuver the situation / process to the point of the bust up – this time they are all going simultaneously for the exit even the most high end S&P firm – the HY prices are deteriorating quickly beyond energy related as % LTV goes higher – before 82′ the LTV of Fortune Cos. was way below 20% – 35% was considered max –

          the same characters / groups will be formed to get to 51% to buy and control the bonds at 20-30% on the dollar in BK and take the assets.

          35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip.

          USA, USA, USA !

          cnchal, October 16, 2015 at 9:38 am

          . . .Now the money is gone. The debt remains. And the interest has to be paid,. . .

          Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win.

          Just Ice, October 16, 2015 at 10:53 am

          "Companies with investment-grade credit ratings …"

          With government-subsidized private credit creation, the whole concept of "creditworthiness" is suspect. Example, is Smith-Wesson "credit-worthy" to many Progressives? Yet, it's their credit, as part of the public, that would be extended should S&W take out a bank loan.

          Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit?

          [Oct 14, 2015] The Financial Sector is Too Big

          October 9, 2015 | naked capitalism

          By Philip Arestis Professor and Director of Research at the Cambridge Centre for Economic & Public Policy and Senior Fellow in the Department of Land Economy at the University of Cambridge, UK, and Professor of Economics at the University of the Basque Country and Malcolm Sawyer, Professor of Economics, University of Leeds. Originally published at Triple Crisis

          Has the financial sector become too large, absorbing too many resources, and enhancing instabilities? A look at the recent evidence on the relationship between the size of the financial sector and growth.

          There has been a long history of the idea that a developing financial sector (emphasis on banks and stock markets) fosters economic growth. Going back to the work of authors such as Schumpeter, Robinson, and more recently, McKinnon, etc., there have been debates on financial liberalisation and the related issue of whether what was relevant to financial liberalisation, namely financial development, "caused" economic development, or whether economic development led to a greater demand for financial services and thereby financial development.

          The general thrust of the empirical evidence collected over a number of decades suggested that there was indeed a positive relationship between the size and scale of the financial sector (often measured by the size of the banking system as reflected in ratio of bank deposits to GDP, and the size of the stock market capitalisation) and the pace of economic growth. Indeed, there have been discussion on whether the banking sector or the stock market capitalisation is a more influential factor on economic growth. The empirical evidence drew on time series, cross section, and panel econometric investigations. To even briefly summarise the empirical evidence on all these aspects is not possible here. In addition, the question of the direction of causation still remains an unresolved issue.

          The processes of financialisation over the past few decades have involved the growing economic, political and social importance of the financial sector. In size terms, the financial sector has generally grown rapidly in most countries, whether viewed in terms of the size of bank deposits, stock market valuations, or more significantly in the growth of financial products, securitisation, and derivatives as well as trading volume in them. This growth of the financial sector uses resources, often of highly trained personnel, and inevitably raises the question of whether those resources are being put to good use. This is well summarised by Vanguard Group founder John Bogle, who suggests, "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It's a waste of resources" (MarketWatch, Aug. 1 2015).

          Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening. The claims were often made by the mainstream that financial liberalisation had removed "financial repression" and stimulated growth. Yet, financial liberalisation in a country often led to banking and financial crises, many times with devastating effects on employment and living standards. Financial crises have become much more frequent since the 1970s in comparison with the "golden age" of the 1950s and 1960s. The international financial crisis of 2007/2008 and the subsequent Great Recession were the recent and spectacular crises (though the scale of previous crises such as the East Asian ones of 1997 should not be overlooked). The larger scale of the financial sector in the industrialised countries has been accompanied (even before 2007) with somewhat lower growth than hitherto. As the quote above suggests there has not been an upsurge of savings and investment, and indeed many would suggest that the processes of financialisation dampen the pressures to invest, particularly in research and development. Has the financial sector become too large, absorbing too many resources, and enhancing instabilities?

          An interesting recent development has been a spate of research papers coming from international organisations and many others, which have pointed in the direction that indeed the financial sector in industrialised countries have become too big-at least when viewed in terms of its impact on economic growth. (See Sawyer, "Financialisation, financial structures, economic performance and employment," FESSUD Working Paper Series No. 93, for a broad survey on finance and economic performance.) These studies rely on econometric (time series) estimation and hence cover the past few decades-which suggests that their findings are not in any way generated by the financial crisis of 2007/2008 and the Great Recession that followed.

          A Bank of International Settlements study concluded that "the complex real effects of financial development and come to two important conclusions. First, financial sector size has an inverted U-shaped effect on productivity growth. That is, there comes a point where further enlargement of the financial system can reduce real growth. Second, financial sector growth is found to be a drag on productivity growth." Cournčde, Denk,and Hoeller (2015) state that "finance is a vital ingredient for economic growth, but there can also be too much of it." Sahay, et al. (2015) find a positive relationship between financial development (as measured by their "comprehensive index") and growth, but "the marginal returns to growth from further financial development diminish at high levels of financial development―that is, there is a significant, bell-shaped, relationship between financial development and growth. A similar non-linear relationship arises for economic stability. The effects of financial development on growth and stability show that there are tradeoffs, since at some point the costs outweigh the benefits."

          There are many reasons for thinking that the financial sector has become too large. Its growth in recent decades has not been associated with facilitating savings and encouraging investment. It has absorbed valuable resources which are largely engaged in the trading in casino-like activities. The lax systems of regulation have made financial crises more likely. Indeed, and following the international financial crisis of 2007/2008 and the great recession a number of proposals have been put forward to avoid similar crises. To this day, nonetheless, the implementation of these proposals is very slow indeed (see, also, Arestis, "Main and Contributory Causes of the Recent Financial Crisis and Economic Policy Implications," for more details).

          See original post for references

          MartyH, October 9, 2015 at 10:28 am

          Now that Michael Hudson's Killing the Host has been available for a while, one suspects a Picketty-like effect with folks "discovering" that Taibbi's Giant Vampire Squid characterization of Goldman-Sachs (one of many) wasn't funny.

          blert, October 9, 2015 at 5:24 pm

          It's a squid that squirts RED INK - onto everyone else.

          susan the other, October 9, 2015 at 11:03 am

          This is a great and readable essay. Sure sounds like Minsky. And even Larry Summers when he advocates for more bubbles. And Wolfgang Schaeuble said repeatedly that "we are overbanked." We just don't know how to do it any other way. When everything crashes it's too late to regulate. Unless Larry knows a clever way to regulate bubbles.

          JTMcPhee, October 10, 2015 at 8:40 am

          The Banksters' refrain:

          "Don't regulate you,
          Don't regulate me!
          Regulate that guy over behind that tree…"

          MY scam is systemically important!

          Just Ice, October 10, 2015 at 3:34 pm

          "We just don't know how to do it any other way. " STO

          Yet there is another way, an equitable way :) Dr. Michael Hudson himself says that industry should be financed with equity, not debt.

          Leonard, October 10, 2015 at 3:53 pm

          Susan
          There is way to manage bubbles before they get out of control. This article explains how. Go to wp.me/WQA-1E

          ben, October 9, 2015 at 11:17 am

          Wasted resources are way higher than the Vanguard example. They misdirect resources especially into land and issue new money as debt.

          RepubAnon, October 10, 2015 at 11:29 pm

          They think that they make their living by "ripping the eyes out of the muppets" – so they're opposed to regulations which would protect the muppets' eyes.

          I look at the financial industry as sort of like sugar for the economy – the right amount is good for you, but too much will kill you.

          Just Ice, October 9, 2015 at 12:35 pm

          "The lax systems of regulation have made financial crises more likely."

          Actually, it's the near unlimited ability of the banks to create deposits ("loans create deposits" but also debts) that causes large scale financial crises. And what is the source of this absurd ability of the banks? ans: government privileges including deposit insurance instead of a Postal Savings Service or equivalent and a fiat (the publics' money) lender of last resort.

          Besides, regulations typically do not address the fundamental injustice of government subsidized banks – extending the publics' credit to private interests.

          Synoia October 9, 2015 at 12:53 pm

          There is something very wrong about money creation from loans. I'm not arguing that this is incorrect, I'm looking at money creation being a burden on the citizenry. I cannot see how this will end well, because of the asymmetric nature, money creation only benefits the banks, of the burden of money creation.

          Just Ice October 9, 2015 at 1:40 pm

          "There is something very wrong about money creation from loans."

          More precisely, there is something very wrong about being driven into debt by government-subsidized private credit creation. Source of the rat race? Look no further.

          zapster October 10, 2015 at 9:32 am

          It's the bank-money vs. government money situation. The hysteria over "The Deficit (gasp)" insures that none of us have cash and must borrow to live. The bankers won.

          Just Ice October 10, 2015 at 1:56 pm

          "It's the bank-money vs. government money situation." zapster

          More precisely, who gets to create the government's money since it is taxation* that drives the value of fiat. But it's an absurd situation since obviously the government ALONE should create fiat, not a central bank for the benefit of banks and other private interests, especially the wealthy.

          As for the private sector, let it create its own money solutions and my bet is that we'll have a much more equitable (pun intended) society as a result.

          The problem then is taxation. How does one tax someone's income in Bitcoins, for example? How does one preclude tax evasion? Unavoidable taxes such as land taxes (except for a homestead exemption) are one possibility.

          *As well as the need to pay the interest on the debt the government subsidized banking cartel drives us into.

          Yves Smith Post author October 10, 2015 at 5:17 pm

          *Sigh*. The government alone does control the money supply in a fiat currency issuer. The government hasn't bothered to do so actively because the only time it DID try doing that (under Reagan and Thatcher) they found out, contra Friedman, that money supply growth bore no relationship to any macroeconomic variable. Monetarism was a failed experiment.

          readerOfTeaLeaves October 9, 2015 at 10:58 pm

          I happened upon a great link - about the probable origins of interest. Here's the link: http://viking.som.yale.edu/will/finciv/chapter1.htm

          Scroll down to "The Idea of Interest". This author posits that back in the (ancient, herding) day, people lent cattle. I lend you my cow, your bull impregnates her, and I get a part of the calf.

          What the author probably didn't understand, but is known to those of us interested in the history of metallurgy, is that there was a belief that metals 'grew' - after all, plants grew from the ground, vines grew from the ground, trees and bushes also grew from the ground. It was not a great stretch to suppose that metals also grew within the ground, and back in those ancient days they expected the same kind of 'growth' from metals that happened with agricultural products.

          Perhaps if I ever get to retire, I can read Hudson's entire work, and possibly he covers this topic. But I do think that it is time for the rest of us to rethink the nature of money - particularly in an emerging digital era.

          cnchal October 10, 2015 at 10:42 am

          Thanks for that link. Here is a little nugget that relates to today.

          The legal limit on interest rates for loans of silver was 20% over much of Dumuzi-gamil's life, but Marc Van De Mieroop demonstrates how Dumuzi-gamil and other lenders got around such strictures - they simply charged the legal limit for shorter and shorter term loans! Curiously, while mathematics during this era was extraordinarily advanced, the government failed to understand, or at least effectively regulate the close link between time and money.

          Sound familiar. It's more like the banksters regulate government.

          As for compound interest, it seems to be the most diabolical human invention yet, as it infers exponential growth without limits.

          Here is Keynes discussing compound interest in his speech "Economic Possibilities for our Grandchildren" (1930)

          From the earliest times of which we have record – back say to two thousand years before Christ – down to the beginning of the eighteenth century, there was no very great change in the standard of life of the average man living in the civilized centres of the earth. Ups and downs certainly. Visitations of plague, famine, and war. Golden intervals. But no progressive, violent change. Some periods perhaps 50 per cent better than others – at the utmost 100 per cent better – in the four thousand years which ended (say) in A.D. 1700.

          This slow rate of progress, or lack of progress, was due to two reasons – to the remarkable absence of important technical improvements and to the failure of capital to accumulate.

          The absence of important technical inventions between the prehistoric age and comparatively modern times is truly remarkable. Almost everything which really matters and which the world possessed at the commencement of the modern age was already known to man at the dawn of history. Language, fire, the same domestic animals which we have today, wheat, barley, the vine and the olive, the plough, the wheel, the oar, the sail, leather, linen and cloth, bricks and pots, gold and silver, copper, tin, and lead – and iron was added to the list before 1000 B.C. – banking, statecraft, mathematics, astronomy, and religion. There is no record of when we first possessed these things.

          At some epoch before the dawn of history – perhaps even in one of the comfortable intervals before the last ice age – there must have been an era of progress and invention comparable to that in which we live today. But through the greater part of recorded history there was nothing of the kind.
          The modern age opened, I think, with the accumulation of capital which began in the sixteenth century. I believe – for reasons with which I must not encumber the present argument – that this was initially due to the rise of prices, and the profits to which that led, which resulted from the treasure of gold and silver which Spain brought from the New World into the Old. From that time until today the power of accumulation by compound interest, which seems to have been sleeping for many generations, was reborn and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.

          Let me give in illustration of this a sum which I have worked out. The value of Great Britain's foreign investments today is estimated at about Ł4,000 million. This yields us an income at the rate of about 6 1/2 per cent. Half of this we bring home and enjoy; the other half, namely, 3 1/2 per cent, we leave to accumulate abroad at compound interest. Something of this sort has now been going on for about 250 years.

          For I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England's foreign debt, balanced her budget, and found herself with about Ł40,000 in hand. This she invested in the Levant Company – which prospered. Out of the profits of the Levant Company, the East India Company was founded; and the profits of this great enterprise were the foundation of England's subsequent foreign investment. Now it happens that Ł40,000 accumulating at 3 1/2 per cent compound interest approximately corresponds to the actual volume of England's foreign investments at various dates, and would actually amount today to the total of Ł4,000 million which I have already quoted as being what our foreign investments now are. Thus, every Ł1 which Drake brought home in 1580 has now become Ł100,000. Such is the power of compound interest !

          From the sixteenth century, with a cumulative crescendo after the eighteenth, the great age of science and technical inventions began, which since the beginning of the nineteenth century has been in full flood – coal, steam, electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production, wireless, printing, Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar to catalogue.

          What is the result? In spite of an enormous growth in the population of the world, which it has been necessary to equip with houses and machines, the average standard of life in Europe and the United States has been raised, I think, about fourfold. The growth of capital has been on a scale which is far beyond a hundred-fold of what any previous age had known. And from now on we need not expect so great an increase of population.

          This reminds me of the huge fortunes growing at compound interest today.

          Take the Gates Foundation as an example.

          From Wikipedia: It had an endowment of US$42.3 billion as of 24 November 2014.

          If this were to grow at a compound interest rate of 7.2% annually, it would double every ten years, and in one hundred years would be $43 trillion dollars and in two hundred years $44,354 trillion or $44.354 quadrillion. It's as if Bill and Warren are playing a practical joke on the world, as their compound interest monster swallows every available dollar.

          I wonder what a loaf of bread will cost in two hundred years?

          nigelk October 9, 2015 at 3:20 pm

          Fractional-reserve banking is anathema to human dignity itself. What was it Gandhi said about "wealth without work"…?

          griffen October 9, 2015 at 12:56 pm

          Top heavy might be the marginally better angle to take here. Although I recently left the state (N Texas, Dallas), Texas banks are being merged or acquired left and right. On some occasions it is necessary if very small institutions are unable to compete, unable to meet a decent ROE bogey (6.0% ROE is sorta low), or just unable to fend off progress.

          Other occasions the larger regional and national banks can just win on scale.

          Noni Mausa October 9, 2015 at 1:10 pm

          I have long thought about the banking system as a beating heart. Of course it needs fuel, like the rest of the body, but when a heart gets larger and larger, and contains more and more blood, and uses more and more fuel, the rest of the body never fares well.

          "Surging bank profits" is never a headline that makes me happy.

          Carla October 9, 2015 at 11:43 pm

          Yes, congestive heart failure kills the host - this is a great analogy - Thanks!

          anders October 9, 2015 at 2:01 pm

          The real question is: why was it that the "creation of wealth" had to turn to the financial sector. IMHO it's because the productive sector is lesser and lesser able to produce surplus value. So that free capital istn't attracted to it. Of course in the financial sector there isn't any value created at all.

          Just Ice October 9, 2015 at 3:33 pm

          " IMHO it's because the productive sector is lesser and lesser able to produce surplus value. "

          Yes, because of unjust wealth distribution; the host has finally been exhausted. With meta-materials, nano-technology, genetic engineering, better catalysts, etc. and with practical nuclear fusion on the horizon (because of new superconducting materials) mankind has probably never been on the verge of creating so much value as now but can't because of lack of effective demand, not for junk but for such things as proper medical and dental care while the wealthy have more than they know what to do with.

          blert October 9, 2015 at 5:22 pm

          Is the sky blue ?

          Decades of 'political – solvency' insurance has permitted 'the blob' to overwhelm all.

          &&&

          If all of society played Poker … would anything be produced ? THAT'S the aspect that has metastasized. It's not proper to term it the 'financial sector' - gambling// speculation emporium… now you're talking. When the government chronically intervenes to bail out highly sophisticated fools…. Jon Corzine is the result. - And he's not even the target of law enforcement !!!!

          equote October 10, 2015 at 7:40 am

          "A business that makes nothing but money is a poor business." -- Henry Ford

          sd October 10, 2015 at 4:18 pm

          Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening.

          Release the Kraken comes to mind.

          [Oct 14, 2015] Strategist We've Hit 'Peak Negativity' in the Energy Sector

          "... a prolonged period of low oil prices is now baked into analysts' earnings expectations, although some Canadian analysts will probably have to ratchet down their estimates even farther. ..."
          "... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."

          "... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."

          "... Earnings per share revisions are one of our most trusted contrarian indicators and the fact that they have hit extreme negative levels is encouraging to us for sector performance prospects ..."
          finance.yahoo.com

          Earlier this year, Bank of Montreal Chief Investment Strategist Brian Belski called energy stocks a value trap.

          He has become more constructive, upgrading the sector to market weight, from underweight.

          A confluence of factors influenced the strategist's decision to "neutralize" his portfolio position for both U.S. and Canadian energy stocks. The first is that the sector has reached what he called "peak negativity," underperforming the Standard & Poor's 500-stock index by the most since 1986, when the last supply side-driven crash in oil prices occurred.

          Second, a prolonged period of low oil prices is now baked into analysts' earnings expectations, although some Canadian analysts will probably have to ratchet down their estimates even farther.

          "Earnings per share revisions are one of our most trusted contrarian indicators and the fact that they have hit extreme negative levels is encouraging to us for sector performance prospects," he wrote.

          "Energy sector growth expectations in Canada have come down significantly, but still remain too optimistic given the oil price outlook and especially when compared to estimates for the U.S.," he added.

          ... ... ...

          In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be."

          But the "pain trade," Belski now says, is for energy stocks to move higher.

          [Oct 13, 2015] Steve Keen Mainstream Economics and Its Deadly Equilibrium Assumption

          "... The biggest lie is money and the notion that issuers of fiat currencies, sovereign governments, are like households and need to balance deficit spending by borrowing the shortfall in tax revenues. ..."
          Jun 16, 2003 | naked capitalism

          Chris Williams, October 12, 2015 at 5:24 pm

          As an economist who was taught at the Australian National University in the 1980s, I know, now, that the profession has more in common with PolSci than it has to do with math. Yet, we had all those demand and supply graphs, ISLM, Phillips curves and so on. Very mathy, we even did Economic Stats, Accounting and Comp Sci just to round off the notion that Economic theories were like, say Physics, full of 'laws' that were immutable.

          Non economists, most of the rest of you, I hope, can only imagine what it feels like to know that much of what you read and thought about during those years of study was complete crap as the syllabus failed to account for fraud, corruption, how money and debt works in reality etc….

          The biggest lie is money and the notion that issuers of fiat currencies, sovereign governments, are like households and need to balance deficit spending by borrowing the shortfall in tax revenues.

          Hopefully, the new thinkers in the profession like Steve, can continue to spread their message

          Knute Rife, October 13, 2015 at 12:05 am

          When I was an undergrad, I took macro and micro in very classical courses. It didn't take long to see the "math" on the board was more conjuring than calculating. In law school I took Law and Economics from an econ prof. There were about three of us in the class who had any decent math. The prof's "calculations" had us constantly looking at one another. One day she finally hit the limit. We pointed out to her that she had the central fraction reversed. She stood back and said (I kid you not), "Oh well, it doesn't matter." I turned down the sound on economic "calculations" in general after that.

          Furzy Mouse, October 12, 2015 at 12:42 pm

          Keen's talk….cannot read the subtitles….the screen is too small, even when I go to YouTube…

          Arthur Wilke,

          October 12, 2015 at 1:33 pm


          This link may be an aid: https://www.youtube.com/watch?v=x7uITEBqQvM

          Vatch, October 12, 2015 at 1:44 pm

          Have you tried your browser's zoom function? This is often CTRL-Plus. CTRL-Minus reduces the size, and CTRL-Zero restores the default size.

          low_integer, October 12, 2015 at 2:00 pm

          If you put your cursor on the bottom right corner of the video and click, the video will expand into full screen. It is one of the options in the bar that is only visible when your cursor is at the bottom of the video area, from which you can also turn the subtitles on and off. Also, press escape to exit full screen mode. Hope that makes sense


          Arthur Wilke, October 12, 2015 at 2:32 pm

          The embedded video is selected from this encounter and
          is easy to expand to full-screen:
          https://www.youtube.com/watch?v=x7uITEBqQvM

          [Oct 13, 2015] My comprehensive plan for US policy on the Middle East

          "... US policy is often clueless, often based on some Beltway fantasy, but there are very real people at stake here, not just tiresome geopolitics. Most US policy derives from stupid game-playing, but some part derives from genuine, well-founded fear of the consequences of inaction. ..."
          Oct 04, 2015 | Crooked Timber

          geo, 10.04.15 at 6:28 pm

          JQ@9: the supposed need to control ME oil was always nonsense, but it's nonsense on stilts now

          http://www.dreamscape.com/morgana/enforce.htm:

          "Documents recently obtained from Cheney's Energy Task Force as the result of a Freedom of Information Act lawsuit filed by the public-interest group Judicial Watch indicate that Cheney and his colleagues had their sites on the black gold under the Iraqi desert well before Sept. 11.

          "Last July, the Commerce Department finally turned over records that included "a map of Iraqi oilfields, pipelines, refineries and terminals, as well as two charts detailing Iraqi oil and gas projects and 'Foreign Suitors for Iraqi Oilfield Contracts'," according to Judicial Watch's subsequent press release. There were also similar maps and charts for Saudi Arabia and the United Arab Emirates. The documents were dated March 2001."

          See also: http://www.informationclearinghouse.info/article4458.htm.

          If only Bush and Cheney had listened to people who knew something about the oil industry and believed in the free market …


          Layman 10.04.15 at 8:38 pm

          "To cite just one example, cutting off aid to Saudi Arabia, Egypt, and Israel would cause a huge international crisis."

          I'm afraid it's not at all clear that the resulting crisis would be 'huger' than the ones we get for the aid. U.S. aid to Israel (for example) is almost entirely military aid. We're sponsoring Israel's efforts to colonize the West Bank and to periodically destabilize Lebanon. These are international crises, and we're funding them.


          Ze K 10.04.15 at 9:04 am

          30 minutes before opening this page I read this: http://www.counterpunch.org/2015/10/02/a-useful-prep-sheet-on-syria-for-media-propagandists/

          …and sent them $100.

          @16 "the overwhelming majority of civilian deaths are down to the regime."

          That is not what I get from The Angry Arab News Service, and no offense but I trust that As'ad AbuKhalil knows what he's talking about.

          Peter T 10.04.15 at 9:17 am

          Okay. So we airlift Allawis, Druze, Syrian Shia, Christians (30 per cent or so of the Syrian population) out, re-settle them in Arizona and leave the Islamists to fight it out. Oh, wait, we need to airlift out the Assyrians and Yezidi too. Then the Iraqi Shia and ISIS can fight it out. Iran will certainly intervene in force, but not our worry. Oh, and we'd better get most Jordanians out of the way too.

          US policy is often clueless, often based on some Beltway fantasy, but there are very real people at stake here, not just tiresome geopolitics. Most US policy derives from stupid game-playing, but some part derives from genuine, well-founded fear of the consequences of inaction.

          Donald Johnson 10.04.15 at 5:46 pm

          And here is a link to a Physicians for Social Responsibility paper which discusses the various studies and estimates of the death toll in Iraq, Afghanistan, and Pakistan. Their numbers are on the higher side–

          http://www.psr.org/assets/pdfs/body-count.pdf

          [Oct 12, 2015] Could oil prices really shrink to twenty dollars per barrel

          "... When we look at the next few quarters, we expect U.S. oil production to decline because of low oil prices and in Iraq, production growth will be much slower than in the past. And the demand is creeping up, ..."
          "... So therefore, to think that [low] oil prices will be with us forever may not be the right way of thinking ..."
          "... Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level that Birol said was still too low for U.S. shale producers to maintain current production. ..."
          Oct 06, 2015 | finance.yahoo.com

          ... Fatih Birol, the executive director of the International Energy Agency (IEA), told CNBC on Tuesday that low prices would prompt U.S. producers to cut output, creating upward price pressure.

          "When we look at the next few quarters, we expect U.S. oil production to decline because of low oil prices and in Iraq, production growth will be much slower than in the past. And the demand is creeping up," Birol told CNBC on Tuesday from the Oil & Money conference.

          "So therefore, to think that [low] oil prices will be with us forever may not be the right way of thinking."

          ... ... ....

          Whether or not U.S. shale players will cut production in response to ongoing low prices is a moot point however. They could instead respond by increasing production in order to satisfy creditors eager for results. Plus, against some odds, shale producers have managed to lower productions costs, although these remain high in comparison to conventional oil production.

          Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level that Birol said was still too low for U.S. shale producers to maintain current production.

          "It is proven it is a very resilient type of production, but this level of prices, $45, $50 is not good enough to induce reinvestments and for production to continue to grow. Therefore, we expect as of next year, production growth will decline in the United States," Birol told CNBC.

          The secretary general of OPEC, Abadall El-Badri, also forecast that oil production from countries outside his group would fall next year.

          ... ... ...

          "We see that non-OPEC supply is declining and in 2016, we see there is an increase in demand … so in a nutshell, there is a balance in the market in 2016. How much this will reflect on the price I really cannot tell," he later added.

          ... ... ...

          Standard & Poor's (S&P) appeared more bullish on oil prices than Goldman, forecasting on Tuesday that Brent oil would average $55 per barrel in 2016, up from an average of $50 for the remainder of this year.

          [Oct 12, 2015] Oil rig count drops for a 6th week

          According to driller Baker Hughes, the number of active oil rigs fell by 9 to 605, putting the count at the lowest level since the week ending July 30, 2010. The combined tally of oil and gas rigs fell 14 from last week to 795, the lowest since May 2002. We saw a renewed drop in the oil rig count last week, which fell by 26, the biggest decline since the rig count topped out a year ago.

          Earlier this week, Baker Hughes reported that the average US rig count for September was 848, down 35 from the prior month.

          [Oct 12, 2015] OPEC Crude Little Change - Peak Oil BarrelPeak

          "... Ron's excellent charts are telling me that Opec is not going to be producing as much or MORE oil on a daily basis, if any, very much longer. With only three countries carrying the load, and all the others combined just holding steady over the last few years, DEPLETION is sure to take a bite out of those other smaller countries production pretty soon. ..."
          "... It looks as if the only countries with any REAL hope of increasing production enough to really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of the running until prices go up and then, according to what I read here, it will take a year or maybe two to ramp up again. ..."
          "... Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be in the future, maybe late 2016, maybe not. ..."
          Aug 30, 2012 | peakoilbarrel.com

          Oil Barrel

          OPEC says world upstream spending will be down only 20% in 2015 but North American upstream spending will drop by 35%. I guess that is because of the big drop in shale spending.

          Ovi, 10/12/2015 at 10:52 am

          3Q15–4Q15–1Q16–2Q16–3Q16–4Q16
          -13.5-13.4-13.4-13.5--13.5-13.7

          Above is the OPEC projection for US production out to Q4-16. Looks optimistic to me. For the above to be true, there must be some underlining assumption regarding increasing oil prices to restart drilling.

          Ron Patterson, 10/12/2015 at 1:01 pm

          Yes those numbers are totally unrealistic, just as unrealistic as the US Short Term Energy Outlook numbers. In the chart below US Total Liquids are the left axis while C+C numbers are the right axis.

          Total liquids for the US STEO includes refinery process gain. And they even count refinery process gain on imported oil. So it looks like the OPEC MOMR numbers do not include refinery process gain.

          AlexS, 10/12/2015 at 2:53 pm

          The EIA expects U.S. non-C+C liquids supply to increase by 1.17mb/d between January 2014 and December 2016, of which 1.03 mb/d – NGPLs.

          brian, 10/12/2015 at 1:40 pm

          'God-trader' Andy Hall's fund loses $500M

          http://www.cnbc.com/2015/08/06/god-trader-andy-halls-fund-loses-500m.html

          Ves, 10/12/2015 at 2:05 pm

          Was he trading based on IEA, EIA or OPEC forecast numbers? :)

          Old Farmer Mac, 10/12/2015 at 2:31 pm

          Ron's excellent charts are telling me that Opec is not going to be producing as much or MORE oil on a daily basis, if any, very much longer. With only three countries carrying the load, and all the others combined just holding steady over the last few years, DEPLETION is sure to take a bite out of those other smaller countries production pretty soon.

          It looks as if the only countries with any REAL hope of increasing production enough to really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of the running until prices go up and then, according to what I read here, it will take a year or maybe two to ramp up again.

          Am I right about this? Are there any other countries that have any real hope of substantially increasing production near term?

          I am thinking about buying a LOT (for an individual) of diesel fuel as soon as I think the price is starting up again. I know, predicting IS HARD , but a bigger stash of diesel is as good as silver and gold in a jar buried in the back yard. Will probably stock up on lime and fertilizer as well, these inputs are extremely sensitive to and correlate with oil and gas prices.

          Dennis Coyne, 10/12/2015 at 2:53 pm

          Hi Old Farmer Mac,

          Just take my price predictions and assume the opposite will be true, or flip a coin :)

          Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be in the future, maybe late 2016, maybe not.

          Petro, 10/12/2015 at 10:26 pm

          …there will be no price rise, just the volatility of: "…a bomb went off here…", "…a war started there…" and "…a russian jet was shot down over there…somewhere…".

          be well,

          P.S: the "hoard" of diesel is not a bad idea, OFM

          Old Farmer Mac, 10/12/2015 at 2:52 pm

          This new SEC regulation might help people interested in peak oil and oil prices come by more and better data.

          It will probably go into force second half next year from the looks of things.

          http://thehill.com/blogs/congress-blog/economy-budget/256535-wind-at-secs-back-on-long-overdue-oil-transparency-rule

          Chris, 10/12/2015 at 3:31 pm

          OPEC has reached a plateau, oscillating between 28 mbpd to 31.6 mbpd since 10 years now. World production peaked so far in June. Saudi Arabia production in decline since June, US production in decline since several months. Peak oil in 2015? I am curious to see the December production…

          Dennis Coyne, 10/12/2015 at 6:23 pm

          It looks like the latest OPEC Monthly Oil Market Report predicts that World Oil Supply and Demand will be in balance by 3Q16, if OPEC output remains at 3Q15 levels. There will still be a supply overhang which may require another quarter or two of either decreased supply or increased demand (or both) to bring oil stocks back to normal levels.

          As always, these forecasts are notoriously inaccurate so oil prices could remain low until 2018 if demand is lower or supply is higher than OPEC forecasts, or they might rise in early 2016 if the opposite is true. It's a coin flip.

          Greenbub, 10/12/2015 at 7:43 pm

          Wouldn't most oil producers go out of business if prices stayed low until 2018?

          [Oct 12, 2015] Saudi Arabia Halts Government Spending Due To Oil Price Fall

          Aug 30, 2012 | OilPrice.com

          Saudi Arabia has reportedly resorted to spending cuts to cope with a budget deficit caused by the steep decline of oil prices over the past year.

          Bloomberg reported Oct. 8 that the Saudi Finance Ministry has directed government agencies not to embark on any new spending initiatives for the rest of the year. It also froze government hiring and promotions, suspended the purchase of furniture and vehicles and urged revenue collectors to accelerate their operations.

          ...oil accounts for around 90 percent of Saudi revenue. But the kingdom's finances also have been strained by its involvement in wars in Syria and Yemen.

          As a result, Saudi Arabia's ratio of debt to GDP is in danger of rising to 33 percent in five years, according to a new report by the International Monetary Fund (IMF). The report says the Saudi budget has gone from a surplus to a deficit of more than 20 percent of GDP, more than twice as deep as those that beset the United States and Britain in 2008 and 2009, the darkest period of the recent recession

          ... ... ...

          The spending cuts aren't Saudi Arabia's first effort to manage its deficit. Bloomberg quoted other anonymous sources as saying Riyadh had planned to raise at least $24 billion from bond sales by the end of 2015. This was in response to a drop in the kingdom's foreign assets, which at that time had fallen for the seventh consecutive month to $654.5 billion, its lowest in more than two years.

          [Oct 11, 2015] Series of small earthquakes hit near Oklahoma crude oil storage hub

          The US Geological Survey (USGS) reported that nine quakes ranging in magnitude from 2.5 to 3.7 were recorded between 5.07pm on Saturday and 5.27am on Sunday. No injuries or damage were reported. Geologists say damage is not likely in quakes below magnitude 4.0.

          The latest seismic activity came after a 4.5 magnitude temblor on Saturday afternoon near Cushing and a 4.4 magnitude quake on Saturday morning south-west of Medford.

          The Oklahoma Geological Survey has said it is likely that many recent earthquakes in the state have been triggered by the injection of wastewater from oil and natural gas drilling operations.

          Cushing is home to the world's most important crude oil storage hub, which is used to settle futures contracts traded on the New York Mercantile Exchange.

          Cushing emergency management director Bob Noltensmeyer said on Sunday that no significant damage was found at the oil facility, only "shattered nerves".


          Orwell2015 11 Oct 2015 19:50

          Oh the irony of it all, which sadly will be lost on most.

          [Oct 11, 2015] Why it's so easy to manipulate ordinary investors

          That quote is a key theme in Phishing for Phools: The Economics of Manipulation & Deceptionby George Akerlof and Robert Shiller. The authors, two of America's leading economists, note that free markets are capable of generating unimaginable wealth and innovation. And yet, this system also "tends to spawn manipulation and deception." Because the goal of every business person is to get you to spend your money, they will often come up with ingenious ways of tricking you. This frequently results in consumers choosing things that aren't very good for them.

          Akerlof and Shiller point to the Cinnabon breakfast treat as an amusing example of how the free market system exploits our weaknesses automatically. Humans are naturally attracted to the scent of cinnamon, so it was almost inevitable that an entire business would emerge to exploit that vulnerability. Life may indeed "need frosting" - as Cinnabon's motto declares - but most of us probably shouldn't start our day with a pastry containing 880 calories.

          Understanding the two peculiar terms from the book's title is essential for grasping its central argument. The authors define the word "phish" as "getting people to do things that are in the interest of the phisherman, but not in the interest of the target." In other words, "phisherman" are those businesses that are trying to get you to buy something that may not be in your best interest.

          A "phool," according to the authors, is "someone who for whatever reason is successfully phished." Each of us might get phished because our cognitive biases might lead us to misinterpret reality or we might just lack adequate information.

          After defining these terms, the authors show us how the notion of "phishing for phools" works across various industries. For example, Big Pharma appears to be especially rife with manipulation. The authors describe how the pharmaceutical companies orchestrate the rollout of a new drug. There are journal articles and sales rep visits and ads on TV -- all designed to "create a story of the new wonder drug."

          Vioxx was one such wonder drug, of course. Akerlof and Shiller tell us in considerable detail how the system broke down in that specific case.

          The investing industry is another ideal "phishing" hole where financial professionals drop their lines in order to take advantage of phools. One big takeaway from their research just might help ordinary investors. After analyzing numerous industries and countless case studies, the authors conclude,

          In every one of the phishes, it occurred because the phisherman took advantage of the phool's wrong focus. In some cases the phisherman, like the magician and the pickpocket, himself generated that wrong focus. We also checked Cialdini's [Ed. note: Robert Cialdini, author of The Psychology of Persuasion] list of psychological biases; each one of them could be considered to be the result of an errant focus by the phool.

          This insight is extremely valuable when applied to the investing world. Financial professionals very frequently exploit the tendency of ordinary investors to focus on the wrong thing. That "wrong focus" can be extraordinarily costly in fees and poor investing performance.

          Just consider how much "focus" the financial media places on the inscrutable actions of the Fed or the volatile movements of commodity prices or whether or not a recession is right around the corner. And think about how much emphasis some financial professionals place on their ability to generate "alpha" by pursuing some incomprehensible strategy that requires you to pay them hefty fees, even if they're not successful.

          Phishing is everywhere in the financial industry and it's designed to make you lose your focus on the right things, while you fork over your hard-earned money to the phishermen. None of us can predict where markets are going in the short term, so worrying about what the Fed will do or about how much alpha-generating ability your advisor possesses (he'll tell you it's a lot) will only distract you from your long-term investing plan. If your financial advisor is calling you with a hot tip on a can't-miss fund based on the latest investing fad, then you might be in danger of focusing on the wrong thing. In other words, you're most likely a phool.

          This fine book yields another crucial insight for investors. The authors argue that phishing is one of the prime reasons behind the volatility of asset prices. Misleading accounting, media hype, investor sales pitches -- these are just some of the ways that asset prices become inflated. When the inflated assets have been purchased with borrowed money, huge losses will eventually snowball and "then credit dries up; and the economy tanks." We experienced that back in 2008 and 2009, of course. Phishing hurts investors in a variety of ways.

          So, what must be done? First, remember that the authors believe strongly in the power of free markets. They're not advocating for a "people's paradise" with centrally planned outcomes.

          Instead, they just want us to recognize that people don't always do what is good for them. That's why we need sensible securities regulation in our public markets. We also need more prudent and smart oversight in both the economic and political realms. Leaving everything to free markets alone, the authors argue, will result in bad outcomes. There was a time in American history when that opinion wasn't terribly controversial.

          I highly recommend this book, even for those who might disagree with the authors' outlook. Their case studies are illuminating, and their insights on the way markets work are fascinating. When you consider the sorry state of the personal finances of the median working age family in the United States today, it's hard to disagree with their central thesis that our current system isn't working properly.

          Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

          SPONSOR CONTENT: Forget the iPhone 6. Next Apple Sensation Leaked

          Forget the iPhone and the Apple Watch. Another revolutionary Apple technology is booming. According to Gartner Research, the market for this technology will soon be worth a whopping $721 billion!

          But you won't hear about this game-changer in front page headlines. Peeking under the hood reveals a more intriguing story about a little-known company that has cornered the market for the technology hidden in Apple's devices. Simply click here to learn its name.

          [Oct 10, 2015] The danger of the succession war in Saudi Arabia

          "... That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founders family could find themselves disenfranchised. ..."
          "... Todays Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko ..."
          "... In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line. He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdoms foreign policy for nearly four decades. ..."
          "... But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne. Now Prince Mohammed, the eldest son of the kings third and most recent wife, is the rising star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding system of distributing positions around the royal family to help preserve its unity, and he has used his growing influence to take a leading role in Saudi Arabias newly assertive stance in the region, including its military intervention in Yemen. . . . ..."
          "... some Western diplomats, speaking on the condition of anonymity for fear of alienating the prince and the king, say they are worried about the growing influence of the prince, with one even calling him rash and impulsive. And in interviews, at least two other princes in the main line of the royal family made it clear that some older members of the clan have doubts as well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded. . . . ..."
          "... The prince, one of the grandsons of the states founder, Abdulaziz Ibn Saud, has told the Guardian that there is disquiet among the royal family – and among the wider public – at the leadership of King Salman, who acceded the throne in January. ..."
          Oct 10, 2015 | peakoilbarrel.com
          coffeeguyzz, 10/07/2015 at 6:12 am

          WTI just hit $49.50 this AM

          Reports are coming out of KSA that King Salman is in a hospital in critical condition.

          Jeffrey J. Brown, 10/07/2015 at 7:28 am

          In regard to Saudi Arabia, I usually reference "On Saudi Arabia," which was published in 2013. Following is a link to, and excerpt from, Chapter One:
          http://www.amazon.com/gp/product/0307473287?ie=UTF8&isInIframe=0&n=283155&ref_=dp_proddesc_0&s=books&showDetailProductDesc=1#product-description_feature_div

          What scares many royals and most ordinary Saudis is that the succession, which historically has passed from brother to brother, soon will have to jump to a new generation of princes. That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founder's family could find themselves disenfranchised. Saudis know from history that the second Saudi state was destroyed by fighting among princes. Older Saudis vividly recall how this third and latest Saudi state was shaken by a prolonged power struggle between the founder's two eldest sons after his death in 1953.

          Today's Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko-before Gorbachev took power with reform policies that proved too little too late. "They keep dying on me," Ronald Reagan famously said of the four Soviet leaders he dealt with in less than three years. The next U.S. president almost surely will have the same experience with ailing Saudi rulers.

          An article from April, 2015:

          King Salman of Saudi Arabia Changes Line of Succession
          http://www.nytimes.com/2015/04/29/world/middleeast/king-salman-of-saudi-arabia-changes-line-of-succession.html?hp&action=click&pgtype=Homepage&module=second-column-region&region=top-news&WT.nav=top-news&_r=0

          BEIRUT - King Salman of Saudi Arabia issued a series of surprise royal decrees early Wednesday, shaking up the line of princes slated to succeed him to the throne, replacing a number of ministers and further enhancing the power of his own line.

          In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line. He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdom's foreign policy for nearly four decades.

          The moves show Salman is shifting further away from the legacy of his predecessor, King Abdullah, who died in January.

          Saudi Arabia has joined a United States-led coalition that is bombing the militants of the Islamic State in Syria and Iraq. It is also leading a bombing campaign against Houthi rebels who have seized a large portion of territory in neighboring Yemen. The new appointments are unlikely to lead to big changes in these policies.

          Of all the changes, the reordering of the line to the throne is likely to draw the most scrutiny inside the kingdom because of competition between branches of the sprawling royal family for positions leading to the throne.

          An article from June, 2015:

          Surprising Saudi Rises as a Prince Among Princes
          http://www.nytimes.com/2015/06/07/world/middleeast/surprising-saudi-rises-as-a-prince-among-princes.html?_r=0

          RIYADH, Saudi Arabia - Until about four months ago, Prince Mohammed bin Salman, 29, was just another Saudi royal who dabbled in stocks and real estate. He grew up overshadowed by three older half brothers who were among the most accomplished princes in the kingdom - the first Arab astronaut; an Oxford-educated political scientist who was once a research fellow at Georgetown and also founded a major investment company; and a highly regarded deputy oil minister.

          But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne. Now Prince Mohammed, the eldest son of the king's third and most recent wife, is the rising star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding system of distributing positions around the royal family to help preserve its unity, and he has used his growing influence to take a leading role in Saudi Arabia's newly assertive stance in the region, including its military intervention in Yemen. . . .

          The sweeping changes have thrust the young prince into power at a time when Saudi Arabia is locked in a series of escalating conflicts aimed at defending its vision of the regional order and holding back its chief rival, Iran. The kingdom is financially sustaining the rulers of Egypt and Jordan and propping up the Sunni monarchy in neighboring Bahrain against a revolt by its Shiite majority. It is also arming rebels in Syria against the Iranian-backed president, fighting in the United States-led air campaign over Iraq and leading its own air assault on an Iranian-backed faction in Yemen. And it is ramping up its military spending even as plunging oil prices and growing domestic expenditures have reduced its financial reserves by $50 billion over the last six months, to less than $700 billion.

          "The king has put his son on an incredibly steep learning curve, clearly," said Ford M. Fraker, the president of the Middle East Policy Council and a former United States ambassador to Saudi Arabia. "The king is obviously convinced he is up to the challenge." But some Western diplomats, speaking on the condition of anonymity for fear of alienating the prince and the king, say they are worried about the growing influence of the prince, with one even calling him "rash" and "impulsive." And in interviews, at least two other princes in the main line of the royal family made it clear that some older members of the clan have doubts as well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded. . . .

          Prince Mohammed's three older half brothers - sons of their father's first wife, Sultana Bint Turki Al Sudairi, who died in 2011 - all have distinguished résumés and were once considered contenders for top government roles. . . .

          Prince Mohammed, however, is the firstborn son of the King Salman's third and most recent wife, Fahda bint Falah bin Sultan, who worked hard to promote him as his father's successor, according to Western diplomats who know the family, several family members and associates who have worked for the family.

          "He is her eldest," said one longtime associate who works closely with the clan. "For her, he is her glory at the end of the day."

          Someone recently posted a story about a memo circulating among the Saudi Royal family that was highly critical of King Salman and his designated successors.

          Saudi royal calls for regime change in Riyadh (September 28, 2015)
          http://www.theguardian.com/world/2015/sep/28/saudi-royal-calls-regime-change-letters-leadership-king-salman

          A senior Saudi prince has launched an unprecedented call for change in the country's leadership, as it faces its biggest challenge in years in the form of war, plummeting oil prices and criticism of its management of Mecca, scene of last week's hajj tragedy.

          The prince, one of the grandsons of the state's founder, Abdulaziz Ibn Saud, has told the Guardian that there is disquiet among the royal family – and among the wider public – at the leadership of King Salman, who acceded the throne in January.

          The prince, who is not named for security reasons, wrote two letters earlier this month calling for the king to be removed.

          "The king is not in a stable condition and in reality the son of the king [Mohammed bin Salman] is ruling the kingdom," the prince said. "So four or possibly five of my uncles will meet soon to discuss the letters. They are making a plan with a lot of nephews and that will open the door. A lot of the second generation is very anxious."

          "The public are also pushing this very hard, all kinds of people, tribal leaders," the prince added. "They say you have to do this or the country will go to disaster."

          Saudi King Hospitalized for Dementia (October 6, 2015)

          http://en.abna24.com/service/middle-east-west-asia/archive/2015/10/06/713917/story.html

          Informed sources told Arabic-language al-Ahd news agency that King Salman is now in the Intensive Care Unit (ICU) section of King Faisal Specialist Hospital in the Saudi capital.

          The sources also said that given the Saudi king's unstable and aggravating health conditions, officials have ceased plans to transfer him to US hospitals.

          Old Farmer Mac, 10/07/2015 at 2:29 pm

          http://www.cnbc.com/2015/10/07/russia-saudi-oil-cooperation-is-hogwash-kilduff.html

          I agree with this guy, the chances imo of the Russians and the Saudis getting together to cut back on oil production are exceedingly slim to approaching zero.

          My opinion is based not on their finances but on their rivalry. The Saudis have a LOT of reasons to fear and hate the Russians and to try to bankrupt them.

          [Oct 10, 2015] Another Petro-State Throws In The Towel The Last Nail In The Petrodollar Coffin

          "... 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF). ..."
          "... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. ..."
          "... Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle. ..."
          "... In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016 ..."
          "... For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US. ..."
          "... To be blunt, the prospect in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What does this mean to the worlds only super power and vast global empire? Well, it puts in threat the ability of Washington to print green paper and have all the rest of the earth to supply in return manufactured goods, energy, commodities and services. All in return for green paper. Washington spends twice what its taxes return each year. That leaves 1/2 of the entire federal spending to come from printed green paper. ..."
          Oct 10, 2015 | Zero Hedge
          According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs, while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF).

          While record mainland deficits covered by the petroleum sector is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in the North Sea will, again according to budget, be lower than the required amount to cover the deficit. This has never happened before and is testimony of the sea change occurring in the world of petrodollar recycling. Interestingly enough, the need to liquidate SWF holdings is helping to create further deflation in the Eurodollar system in a self-reinforcing loop.

          As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports over imports meaning it can only be utilized through future imports over exports. When the Norwegians look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading Norwegians to consume more imported goods today, without realizing they were tapping into the principal of their future. When the tide turns the gross misconception is revealed.

          The Government claims it is all fine though. The current down-cycle will, according to them, end early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax, mainland tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just as the expected 17.9 per cent increase in interest and dividend income which will make sure the SWF continue to grow at a healthy pace despite the massive mainland deficit.

          Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle.

          If we are right, a global recession is imminent, meaning the expected increase in dividend income will never materialize.

          In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016.

          For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US.

          Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims scramble for actual dollars) while paradoxically a recession in the US will lead to the exact same outcome. The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian government can hope for. It will minimize the gap between the lies and propaganda spewed out by the Ministry of Finance and reality.

          Latina Lover

          Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather, hang them high!

          Lumberjack

          Just in:

          http://www.marketwatch.com/story/statoil-reports-oil-spill-of-norway-coa...

          news printer
          Muslim Press Claims Saudi King Salman bin Abdulaziz Hospitalized for Dementia

          Informed sources told Arabic-language al-Ahd news agency that King Salman is now in the Intensive Care Unit (ICU) section of King Faisal Specialist Hospital in the Saudi capital.

          The sources also said that given the Saudi king's unstable and aggravating health conditions, officials have ceased plans to transfer him to US hospitals.


          According to witnesses, his exact state of dementia is a source of speculation but he is known to have held cogent conversations as recently as last October. !!!!!!!


          He can also forget what he said minutes ago, or faces he has known all his life. This is typical of the disease.

          en.abna24.com/service/middle-east-west-asia/archive/2015/10/06/713917/story.html

          Jack Burton

          "the world of petrodollar recycling"

          The USA Dollar hegemony system was partly built upon Petro Dollar recycling. And of course Chinese trade surplus recycling. We have already seen the Chinese Treasury selling. That is a nail in the world reserve currency. Falling oil revenues dry up another major dollar recycling system.

          Many on ZH have noted the not so gradual approach of World War. To be blunt, the prospect in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What does this mean to the world's only super power and vast global empire? Well, it puts in threat the ability of Washington to print green paper and have all the rest of the earth to supply in return manufactured goods, energy, commodities and services. All in return for green paper. Washington spends twice what it's taxes return each year. That leaves 1/2 of the entire federal spending to come from printed green paper.

          To be clear. When Washington loses the power to print, it has lost over half of it's global power in one stroke. The prospect of that can only lead to global war. The US Neoconservatives are laying the foundations for global war, World War Three. It is either go to war, or lose the global super power status built on Money Printing.

          Unless you think America remains the global super power based on it's vibrant productive economy?

          [Oct 09, 2015] Russian military operation in Syria bolsters oil market, domestic stocks

          Oct 09, 2015 | RT Business

          Oil prices have risen 12 percent in October to a two-month high. Rising crude coincides with Russia's airstrikes against Islamic State targets in Syria which began on September 30.

          The price of Brent in London increased over one percent to $53 per barrel on Friday. US benchmark WTI is trading higher than $50 per barrel for the first time in three months after hitting six-year lows in late August. Other factors contributing to rising oil prices include a weakened dollar and shrinking US production.

          Crude prices can be particularly responsive to unrest or violence in the Middle East, one of world's biggest oil-producing regions. While Syria does not have significant oil reserves, crude prices rise over fears the conflict could spread to the broader region.

          "Syria is not a crude oil producer-its real significance to the energy markets is not a heightening of its ongoing internal conflict but rather the risk of contagion within the region at large," the Wall Street Journal quotes NUS Consulting Group as saying.

          norbert kimar 4 hours ago

          "Syria is not a crude oil producer.." the Wall Street Journal.." I thought ISIS etc made $1-2million/day from smuggling Syrian oil.

          Nana Akosua -> Baakan Agyiriwah 6 hours ago

          LOL, it's all about the war, the fighting, the blood and the gore that makes the stocks rise and the blood boil in delirium. Funny how war makes the cash registers ring and the banksters happy, they don't care who does it, just do it!! what a mad, mad, mad world we live in.

          Illya Kuryakin 7 hours ago

          So Russia's CIA-Saudi Extermination Policy is paying for itself. Nice!

          PeterNZL 11 hours ago

          grzeghh

          Putin's the man. He scored 7 goals in the ice hockey match in Sochi and that was just
          more...

          Obama, too, was a skilled athlete. He scored 2000 civilians before winning his Nobel Peace Prize. Remarkable!

          [Oct 09, 2015] As oil bust takes hold, Eagle Ford workers losing jobs, pawning goods -

          Oct 09, 2015 | www.expressnews.com
          Sep 5, 2015 | San Antonio Express-News

          Eagle Ford production peaked in March at 1.7 million daily barrels, but then slid six straight months, the U.S. Energy Information Administration reports. The agency expects the field to pump 1.48 million barrels daily in September, still enough to fill 94 Olympic-sized swimming pools every day.

          Allen Gilmer, CEO of Austin-based Drillinginfo, said dropping prices chip away at the Eagle Ford.

          At $100 oil, most operators can make money.

          Because costs for everything from drilling to fracking have come down 30 percent this year, vast swaths of the field still are profitable at $60 per barrel, the oil price for much of the spring.

          "The Eagle Ford at $60 a barrel is not a whole lot different than the Eagle Ford at $100 a barrel," Gilmer said.

          But crude oil prices around $40 turn the economics of the field upside down, and only 15 percent of the whole field makes money, Gilmer said.

          ... ... ...

          The numbers show an industry fallen on hard times.

          The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked.

          McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.

          DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.

          The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter.

          Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water right down the drain," he said.

          Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.

          He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

          Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5 a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In August, it stayed quiet until around 9 a.m.

          Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field supply company closed their doors.

          ... ... ...

          Boom-bust cycle

          In some ways, Texas still hasn't outrun the long shadow of the 1980s oil bust, an implosion that took down the state economy. So many people left the industry then, never to return, that there's a gap in the workforce. Nearly everyone is old or young. The industry calls it the "great crew change," and it means that a large part of the workforce never has seen a downturn.

          ,,, ,,, ,,,

          Eric Bell of San Antonio energy services umbrella company Group 42, said the U.S. oil business has gone through the stages of grieving this year. "The first quarter was a complete sense of denial," Bell said.

          Then came anger and a "bargaining and sad mopey phase" when everyone talked about how oil would pop to $70 or $80 by summer. It didn't. "Now finally it kind of seems like there's a sense of resignation or acceptance," Bell said. "Some companies are just in trouble."

          And yet, the familiar grind of the oil patch continued in so many ways. The Eagle Ford this year still is expected to draw $20 billion in industry investment, far more than any other field, says research firm Wood Mackenzie.

          Kim Triolo Feil

          if only these guys had the foresight to do BTEX blood/urine baseline testing before a workday and then after a workday...nah these companies come and go so even if they had evidence of being exposed...who they gonna sue to pay their cancer bills if that happens down the road?

          [Oct 09, 2015] Oil bust

          Oct 09, 2015 | jdeanicite.typepad.com
          I cite

          excerpt from here

          The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked.

          McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.

          DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.

          The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter.

          Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water right down the drain," he said.

          South Texans track other economic measures - traffic jams on rural roads or the advertised prices for hotel rooms in the region, now as low as $40.

          A few years ago, DeWitt County Sheriff Jode Zavesky lost seven employees in three weeks to the oil field. The police academy in Victoria had to cancel classes because everyone was going to work in the oil field instead. "We've got great benefits," Zavesky said. "But a young guy can't buy diapers on great health insurance."

          Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.

          He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

          Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5 a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In August, it stayed quiet until around 9 a.m.

          Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field supply company closed their doors.

          That left Tipton as the only one to give unsolicited advice to oil field workers who stop to buy a soft drink or after-work beer: "Don't speed. Don't eat your dessert before you eat that sandwich. There's a police officer down there."

          [Oct 09, 2015] How do consumers respond to lower gasoline prices

          Oct 09, 2015 | Econbrowser
          The evidence thus is that consumers were indeed responding to the most recent price declines the same way they usually did, namely, by spending most of the windfall. The fact that we don't see this as clearly in the aggregate data suggests that the economy has been facing other headwinds that partly offset the stimulus from lower gasoline prices.

          Another consumer response to lower gasoline prices is increased consumption of gasoline itself, though these adjustments take more time to develop. U.S. vehicle miles traveled, which had been stagnant while gas prices were high, have since resumed their historical growth.

          ... ... ...

          And the average fuel efficiency of new vehicles sold in the United States, which had been improving steadily through most of 2014, has fallen with oil prices.

          [Oct 09, 2015] Goldman Sachs This Oil Rally Is Not Going to Last

          Oct 09, 2015 | www.bloomberg.com

          Bloomberg Business

          Currie claims that the oil glut is now being sustained by production outside the U.S.

          [Oct 09, 2015] Free Markets are Fraudulent Markets

          Oct 09, 2015 | www.economicpopulist.org
          September 7, 2013 | The Economic Populist
          How the Financial Elite Con Us into Wanting the Wrong Thing

          Competitive or self-regulating market economies promote dynamic creative destruction and rebirth-led by people's needs, wants and desires, thus properly directing economic progress. Historically, competitive market economies are a relatively new economic system, and while very productive, they are not self-sustaining, are unstable and require significant state support and regulation to function properly.

          Nevertheless, self-regulating market economies are superior to other political-economic systems-such as dictatorial fascism or autocratic communism-however, the state can mismanage them.

          History of Market Economies

          Market economies are nonexistent during primitive times, and even during feudal times, markets trade local goods and remain small, with no tendency to grow. External foreign markets carry only specialty items-such as spices, salted fish and wine. Foreign trade does not begin in feudal societies, between individuals, but is only sanctioned by civic leaders-between whole communities.

          During feudal times, markets for local community goods do not mix with markets for goods that come from afar. Local and external foreign markets differ in size, origin and function-are strictly segregated, and neither market is permitted to enter the countryside.

          Feudal society transitions into the mercantile society of the 16th to late 18th centuries, where the state monopolizes the economic system, for the state's benefit. Colonies are forbidden to trade with other countries, and workers' wages are restricted. However, mercantilism proves divisive; fostering imperialism, colonialism and many wars between the Great Powers. Market economies have yet to arrive, and would not do so until after 1790.

          During the Industrial Revolution, production processes transition from hand crafting methods that supply only the local community, into mechanized manufacturing; thereby vastly increasing production, driving down costs and increasing wealth. The source of a person's income is now the result of product sales to far-off, unknown customers. Private business entrepreneurs are the driving force pushing the state to institute the market economy, thereby protecting the sale of their goods in far-off lands.

          Unfortunately, in practice, market economies result in corporate monopolies. Corporations may use a product dumping predatory pricing strategy, by charging less than their cost to produce, in a specific market, in order to drive weaker, smaller competitors out of business, and then significantly raise prices at a later date, in order to gouge the consumer. If the monopoly is in a vital economic area and the company institutes monopoly pricing to overcharge the consumer, only the state has the power to protect the market economy from monopolistic inefficiencies and break up the offending company; thus reinstituting competitive pricing. As a result, government regulations and market economies develop simultaneously.

          Laws & Regulations Are Necessary

          Leaving business a free hand, especially when dealing with far off customers, leads to misrepresentations, shoddy practices and fraud. The food industry is an example.

          Upton Sinclair writes The Jungle (1906), exposing the disgusting unsanitary conditions in the Chicago meatpacking industry, during the early 20th century. Public uproar prompts President Theodore Roosevelt to pass the Pure Food and Drug Act of 1906 and the Meat Inspection Act. Roosevelt says that government laws and regulations are the only way to restrain the arrogant and selfish greed of the capitalist system.

          Shocking examples of food fraud in 2013 highlight the need for enforcing government regulations. Inspectors uncover corporations selling horse meat as beef, and routinely mislabeling about 40% of the fish served in U.S. restaurants. Cheap rockfish and tilapia are substituted and sold as expensive snapper, and restaurateurs frequently switch escolar for white tuna, causing diners to suffer indigestion.

          Over 70% of the tilapia sold in the U.S. is imported from Asia, and only 2% is inspected by the Food and Drug Administration. Much of this Asian farm raised tilapia is "filthy fish," where pesticides and manure run off into the tilapia raising ponds, causing infections. Or the tilapia is raised in polluted Asian rivers. Americans are impairing their health by unknowingly eating filthy Asian tilapia, fraudulently substituted in U.S. restaurants for the healthy fish ordered.

          Other fraudulently mislabeled foods include sausage, organic foods, energy drinks, milk and eggs. Without sanitary food preparation standards, set and fairly enforced by the government-Americans will soon return to naively eating rat droppings-so, unknown to them, CEOs can meet Wall Street earnings expectations.

          Departments of Weights and Measures (DWMs) at the state and federal level develop "uniform laws, regulations and methods of practice" that impact about 50% of U.S. GDP-to ensure there is equity between buyers and sellers in commercial transactions.

          Because gasoline stations routinely pumped less gas then charged for, DWMs now ensure the accuracy of gasoline pumps, octane levels, labeling and restricting water in gasoline. Butchers used to add lead weights to the chest cavity of the poultry sold, prior to weighing, then noiselessly dumped the weights out into an unseen padded draw before the bird was held up for the customer's inspection, thereby swindling their trusting patrons.

          Without the state to step in to punish fraudulent wrongdoers, dishonest business practices would be widespread. Consumer trust, in everyday market transactions, is paramount for market economies to function effectively and efficiently-making government regulations vitally important.

          Without regulation and transparency, bad businesses drive out good businesses, following Gresham's Law. The economic system then atrophies, with a loss of trust in the marketplace. What is lost is not just the money on an inferior product or service, in the short run, but more importantly, the bad businesses may use their outsized profits to buy political protection and start changing laws, to make new laws favorable only for them-thereby damaging the market economy and reducing the state's economic growth and welfare.

          Competitive Market Economies

          An economic market system capable of directing the whole of economic life, without out-side help or interference, is called self-regulating. Once the self-regulating or competitive market economy is designed and implemented by the state, to give all participants an equal opportunity for success, the self-regulating market is to be let alone by the state and allowed to function according to laws and regulations, without after-the-fact government intrusions-regardless of the expected consequences.

          Those in Western societies are told that competitive market economies, which have self-regulated prices for land, labor and money, set solely by the market, are normal, and that human beings develop market economies on their own, without help from the state, which is the proof of human progress. Also, that market institutions will arise naturally and spontaneously, if only persons are left alone to pursue their economic interests, free from government control. This is incorrect.

          Throughout most of human history, self-regulating markets are unnatural and exceptional. Human beings are forced into the self-regulating market economy, by the state. Look at the following false competitive market economy assumptions.

          We are told people naturally bartered goods. Actually, human beings, down through history, have no predilection to barter. Social anthropology says that assuming tribal and feudal men and women bartered are rationalist constructs, with no basis in fact. Market economies are the result of often violent government directives, implemented for society's eventual improvement.

          The assumption is man is a trader by nature, and that any different human behavior is an artificial economic construct. By not interfering in human behavior, markets will spring up spontaneously. Social anthropology disproves this.

          Neoliberal Economic Theory

          Originally, neoliberal economic theory means, "free enterprise, competitive markets, the priority of the market price setting mechanism, and a strong and impartial state-to ensure it all functions properly."

          The Mont Pelerin Society, led by Dr. Milton Friedman, supports Hayek's economic theories, based on "free market" ideology and help change neoliberal economic theory by rejecting government regulation-calling it inefficient. In addition, financial economists at the University of Chicago School of Business promote the efficient market hypothesis or theory (EMT), supporting the Mont Pelerin Society's conjecture. Thus, the primacy of deregulated or "free markets" becomes mainstream within academe in the 1970s. Large corporations then use "free market fundamentalism" to their advantage, by lobbying the U.S. Congress to pass legislation beneficial to them.

          Some think that "free markets" are a matter of degree, and the practical issues of implementation are paramount. This is incorrect, and will not resolve the current "free market fundamentalism" debate. Instead, the real issue is semantics. Notice how quickly those with a political agenda change the debate from "competitive markets," which require state regulations and are highly productive-to "free markets," which result in fraudulent marketplace behavior, crony capitalism and weak economic growth.

          Using the term "free markets" is an Orwellian ruse, designed to change the focus in the public's mind from, "those in authority have to do better" to "those in authority know best, therefore, let them have their way."

          Today, neoliberal economic dogma promotes "free market fundamentalism" of reducing the size of government through the privatization of government services, deregulation and globalization. Privatization professes to reduce the state's authority over the economy, but state money is used by private companies to lobby legislators, to change laws, which will increase the government's demand for these same private corporation services. Privatization of government services by corporations does not promote the common good, only corporations' private profits.

          Neoliberal "free market" economists have doubled down on the failed liberal economic theory, with the ongoing 2008 credit crisis as the result.

          Free Markets Are Impractical

          "Free markets" are free from state intervention, i.e., unfettered capitalism. Those who understand how markets function realize this is an impractical view-simply a rhetorical device-using the popular word "freedom" to mask its real purpose.

          "Free markets" are a fantasy, far outside the realm of practicality, used by wealthy international corporations to bully governments and labor, to get their way. The reality is a competitive market economy requires powerful complex opposing interests, mediated by government, to produce an efficient and effective economy that supplies the most to the many, which includes the common good.

          Free Market Fundamentalism Leads To Economic Disaster

          Nowhere is "free market fundamentalism" more highly trumpeted by neoliberal economists than in the financial markets. The foundation of neoliberalism is, "a deregulated financial sector will regulate itself efficiently, making better use of capital, thus ushering in a new age of prosperity."

          Tragically, the massive deregulation of the financial markets during the Clinton and Bush presidencies, results in the ongoing 2008 credit crisis-which the U.S. Government Accountability Office reports has cost the U.S. economy about $13 trillion dollars in lost GDP output.

          "Free market" apologists ingenuously explain the 2008 credit crisis is not caused by "free markets," but because government regulations are not loose enough. All "free market" failures are dismissed by the financial elite, because of cognitive dissonance. Bankers and neoliberal economists want to believe in what is making them richer and more important. This is the same logic used by those in charge in the USSR, when communism failed, "it wasn't being applied purely enough."

          Free Market Ideology in Practice

          "Free market," ideology, as practiced today, is the opposite of what is stated. Instead, governments step in to save insolvent banks and large international corporations, when they make bankrupting mistakes, and give the bill to the taxpayer. This transforms the difficult but manageable ongoing 2008 credit crisis, into a much larger and dangerous sovereign bankruptcy crisis, with potentially calamitous political consequences.

          "Free markets" usher in unfettered capitalism, unleashing the "law of the jungle" and a "dog-eat-dog world" that fosters fraud and corruption. Human beings, no matter their station in life, cannot be trusted to always do the right thing, especially in a competitive situation. Doing away with laws or regulations so those in power know it is impossible to be caught or penalized does not stop them from acting improperly. Only criminal punishment and public disgrace accomplish that.

          The resulting "free market" business jungle includes monopolies, coercion, fraud, theft, parasitism, crony cabals and racketeering. Ironically, unfettered "free markets" are not free, but increase injustice, making the economic system inefficient. Only government laws and regulations can keep markets competitive.

          The EMT Supporting Free Markets Is Wrong

          New scientific evidence on the efficient market hypothesis or theory (EMT), shows University of Chicago School of Business researchers ask the wrong questions, use erroneous data and an incorrect research method to analyze the data, and then jump to false conclusions, based on half-truths-please read further in my journal articles: link, link and link.

          The EMT and "free market fundamentalism" are false gods.

          Conclusion

          Markets are not efficient, based on the data. Consequently, "free markets" have no theoretical foundation. Therefore, reject the incorrect theory of "free market fundamentalism" It is impractical and dangerous, leading us into the ongoing 2008 credit crisis.

          Competitive market economies only function properly by having fair laws and regulations, set up and impartially enforced, by a strong state. Dr. Robert M. Solow, 1987 Nobel Prize Winner in Economics and MIT Institute Professor Emeritus says, "The switch to talk about "free" markets diverts attention from these deficiencies and suggests that any attempts at corrective regulation are instead limitations on freedom."

          Neoliberal" free market fundamentalists" in business use "free market" ideology as a negotiation ploy. Do not succumb to this ruse. The U.S. requires "competitive markets for economic growth," not "free markets for fraud."

          [Oct 09, 2015] Bank Of England Tells British Banks To Reveal Their Full Exposure To Glencore And Other Commodity Traders

          See Glencore - Wikipedia: "According to an Australian Public Radio report, "Glencore's history reads like a spy novel".[14] The company was founded as Marc Rich & Co. AG in 1974 by billionaire commodity trader Marc Rich, who was charged with tax evasion and illegal business dealings with Iran in the US, but pardoned by President Bill Clinton in 2001.[15] He was never brought before US courts before his pardoning, therefore there was never a verdict on these charges."... "In 2005, proceeds from an oil sale to Glencore were seized as fraudulent, in an investigation into corruption in the Democratic Republic of Congo (Allen-Mills 17 June 2008)" ... "In May 2011 the company launched an IPO valuing the business at US$61 billion[26] and creating five new billionaires.[27] Trading was limited to institutional investors for the first week and private investors were only allowed to buy the shares from 24 May 2011." ... "A BBC investigation in 2012 uncovered sale documents showing the company had paid the associates of paramilitary killers in Colombia. In 2011, a Colombian court had been told by former paramilitaries that they had stolen the land so they could sell it on to Glencore subsidiary Prodeco, to start an open-cast coal mine; the court accepted their evidence and concluded that coal was the motive for the massacre. Glencore refuted the allegations" ... ""In Ecuador, the current government has tried to reduce the role played by middle men such as Glencore with state oil company Petroecuador" due to questions about transparency and follow-through, according to Fernando Villavicencio, a Quito-based oil sector analyst." ... A visual Relationship Map of Glencore executive board and stakeholders with their connections.
          Oct 09, 2015 | www.zerohedge.com

          Overnight we got confirmation that Glencore has indeed become a systemic risk from a regulatory standpoint after the FT reported that the Bank of England has asked British financial institutions to reveal their full exposure to commodity traders and falling prices of raw materials amid concerns over the impact of the oil and metals slump. Or, in other words, their exposure to Glencore, Trafigura, Vitol, Gunvor and Mecuria.

          Dr. Engali

          The BOE is trying to figure out who is going to need a bail out before shit hit the fan.

          Edit: Oh by the way, that 11% move to the upside is short covering not a sign that Glencore is okay you dumb fucks.

          "The shares jumped as much as 11 percent in London". "Analysts promptly cheered the move"...., Idiots.

          junction

          Why is the Bank of England protecting Stemcor, the mining giant owned by the Oppenheimer family? Former PM Tony Blair is probably the person responsible, protecting MP Margaret Hodge She should have been sent to prison in 1994 for her role in protecting the pedophile ring operating in the London Borough of Islington instead of going to Parliament. Hodge is an Oppenheimer family member who backed Blair.

          http://uk.reuters.com/article/2015/04/16/uk-stemcor-restructuring-steel-...

          Dubaibanker

          Glencore has closed Dubai office. https://www.difc.ae/glencore-investments-dubai-limited

          Glencore has closed Singapore http://www.theaustralian.com.au/business/news/glencore-to-close-down-sin...

          Glencore has sold Nickel project for pennies in Brazil http://www.reuters.com/article/2015/09/28/us-horizonte-glencore-idUSKCN0...

          Glencore has fired hundreds in Australia http://www.abc.net.au/news/2015-10-09/glencore-slashes-queensland-jobs-n...

          Glencore will fire thousands in Zambia and shut some operations http://www.reuters.com/article/2015/09/23/us-zambia-mining-glencore-idUS...

          Glencore has closed a mine in South Africa and laid off hundreds http://uk.reuters.com/article/2015/10/07/uk-glencore-safrica-idUKKCN0S11...

          I have heard they fired hundreds in Zug...does anyone have a link?

          Kayman

          "The BOE is trying to figure out who is going to need a bail out before shit hit the fan."

          More precisely, the BOE is trying to figure out how much money will be needed to stiff the taxpayers on behalf of their swill drinking friends.

          kliguy38

          Glencore was a massive Ponzi from the start and designed to fail. When it goes it will pull a 2 Trillion in derivatives down its rabbit hole. They know it and they're stalling for another bagman to take the derivatives. gl with that one.

          [Oct 09, 2015] Is russian oil production peaked ?

          Oct 09, 2015 | peakoilbarrel.com

          AlexS, 10/04/2015 at 5:11 pm

          RE: Russian oil production statistics from various sources

          Ron,

          I personally never questioned the reliability of Russian oil statistics. But as you have repeatedly raised this issue, I did a brief assessment of the data from various sources.

          The Russian Energy Ministry provides very detailed data on oil + condensate production by each Russian producer on a daily basis. As in Soviet times, these numbers are reported directly by the companies to the Ministry. They can be easily verified as all oil produced is transported by pipelines owned by the state –owned Transneft. Small quantities are processed for internal use by the companies at mini-refineries, but their throughput is also reported to the ministry.

          The Ministry reports production in tons without converting it in barrels per day. However other sources (including Russian and foreign oil companies operating in Russia) use conversion ratios at 7.33 and 7.3 for Russian oil production. In the table below I calculate both numbers.
          NGL production is reported separately and is not included in C+C numbers.

          IEA oil production statistics include C+C+NGLs, however in their recent monthly Oil Market Reports the IEA is also mentioning C+C production for Russia. These numbers are very close to the data provided by the Russian Energy Ministry. In the past, the IEA did not disclose separate numbers for the Russian C+C, and it was first mentioned in the May OMR (p.25):

          "Despite sanctions and lower oil prices, Russian producers managed to maintain crude oil output near record levels through April, hovering around 10.7 mb/d since the start of the year. Including gas liquids, Russian output exceeded 11 mb/d in both March and April."

          Note, that the IEA works closely with Russia and gets data directly from the Russian Energy Ministry.

          The EIA has detailed oil and other liquids production data for many countries and releases it excel format:

          (International Energy Statistics, Petroleum Production http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=50&pid=53&aid=1). This is very useful when you don't have other sources of data. However in many cases the EIA does not get information directly from national sources and uses third party data. Besides these numbers are relatively rarely updated and in some cases look incorrect. For example, their newest international oil production data are for April 2015.

          The EIA also publishes "Total liquids supply" data for the key producers in the STEO, where the numbers are updated monthly. (STEO excel file, Table 3b. Non-OPEC Petroleum and Other Liquids Supply).

          Note that the updated numbers for Russia in the September STEO are 143 kb/d higher for April and 132 higher for March, compared with the EIA International Energy Statistics. Given that the EIA constantly estimates Russian refinery processing gains at 26 kb/d, we can easily calculate C+C+NGL production estimates up to August by subtracting 26 kb/d from the STEO Total liquids numbers.

          As a result, as can be seen from the table below, EIA's C+C+NGL production estimates for Russia are only marginally below the IEA's numbers (the average discrepancy for Jan.-Aug. 2015 is ~40 kb/d).

          You can also note that the EIA's estimate for Russia's NGLs output in the first 4 months of 2015 is around 755kb/d, while the IEA's number is only ~350 kb/d. I think that the EIA classifies all or part of Russian condensate production as NGLs, while in the IEA and the Russian Energy Ministry's statistics it is included in the C+C output.

          Finally, JODI data is based on national statistics. As it says on its website: "The data are submitted by the national authority of the participating country. These data are considered authoritative and are not subject to alteration by any of the JODI partner organisations." (https://www.jodidata.org/about-jodi/faqs.aspx). Nevertheless, in some cases JODI
          data differs significantly from national statistics. JODI does not explain its methodology, and its officials do not respond to emails to comment on why its data differs from figures provided by national agencies.
          JODI provides data on both Russian oil and NGL production. NGL data is much higher than IEA's numbers, but slightly lower than the EIA.
          JODI data is released with significant delay to the IEA and especially to national statistics. I also noticed that, unlike the IEA, they generally do not update the numbers released earlier. That can partly explain, why JODI numbers for Russia are lower than data from other sources. On average, JODI's C+C+NGL numbers for January-July 2015 are
          203 kb/d lower than IEA and 164 lower than EIA.

          In general, all serious experts on Russian oil industry use the official numbers provided by the Energy Ministry.

          Russian oil production statistics from various sources

          shallow sand , 10/04/2015 at 5:33 pm

          I think Russian production would be easier to measure given it is much lower decline, there aren't as many companies nor as many governmental agencies measuring it.

          It appears to me US data is the most variable and likely inaccurate.

          Dennis Coyne, 10/05/2015 at 3:48 pm

          Hi Ron,

          I think AlexS has solved the discrepancy between the EIA/JODI data and the IEA/Russia data. It is mostly a matter of how pentanes plus should be classified.

          The EIA puts some of these(field or wellhead pentanes plus) in the C+C category and the pentanes plus produced during natural gas processing (to produce dry gas to ship to customers) is included in the NGL category. Canada and Russia group all pentanes plus together in the condensate category (which makes perfect sense from a chemistry perspective), this accounts for about a 400 kb/d difference between EIA estimates for Russian C+C and the Russian Energy ministry estimates. The rest of difference might be due to the EIA assuming a different estimate for the density of Russian C+C (possibly they use the density of the Urals blend which would have a reciprocal of 7.25 barrels per metric ton) than the IEA (which uses about 7.31 barrels per metric ton).

          AlexS, 10/05/2015 at 10:15 am

          Dennis,

          In fact, the lighter is the barrel, the more barrels are in 1 ton.
          43961 ktons reported by the Energy Ministry for September
          is 10741 kb/d with 7.33 conversion ratio
          10697 kb/d with 7.3
          10551 kb/d with 7.2
          10404 kb/d with 7.1
          10258 kb/d with 7.0
          10111 kb/d with 6.9

          As I said earlier, the most widely used ratio is 7.33 (the numbers in Reuters and Bloomberg articles, as well as all Russian statistics by Energy Intelligence, etc.) and 7.3 (apparently used by the IEA)
          I also prefer 7.3, as I think the average Russian barrel is heavier than 7.33.

          That said, the Russian oil output is getting lighter due to the growing share of new fields in eastern Siberia, Far East (Sakhalin) and some other regions. Thus, according to Platts, the Urals blend API is 31.55 API,
          ESPO (East Siberia) is 34.8, Sokol and Vityaz (Far East) are 39.7 and 34.4 API degrees, respectively.
          (Source: http://www.platts.com/im.platts.content/insightanalysis/industrysolutionpapers/espoupdate0510.pdf )
          So in theory, as the share of lighter crudes rises, the conversion ration should also increase. But I doubt that the IEA, EIA or JODI are changing their conversion ratios.

          The EIA and JODI do not specify which conversion ratios they are using for Russia. If they are using 7.2 or 7.1, that could partly explain the discrepancy between their numbers and Energy Ministry and the IEA numbers.

          However the key difference is the volume of condensate and NGL output. It seems that JODI and the EIA account most of condensate production as NGLs. Therefore, their NGL volumes for Russia are much higher than the IEA, and their C+C volume estimates are lower than the numbers provided by the IEA.
          The IEA normally reports only combined C+C+NGL volumes, but this year they also include C+C production numbers for Russia (in the OMR main text). By subtracting C+C from C+C+NGL we get the IEA's estimate for Russian NGL production at 340-350 kb/d in the past several months. This compares with the EIA's 755 kb/d average monthly estimates (January-April) and JODI's 710 kb/d estimate (January-July).

          I think that the IEA's numbers are more accurate, as in 2010 they published a study on global NGL production, where they carefully analyzed NGL and condensate production for the key producing countries using national statistics, as well as information provided by individual companies.
          ("Natural Gas Liquids Supply Outlook 2008-2015." IEA, April 2010. http://www.iea.org/publications/freepublications/publication/ngl2010_free.pdf )
          Here are their numbers for Russia's output levels in 2008:
          Condensate: 356 kb/d
          "Other NGLs": 180 kb/d
          Total NGL and condensate: 536 kb/d

          From the IEA report: "The Russian Ministry of Oil and Energy does not report NGLs per se, but they do report LPG and condensate production per company. In this study we have applied the reports of LPG and condensate production per company as a starting point to arrive at a proxy for Russian NGL production. Based on the reported figures at August 2009 the LPG production of Russian gas processing plants was 230 kb/d, while the condensate production was 361 kb/d, a total of 591 kb/d."

          In this report, the IEA projected a sharp increase in Russia's "Condensate and other NGLs" production from 536 kb/d
          In 2008 to 817 kb/d in 2015. Indeed, as we know now, both condensate and NGL output has increased even faster in the past few years due to: 1) increasing production of wet gas, 2) better utilization of previously flared associated gas, and 3) development of several new gas condensate fields. Thus, in the first quarter of 2015, gas condensate output jumped 18% year on year to 7.86 million tons (~640 kb/d) due to the launch of new production facilities in West Siberia, primarily by Novatek and Gazprom Neft. As per the IEA numbers, NGL output also almost doubled from 180 kb/d in 2008 to 340-350 kb/d in 2015.

          Apparently, JODI did not researched as deep as the IEA into the Russian NGL and condensate output, so they account most of condensate as NGLs.
          As regards the EIA, their list of sources for International Energy Statistics [http://www.eia.gov/cfapps/ipdbproject/docs/sources.cfm] does not include the Russian Energy Ministry. This is rather strange, as they get data from the national agencies of such countries, as Cuba, Mongolia and others. Apparently their numbers for Russia are based on statistics from JODI, the IEA and the "Russian Energy Monthly, Eastern Bloc Research" (never heard of it).

          That said, I do not suspect JODI and the EIA of being biased against Russia. These are just different statistical methodologies.

          Ronald Walter , 10/05/2015 at 10:34 am

          If you measure 100 cc of oil in a graduated cylinder, since the density, specific gravity, is less than water, 100 cc of oil will weigh less than 100cc of water. 1 cc of agua weighs 1 gram, 1 cc of oil will weigh less than one gram, you will need more oil, a greater volume, to obtain a weight of one gram for the oil.

          A metric ton of oil will occupy a volume greater than one cubic meter, more barrels.

          AlexS , 10/05/2015 at 11:51 am

          Russian crude oil and NGL production (kb/d)
          Source: JODI

          Longtimber, 10/06/2015 at 3:40 pm

          Jan 2012 Refineries came on line (?) Mother Russia keeps the good stuff for value added high density i.e.. Diesel/jet fuel? Russian polymers in the 90's were terrible and next to useless for packaging. Many markets now well supplied with SABIC Polymers. https://www.sabic.com/americas/en/productsandservices/plastics/

          AlexS, 10/06/2015 at 4:13 pm

          In January 2012 JODI changed its methodology and started treating Russian condensate production as NGL

          Stavros H, 10/05/2015 at 7:36 am

          No, Russian production is genuinely at an all-time high. It's not like the Russians count Lukoil's production in Iraq as "Russian" LOL!

          Consider also that Russia is under sanctions specifically designed by the West to harm its oil output.

          Peak-oilers are over-eager to claim that country "X" or "Y" has peaked in terms of oil production. This is often not the case.

          The only countries that have peaked in oil production, are the capital rich ones of the West. The reason for that is very clear. Those countries started exploiting their oil reserves earlier, and even more importantly have had the capital and technology to extract even the most marginal of deposits. Even in those cases, ultra-cheap financing can lead to temporary booms (US shale, Canadian sands) even if production takes place at a considerable financial loss.

          Countries like Iraq, Iran, Russia or Kazakhstan still have lots of untapped reserves.

          This also partly explains the current World Crisis that could even escalate into WWIII.

          Glenn Stehle, 10/05/2015 at 7:45 am

          There's an interesting article in OilPrice on Russia:

          http://oilprice.com/Energy/Energy-General/Is-Russia-Plotting-To-Bring-Down-OPEC.html

          The author uncritically accepts the myth of the "Great American Shale Revolution," which, as you say, is a play in which "production takes place at a considerable financial loss."

          Nevertheless, the take-away is the importance that oil and gas play in geopolitics.

          Frugal, 10/05/2015 at 8:51 pm

          Countries like Iraq, Iran, Russia or Kazakhstan still have lots of untapped reserves.

          Which oil reservoirs are untapped in these countries?

          [Oct 09, 2015] Economist's View 'Faith in an Unregulated Free Market Don't Fall for It'

          Oct 09, 2015 | economistsview.typepad.com
          Robert Shiller continues to phish for book sales:
          Faith in an Unregulated Free Market? Don't Fall for It: Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone. ...
          The problem is that these ideas are flawed. Along with George A. Akerlof ... I have used behavioral economics to plumb the soundness of these notions. ...
          Don't get us wrong: George and I are certainly free-market advocates. In fact, I have argued for years that we need more such markets, like futures markets for single-family home prices or occupational incomes, or markets that would enable us to trade claims on gross domestic product. I've written about these things in this column.
          But, at the same time, we both believe that standard economic theory is typically overenthusiastic about unregulated free markets. It usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception. ...
          Current economic theory does recognize that if there is an "externality" - say, a business polluting the air in the course of producing the goods it sells - the outcome won't be optimal, and most economists would agree that in such cases we need government intervention.
          But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality...

          david said...

          "But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality..."

          Glad to see Shiller pushing this line.

          But that's true of loads of what gets called externality -- that's the trouble with the term, it presumes some idyllic unregulated market with just a few troubling side effects to regulate away. The markets are made so that certain actors gain rewards and others bear costs, fundamentally. Externality suggests tweaks, but to go back to the Stavins bit from a few days ago, we need to be thinking structure and power.

          JohnH said...

          An unregulated free market is a recipe for oligopoly and monopoly, the very antithesis of a free market.

          pgl said in reply to JohnH...

          "The problem of market-incentivized professional manipulation and deception is fundamental, not an externality" goes well beyond anti-trust concerns."

          Paul Mathis said...

          Unregulated Free Markets Never Existed

          Nearly 4,000 years ago the Babylonian King Hammurabi carved onto a large stone a code of laws regulating contracts: the wages to be paid to an ox driver or a surgeon, the liability of a builder for a house that collapses, property that is damaged while left in the care of another, etc. – Wikipedia.

          Governments have been regulating and enforcing contracts ever since because no economy can function without such regulation and enforcement. And whenever government regulation is absent, businesses collude to fix prices, divide up markets and drive out competitors thereby nullifying any illusion of "free market" competition.

          GeorgeNYC said...

          Just ask any "free market" advocate if they believe that the stock market is a good example of their vision for a "free market". They will invariably say "yes" as the stock market is the cathedral of religious capitalism.

          Point out to them that the "stock market" is actually one of the most highly regulated "markets" with strict disclosure requirements (enforced by the government) and insider trading prohibitions (also enforced by the government), to name but a few, without which much of our faith in the "market" would be completely eliminated (and whose weak enforcement invariably lead to concerns about fraud). Of course, there are also a huge number of "private" regulations that ultimately have the force of the government behind them in that they allow for exchanges to "self-regulate".

          Most people do not understand that force is required to maintain the type of transparency needed to allow the proper information flow necessary to actually have a market work with true efficiency. "Free" is a complete misnomer. "Open" would probably be better term although that does not really fully capture the requirements.

          likbez said in reply to GeorgeNYC...

          That's brilliant: "the stock market is the cathedral of religious capitalism".

          The term "free market" became symbol of faith for neoliberalism and obtained distinct religious overtones. Because neoliberalism is in reality a secular religion. That's why neoliberalism is often called casino capitalism.

          And at the same time it is powerful instrument of propaganda of neoliberalism, a very skillful deception that masks what is in practice the advocacy of the law of jungle.

          Advocates of "free market" (note that they never use the term "fair market") are lavishly paid by Wall Street for one specific purpose: first to restore and now to maintain the absolute dominance of financial oligarchy which now successfully positioned itself above the law. Kind of return to feudalism on a new level.

          Bud Meyers said...

          Great posts on this topic:

          Free Markets are Fraudulent Markets (by Eric L. Prentis)

          http://www.economicpopulist.org/content/free-markets-are-fraudulent-markets-5360

          Capitalism Requires Government (7 pages: click through the page links near the bottom of each page):

          http://www.governmentisgood.com/articles.php?aid=13

          [Oct 09, 2015] Troubles with refinanciang in shale industry

          Oct 09, 2015 | peakoilbarrel.com
          AlexS, 10/06/2015 at 5:14 pm

          Willbros Group amends credit facilities

          October 5, 2015
          http://www.ogfj.com/articles/2015/10/willbros-group-amends-credit-facilities.html

          Willbros Group Inc. has completed amendments to its 2015 term-loan and ABL credit facilities. The amendments establish less-stringent term loan financial covenants beyond the end of the first quarter of 2016 that are designed to address the impact of current market conditions.
          Consistent with the company's expected revenue levels for 2016, the ABL commitment has been reduced from $150 million to $100 million, with an accordion feature to expand up to $175 million to accommodate future revenue growth.
          These amendments also enable Willbros to proceed with its asset sale initiatives, including the sale of its Professional Services segment, which will allow the company to strengthen its balance sheet through debt reduction.
          The amended financial covenants are more aligned with current market conditions and the company's performance objectives, and the amendments approve the sale of certain assets, including discrete assets that it may market in future periods. Net proceeds will be used primarily for debt reduction and secondarily for working capital.
          ====================================================
          PDC Energy extends maturity of revolving credit facility

          October 2, 2015
          http://www.ogfj.com/articles/2015/10/pdc-energy-extends-maturity-of-revolving-credit-facility.html

          PDC Energy Inc. has extended the maturity of its revolving credit facility by two years to May 2020. The borrowing base has been reaffirmed at $700 million of which the company has elected to keep its commitment level at $450 million.
          CFO Gysle Shellum stated, "We are very pleased with the support of our bank group and its agreement, given the current market conditions, to not only reaffirm our current borrowing base, but to also extend the maturity of the revolving credit facility by two years. This liquidity and flexibility provides us the ability to continue operating with a clear focus on maintaining favorable debt metrics and executing on our strategic vision of delivering shareholder value through continued production and cash flow growth, and strong returns."
          PDC Energy's operations are focused on the horizontal Niobrara and Codell plays in the Wattenberg field in Colorado and on the condensate and wet gas portion of the Utica shale play in southeastern Ohio.
          ===============================================

          Chesapeake amends revolving credit facility

          October 1, 2015
          http://www.ogfj.com/articles/2015/10/chesapeake-amends-revolving-credit-facility.html

          Chesapeake Energy Corp. has amended its five-year, $4 billion revolving credit facility agreement maturing in 2019 with its bank syndicate group.
          Key attributes include:
          • Facility moves to a $4 billion senior secured revolving credit facility from a senior unsecured revolving credit facility
          • The initial borrowing base is confirmed at $4 billion, consistent with current availability
          • Previous total leverage ratio financial covenant of 4.0x trailing 12-month earnings before interest, depreciation and amortization (EBITDA) is suspended
          • Two new financial covenants include a senior secured leverage ratio of 3.5x through 2017 and 3.0x thereafter, and an interest coverage ratio of 1.1x through the first quarter of 2017, increasing incrementally to 1.25x by the end of 2017.
          Chesapeake's credit facility may become unsecured when specific conditions set forth in the credit agreement are met. During an unsecured period, the total leverage ratio would be reinstated and the senior secured leverage ratio and interest coverage ratio would no longer apply. While Chesapeake's obligations under the facility are secured, the amendment gives Chesapeake the ability to incur up to $2 billion of junior lien indebtedness. As of Sept. 30, Chesapeake has $12 million in outstanding letters of credit under the facility with the remainder of the $4 billion available.

          AlexS, 10/06/2015 at 5:16 pm

          New Source Energy Partners updates on pending borrowing base deficiency

          September 29, 2015
          http://www.ogfj.com/articles/2015/09/new-source-energy-partners-updates-on-pending-borrowing-base-deficiency.html

          New Source Energy Partners LP, due to a pending borrowing base deficiency under its revolving credit facility, will be prevented from paying the quarterly cash distribution on its 11% Series A cumulative convertible preferred units.
          "While it was the Partnership's intention to pay this distribution, there are covenants in our credit agreement with our reserve based lending group that prevent our ability to make the payment while in a deficiency," said Kristian Kos, chairman and CEO. "We are not in a deficiency at this time. However, based on initial communication from our reserve based lending group, we expect to be in a borrowing base deficiency after our biannual redetermination takes place in early October, which will prevent us from making a distribution on Oct. 15. We will be working with our lenders to finalize the new borrowing base over the next several days, as well as exploring alternatives to remedy the deficiency to allow the Partnership to resume making distributions on the preferred units as soon as possible."
          New Source Energy Partners is an independent energy partnership engaged in the production of its onshore oil and natural gas properties that extends across conventional resource reservoirs in east-central Oklahoma and in oilfield services that specialize in increasing efficiencies and safety in drilling and completion processes.
          =====================================================

          Bill Barrett reaffirms borrowing base

          September 29, 2015
          http://www.ogfj.com/articles/2015/09/bill-barrett-reaffirms-borrowing-base-sells-certain-uinta-properties.html

          Bill Barrett Corp.'s (NYSE: BBG) semi-annual borrowing base review has been completed with the bank group reaffirming the $375 million borrowing base related to its revolving credit facility maturing in April 2020. The credit facility has $375 million of commitments and there are currently no borrowings under the credit facility.
          As part of the redetermination process, the company and its lender group agreed to amend the maintenance covenants in the revolving credit facility by replacing the leverage covenant limiting the maximum total debt to trailing 12-month EBITDAX ratio of 4.0x with a covenant limiting the maximum senior secured debt to trailing 12-month EBITDAX ratio of 2.5x through March 31, 2018, after which the leverage covenant reverts to a maximum total debt to trailing 12-month EBITDAX of 4.0x, as of June 30, 2018. In addition, an interest coverage ratio requirement was included, pursuant to which the ratio of EBITDAX to interest expense may not be less than 2.5 to 1.0 for each quarter through March 31, 2018.
          =======================================================

          Approach Resources confirms reaffirmation of lender commitments in credit facility at $450M

          September 28, 2015
          http://www.ogfj.com/articles/2015/09/approach-resources-confirms-reaffirmation-of-lender-commitments-in-credit-facility-at-450m.html

          Approach Resources Inc. has completed the scheduled semiannual borrowing base redetermination of its revolving credit facility, and as a result, the bank group has set the lender commitment amount and borrowing base at $450 million.
          Under the terms of the credit agreement, the bank group redetermines the borrowing base semiannually, using the banks' estimates of reserves and future oil and gas prices. The next borrowing base redetermination is scheduled to occur by April 1, 2016. As of Sept. 24, Approach had $276 million outstanding under its revolving credit facility, resulting in liquidity of $177 million.
          Approach Resources is an independent energy company focused on the exploration, development, production, and acquisition of unconventional oil and gas reserves in the Midland Basin of the greater Permian Basin in West Texas.

          AlexS, 10/06/2015 at 5:17 pm

          Enterprise increases capacity of bank credit facilities to $5.5B

          September 17, 2015
          http://www.ogfj.com/articles/2015/09/enterprise-increases-capacity-of-bank-credit-facilities-to-5-5b.html

          Enterprise Products Partners LP's operating subsidiary, Enterprise Products Operating LLC, has increased its bank credit facilities by $500 million to provide the company with up to $5.5 billion of aggregate borrowing capacity.
          The facilities consist of an amended $4 billion multi-year revolving credit agreement that matures in September 2020 and a new $1.5 billion 364-day revolving credit agreement, both of which are unconditionally guaranteed by Enterprise on an unsecured and unsubordinated basis. As of today, aggregate available borrowing capacity under the increased bank credit facilities is $4.7 billion.
          ==================================================

          Gastar borrowing base maintained at $200M

          September 1, 2015
          http://www.ogfj.com/articles/2015/09/gastar-borrowing-base-maintained-at-200m.html

          Gastar Exploration Inc. has completed its second scheduled borrowing base redetermination of its revolving credit facility for 2015 and, as a result, the borrowing base has been reaffirmed by the lending participants at $200 million.
          Currently, Gastar has drawn $65 million under its revolving credit facility, resulting in $135 million of unused borrowing capacity. The next scheduled borrowing base redetermination is to occur by May 1, 2016.
          Gastar's principal business activities include an emphasis on unconventional reserves, such as shale resource plays. In Oklahoma, Gastar is developing oil-bearing reservoirs of the Hunton Limestone horizontal play and expects to test other prospective formations on the same acreage, including the Meramec shale play (middle Mississippi Lime) and the Woodford shale play, which Gastar refers to as the STACK play. In West Virginia, Gastar is developing liquids-rich natural gas in the Marcellus shale play, and has drilled and completed two dry-gas Utica/Point Pleasant wells on its acreage.
          ========================================

          RSP Permian completes bolt-on Midland Basin acquisitions and increases borrowing base

          August 26, 2015
          http://www.ogfj.com/articles/2015/08/rsp-permian-completes-bolt-on-midland-basin-acquisitions-and-increases-borrowing-base.html

          RSP Permian Inc. closed an amendment with the lenders under its revolving credit facility that, among other things, increases the borrowing base 20% to $600 million. The company currently has no amounts drawn under its revolving credit facility and the next scheduled borrowing base redetermination is May 1, 2016.

          AlexS, 10/06/2015 at 5:21 pm

          Exterran Holdings secures financing to enable spin-off of businesses

          October 6, 2015
          http://www.ogfj.com/articles/2015/10/exterran-holdings-secures-financing-to-enable-spin-off-of-international-services-and-global-fabrication-businesses.html

          Exterran Holdings Inc. (NYSE: EXH) has provided an update to the planned financing in connection with its previously announced separation.
          In November 2014, Exterran Holdings said that it intends to separate its international contract operations, international aftermarket services, and global fabrication businesses into a stand-alone, publicly traded company named Exterran Corp. Upon completion of the spin-off, Exterran Holdings, which will continue to own and operate its contract operations and aftermarket services businesses in the US, will be renamed Archrock Inc.

          As previously announced, Exterran Corp. entered into a $750 million revolving credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Corp. amended and restated the credit agreement to provide for a new $925 million credit facility, consisting of a $680 million revolving credit facility and a $245 million term loan facility. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 2.75%. The term loan will carry an interest rate of LIBOR plus 5.75%, with a 1.00% LIBOR floor.

          Availability under the new credit facility is conditioned upon the completion of the separation and the satisfaction of certain other customary conditions. The revolving credit facility will mature five years after the effective date of the separation transaction, and the term loan facility will mature two years after the effective date of the separation transaction.
          The new credit facility includes, among other covenants, financial covenants requiring Exterran Corp. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 3.75:1.00. Should Exterran Corp. refinance the term loan facility with the proceeds of certain qualified unsecured debt or equity issuances, the financial covenants in the revolving credit facility will be modified to require that Exterran Corp. maintain a total leverage ratio of not greater than 4.50:1.00 and a senior secured leverage ratio of not greater than 2.75:1.00, while the interest coverage ratio will not change. Such capitalized terms are defined in the amended and restated credit agreement.
          In connection with the spin-off, Exterran Holdings anticipates that Exterran Corp. initially will borrow under its new credit facility and transfer an amount of proceeds to Exterran Holdings which, when taken together with the proceeds from borrowings under the Archrock credit facility as described below, will enable Exterran Holdings to repay all of its existing indebtedness.
          As of June 30, on a pro forma basis after giving effect to the spin-off, Exterran Corp. would have borrowed and transferred to Exterran Holdings approximately $539 million. Subsequent to June 30, and prior to the completion of the spin-off, Exterran Holdings expects to incur additional borrowings under its existing credit facility of between $40 million and $50 million to finance expenses related to the completion of the spin-off, which will increase the amount that Exterran Corp. borrows under its new credit facility and transfers to Exterran Holdings.
          Also, Exterran Holdings entered into a $300 million credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Holdings executed a first amendment to the credit agreement that, among other things, increases the aggregate commitments under the revolving credit facility from $300 million to $350 million. The revolving credit facility includes, among other covenants, financial covenants requiring Archrock Inc. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 4.25:1.00 (except that the maximum total leverage ratio during a specified acquisition period will be increased to 4.75:1.00), as those capitalized terms are defined in the credit agreement. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 1.75%.

          [Oct 09, 2015] WTI Crude Tops $50, Energy Stocks Soar To Biggest Week Since 2008 (But Credit Aint Buying It)

          "... output from the world's biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees lower for longer suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed. ..."
          "... at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick the can bitchez. ..."
          "... ..."
          Oct 09, 2015 | www.zerohedge.com

          Zero Hedge

          WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world's biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.

          ... ... ...

          As Bloomberg reports,

          Oil may rise to a "baseline" of about $60 a barrel in one year's time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June.

          Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain "lower for longer" because of excess inventories, according to Pimco, which manages $15 billion of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.

          "People could be thinking, how much worse can it get from here, so there's a rotation from short positions to long," Michael Powell, a managing director of investment banking at Barclays Plc, said in London this week. "Then you ask, is this the spring of this year all over again?"

          buzzsaw99

          at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick the can bitchez.

          Herdee

          Suckers rally, just manipulated like all markets in order to give big oil in the U.S. the chance to hedge on the downside for winter recession. All the crooks on Wall Street need another load of suckers for a big fat pay check before Christmas.

          LawsofPhysics

          Who gives a shit about paper bullshit?

          Some people will have access to the calories and commodity chemicals required to maintain a decent standard of living. Most will not.

          Same as it ever was...


          [Oct 09, 2015] Problem of toxic water disposal in shale industry

          "... An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt – somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically is to slow down oil consumption so it lasts a little longer. ..."
          "... If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone". ..."
          "... Told me something very interesting. He said, that he and other guys in his industry aren't drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to continue drilling these deep wells to get rid of the toxic water that comes from extracting oil, especially shale oil. ..."
          "... He also says as shale wells get older and lose production it becomes even less commercially viable to keep the well pumping when they have to inject higher volumes of water back into the ground that are coming via the shale oil industry. ..."
          "... I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten years old. ..."
          "... I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less than long term debt at year end, production is falling, still cash flow negative and still must drill and complete wells to keep production from falling of a cliff. ..."
          "... So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline rate of 73%. ..."
          "... Electric expenses are only second to labor in most water floods IMO, and many times can even be higher than labor. However, chemicals also are a major expense. ..."
          Oct 09, 2015 | peakoilbarrel.com

          Old Farmer Mac, 10/04/2015 at 1:05 pm

          ... ... ...

          An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt – somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically is to slow down oil consumption so it lasts a little longer.

          We have a somewhat better shot at limiting coal consumption because wind and solar power plus gas can be readily substituted for coal.

          This comment is about what WILL be rather than what OUGHT to be.

          Ovi, 10/04/2015 at 8:00 pm

          ... ... ...

          If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone".

          If the environmental lobbies were really concerned about CC, they should be pushing for a North American approach on how to deal with all oil production, not just focused on Canadian oil.

          SRSrocco, 10/04/2015 at 1:58 pm

          Ron & Group,

          Maybe some of you that are working in the field can add to this. I had a phone conversation with a fella who has been looking for oil in Texas, Louisiana and Oklahoma for the past 30+ years. Says… he knows just about everyone looking for conventional plays in his neck of the woods.

          Told me something very interesting. He said, that he and other guys in his industry aren't drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to continue drilling these deep wells to get rid of the toxic water that comes from extracting oil, especially shale oil.

          Says this could become a big issue going forward as the EPA may start cracking down on this further. He also says as shale wells get older and lose production it becomes even less commercially viable to keep the well pumping when they have to inject higher volumes of water back into the ground that are coming via the shale oil industry.

          Would love to see if anyone else here can comment on this.

          shallow sand, 10/04/2015 at 2:19 pm

          Depends on the well.

          Bakken wells seem to produce less water as they age. Mississippian production in KS and OK seems to have a high water cut, making same uneconomic. EFS and Permian more of a mixed bag.

          Earthquake issues arise from these wells, not from the frac itself.

          shallow sand, 10/04/2015 at 2:57 pm

          Steve. I'm not entirely sure on water cut in Bakken, seems it does vary well to well.

          Just as with any other oilfield, some wells are better than others.

          As I have pointed out here many times before, OPEX per BOE usually is lowest immediately after the well is completed, especially if it is flowing.

          I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten years old.

          LTO economic issues are coming home to roost. Just hard to say how much longer banks and investors keep propping it up.

          I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less than long term debt at year end, production is falling, still cash flow negative and still must drill and complete wells to keep production from falling of a cliff.

          However, no personal liability for debt and hype can keep extend and pretend going for a long time, maybe long enough to kill a lot of other high cost production.

          SRSrocco, 10/04/2015 at 3:17 pm

          shallow,

          I couldn't agree more about your assessment of the current state of affairs in the U.S. Shale Oil Industry. Actually, I have found out a lot of data by reading many of your comments here in the blog. I have been a bit low-key in commenting lately, but I still enjoy reading many of Ron's posts and comments.

          As you may be aware, I have my own blog, https://srsroccoreport.com/ . It's a precious metal website that includes energy into the mix. Energy is excluded by most precious metal analysts… which I find completely frustrating to say the least.

          While some label me a Gold or Silver Bug, I look at the precious metals as stores of economic energy… whether that be oil, gas, coal or human-animal labor. I agree that the "Extend & Pretend" model has been going on longer than most realized. However, when it finally cracks, I would stand very far away from anything tied to debt… STOCKS, BONDS, REAL ESTATE and etc.

          So, it will be interesting to see how things play out this fall if we finally get the Stock Market Crash from hell.

          steve

          Dennis Coyne, 10/06/2015 at 11:25 am
          Hi Shallow Sands,

          They started drilling in the Bakken in 1953. Very few wells that started producing in 2007 have stopped producing, only 3% in the Bakken/Three Forks. For wells starting production in 2008 about 5% of wells have stopped producing, for 2009 wells 3% have stopped producing.

          I define "stopped producing" as 12 months or longer of zero output counting back from the most recent month reported. I used the data through Feb 2015 so these numbers may have changed somewhat over the past 8 months.

          I question whether Rockman used a reliable method for reporting on the Eagle Ford. In many cases the RRC will report output as zero when the company has not yet reported output for a lease (or the data is pending review for accounting reasons), Drilling info gets its data from the RRC and the data is not very complete. The 30% of wells that Rockman claims have stopped producing in the Eagle Ford may just be an artifact of this incomplete data.

          Ron Patterson , 10/06/2015 at 1:21 pm
          The 30% of wells that Rockman claims have stopped producing in the Eagle Ford may just be an artifact of this incomplete data.

          I really don't think so. Rockman wrote:

          So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline rate of 73%.

          I don't think Rockman would make such a silly mistake as you suggest. It appears to me that he is tracking each well and the 40 that dropped out did so at different times and simply never returned to production.

          Dennis Coyne, 10/07/2015 at 11:43 am
          Hi Ron,

          I don't have access to the Drilling info database so perhaps you are correct. I am very skeptical of Rockman's claims. I think he assumes that because output is reported as zero, that the output is in fact zero.

          I followed some Eagle Ford wells for a while and the "missing output" is often just delayed reporting which shows up later. For a better test Rockman would have to look at wells that started producing in July 2013 and see how many of those wells were still producing in July 2014, that would avoid most of the delayed reporting artifacts.

          If he did so he would probably find that 5% or fewer wells had stopped producing (where this is defined as zero production for 12 consecutive months or more).

          Rune Likvern, 10/04/2015 at 4:22 pm
          Steve and FWIIW,
          In December 2014 I presented an analysis based on work by Enno and I that showed actual developments for water cut for LTO wells in Bakken (lots of charts).
          General trend is that water cut (and GOR) increases as the LTO wells ages.
          http://fractionalflow.com/2014/12/11/will-the-bakken-red-queen-outrun-growth-in-water-cut/
          shallow sand, 10/04/2015 at 5:18 pm
          Rune. Thanks! I thought maybe you had addressed this.

          I think an interesting exercise related to the high decline and increasing water cut would be to assume a company, such as Oasis, we're to cease all drilling, completion and refrac work.

          Is there any way OAS, who I think is 100% ND and MT, could come close to retiring debt at the present strip.

          I would note OAS is attempting to sell all of its non-Bakken/TF acreage and production.

          A confidentiality agreement is required to view the data. The public data indicates 625 BOEPD from 95 wells. I looked at MT site, several wells are shut in. Looks the same for ND.

          I read the article Jeffrey linked comparing LTO wells to water soluble houses. I can't really tell what is better for these companies. Keep drilling at a loss or stop and try to pay down debt. What a deal.

          Might be amusing if we weren't in a pickle with much of our production also.

          Jeffrey J. Brown, 10/05/2015 at 6:42 am
          A rough metaphor for the shale players is the book and movie "Thinner," by Stephen King. A gypsy places a curse on the lead character, who weighs about 300 pounds. No matter how much he eats, he loses weight, and only by consuming vast quantities of food per day is he able to minimize the weight loss.
          Rune Likvern, 10/05/2015 at 8:15 am
          shallow,
          I posted the chart below some weeks ago.

          The chart shows Oasis credit and debts stacked (columns) along their retirement profile (time axis) and the growing lines (using October-15 as baseline) shows estimates on Oasis cumulative net cash flow with oil prices at respectively $50/b and $70/b [WTI] and no wells added post October-15 (this causes a steep decline in LTO production).

          The chart assumes that the credit facility is fully utilized by October 2015.

          With average oil price of $50/b Oasis may clear the first hurdle, the second one (due Feb 2019 becomes challenging).
          With average oil price of $70/b Oasis may find it difficult to meet debt retirements as from 2022.

          How oil prices develop is a big if, but I expect these to be low for some time. The other thing is possible rollovers of debts.
          To me the best strategy in a low oil price environment would be to stop drilling (LTO) wells that has the prospects of becoming unprofitable [due to the high front end loaded production]…..and pray for a higher oil price.

          Fred , 10/04/2015 at 2:20 pm

          EPA's regulations require that all onshore "produced water" be reinjected, very few exceptions. Of course, as well age, the water cut increases and reinjection becomes a significant cost factor.
          Boomer II , 10/04/2015 at 2:45 pm

          Says this could become a big issue going forward as the EPA may start cracking down on this further.

          Given the corporate and political opposition to the EPA, I can envision waste water wells being regulated at the state level.

          Oklahoma Acts to Limit Earthquake Risk at Oil and Gas Wells – The New York Times

          Watcher, 10/04/2015 at 2:59 pm

          Noted last post, I suspect we have underestimated OPEX for shale out years. Lower oil output means the onsite tanks fill slower to be off loaded by less frequent truck visits.

          But the trucks for production water still have to make the trip to drain the faster filling water tanks.

          John S, 10/04/2015 at 9:49 pm

          SRSRocco,

          A water injection well is a different animal to me than a "water disposal well". An injection well is used in field operations to maintain reservoir pressure by injecting water or reinjecting gas into the reservoir and would be drilled by the operator not a third party service provider. Water would probably have to be treated chemically before injecting into a reservoir.

          A salt water disposal well is used to dispose of produced water that is a by product of field operations. Often these are drilled and operated by 3rd party service contractors but many times an operator will drill and operate its own disposal wells.

          In Texas, the general rule is that produced salt water from one surface tract can not be disposed of on a another surface tract without the consent of the surface owner. Consent is generally given in return for a per barrel fee. It is my experience, that operators take advantage of surface owners in this regard especially when the surface owner is absentee. Other times the surface owners operate these wells as a business and accept produced water from many different operators.

          Some surface owners also sell fresh water to operators as a business too.

          Large unitized fields generally have their own disposal wells for produced water and the operators run them as part of the unit operations.

          Many salt water disposal operators try to convert old abandoned wells into disposal wells. There has to be a formation with enough porosity and permabilty to take the water either on a vacuum (which is the ideal situation) or on a pump which takes a lot of electricity to operate.

          shallow sand , 10/04/2015 at 10:58 pm

          John S, good comment.

          How much electricity it takes to dispose of produced water makes a big difference in well economics right now.

          In my experience, it takes more pressure, and thus more electricity, to inject water in the producing zone, as opposed to disposing of water in the most suitable non-producing zone.

          Electric expenses are only second to labor in most water floods IMO, and many times can even be higher than labor. However, chemicals also are a major expense.

          Having a salt water disposal well that can take a lot of water on a vacuum or at low pressure can be an asset. I have recently seen some commercial disposal wells for sale, with monthly net income as high as $30K.

          A good water supply well is also very useful in water flood operations. However, very important that the water can easily commingle with water in the producing zone. Otherwise, tremendous chemical expense and/or down hole problems may result. Also, tends to clog lines.

          I would say most US water floods are not doing well economically at present. In the last thread had a discussion about an MLP, Mid-Con, and their expenses.

          Many MLP are heavy into water floods. Also, think OXY and Chevron are big water flood players in the Permian, in addition to CO2 floods. I think many CO2 floods originally were water floods.

          MBP indicated secondary and tertiary production is still profitable in the Permian. Would be interested to see OPEX, taxes and G&A for some of the larger water and CO2 floods.

          Kinder Morgan has two of the largest CO2 floods in SACROC and Yates. Might see if they break out those costs. I think they have an advantage in that they own a lot of CO2 transmission lines.

          [Oct 09, 2015] Possible super spike in oil prices

          "... CAPEX cutbacks will bite hard after a lag period and supply will be unable to meet demand which may lead to a super spike in oil prices, followed by recession and lower demand. ..."
          "... In my view, that might happen not earlier than the beginning of next decade. There is still a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also eventually return to the market. ..."
          "... Super spikes in oil prices are possible in the future. The oil industry is cyclical and is known for big fluctuations in prices. But I do not think that potential price spikes in the next decade is what is seriously worrying the Saudis at this moment. So their decision not to cut output now seems quite logical to me. ..."
          "... I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct). ..."
          Oct 09, 2015 | Peak Oil Barrel
          AlexS, 10/06/2015 at 12:09 pm
          Dennis,

          You said: "Here is the problem if OPEC follows the path that you suggest. CAPEX cutbacks will bite hard after a lag period and supply will be unable to meet demand which may lead to a super spike in oil prices, followed by recession and lower demand."

          In my view, that might happen not earlier than the beginning of next decade. There is still a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also eventually return to the market.

          Finally, while LTO output might indeed "begin to crash in 2016" if oil stays below $50, the shale industry will not be killed. After all, the necessary infrastructure remains in place; there is a vast fleet of drilling rigs and fracking equipment. Some companies might go bust, but their assets will be bought by bigger and stronger players. Financial markets will be cautious and access to capital for LTO producers will be more difficult, but it will not be cut. I agree that "LTO may not rebound as fast as some believe", but I think it will take no longer than 6 to 9 months. If and when WTI reaches $65 LTO industry will show first signs of life, and at $75-80 it will resume steady growth.
          Annual growth rates of 1 mb/d are in the past, but 500 kb/d are quite possible, probably not for 7-8 years, as Mark Papa says (see Ron's link below), but at least for 4 -5 years.

          Super spikes in oil prices are possible in the future. The oil industry is cyclical and is known for big fluctuations in prices. But I do not think that potential price spikes in the next decade is what is seriously worrying the Saudis at this moment. So their decision not to cut output now seems quite logical to me.

          Dennis Coyne, 10/07/2015 at 12:21 pm
          Hi AlexS,

          Well if your assumptions about new oil coming to market are correct then there will be no danger of a superspike in oil prices.

          I don't think $70/b oil will cause a lot of new output to come to market. The Saudis export about 8.8 Mb/d of crude and petroleum products, an extra $20/b amounts to $176 million per day or $64 billion per year.

          For all of OPEC about 27 Mb/d of crude plus products are exported, so raising oil prices by $20/b increases revenue by $520 million per day (assuming 1 Mb/d lower output) or about $190 billion per year.

          The oil market may adjust very smoothly in the absence of any cartel action, but this will be historically unprecedented.

          I have a little faith in markets, but you must be a true believer in free markets. I am not, markets need some regulation and in the absence of the RRC or OPEC, the oil market will be Volatile.

          Rune Likvern, 10/06/2015 at 3:45 pm
          Shallow,
          I am much on the same page as AlexS here.
          It is hard to know what OPEC's true objectives are; there is a lot of chatter in the media.
          I noticed KSA recently (again) cut the price to some of their Asian customers.

          A lower oil price stimulates consumption (demand) and there are some new developments that still may grow the supply side. Then there is Brazil, Iran, Iraq and Libya (to name some).

          To me the big unknown is how demand, especially in emerging Asian economies develops and the slowdown in China's imports of commodities (iron ore, coal, nat gas etc) are signs of a slowing economy. China has been pulling their neighbors, so as China slows so will others.

          If one follow the commodities flows to China through the Chinese factories the end products normally ends up with consumers all over the world. Lower commodity prices may be a sign about consumer's general financial health (a demand issue). These are indicators that may be helpful in understanding directions for global oil demand.

          There are also some reports about China now filling their strategic petroleum reserve. In other words, what one needs to do is break the demand into consumption and stock build.
          OECD has a huge (and growing) stock overhang which needs to be worked through.

          Now I hold it 70+% probable that OPEC will not cut during their next meeting later this year.

          Dennis Coyne , 10/07/2015 at 1:22 pm
          Hi Rune,

          Interesting.

          I would think that $50/b will not result in a lot of new oil coming from Brazil, Iraq is in chaos, Libya about the same so probably not a lot of new supplies coming from any of those 3. We might see some new output from Iran, the question for me is will this offset the declines in Canada, US, and the North Sea due to CAPEX cutbacks. You are correct that there are a lot of stocks out there, so any danger of a spike in oil prices is minimized by the excess stocks (roughly 250 million barrels based on OPEC's Monthly report in September).

          I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct).

          The slowdown in China may be positive for many Asian nations that compete with China exporting their products to other nations, but only if there is not a bigger fall in exports to China than the increase in exports to other nations. The fall in the value of the Yuan in August may help China's exports.

          Most economic forecasts have World growth at about 3% in 2015, these are not much better than long term weather forecasts so we will find out in time.

          One thing I would say is that if AlexS and Rune agree on a forecast of the oil industry, it is likely correct.

          On the other hand Jeffrey Brown and Steve Kopits seem to think the oil market will become tight sooner rather than later.

          I just don't know what the future will bring.

          AlexS, 10/07/2015 at 1:49 pm
          Dennis,

          IEA, EIA and OPEC forecast that supply and demand will be balanced by 4Q 2016 ,
          and they anticipate relatively modest increase in Iran supply and no increase in Libya.
          That means that global crude and products inventories will continue to increase for at least the next 3 or 4 quarters, although not as fast as in the first half of 2015.
          Once the balance is reached and then demand starts to exceed supply, it will take time before the excess volume of inventories is wiped out.

          [Oct 09, 2015] Open Thread, Oil and Gas

          "... Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today, seems like OIL BUST is now the more appropriate term. ..."
          "... Oil production and related liquids is generating about $5 billion per day less worldwide than it did in the 2012-2014 time frame. Big transfer of funds from one group to another. ..."
          "... Saudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil. By that time, prices will improve. ..."
          "... We could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI. ..."
          "... That price range sounds about right for 2016, but I think we may see it creep up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching $150/b is my WAG.) ..."
          Oct 09, 2015 | peakoilbarrel.com
          Oct 04, 2015 | Peak Oil Barrel

          Longtimber , 10/05/2015 at 12:47 pm

            Gotta wonder bout such an Ad in an article titled "us-shale-oil-industry-will-simply-vanish"

            Most Likely it's the Investor that will vanish – the oil industry will be "right sized" when forced focus on fundamentals. Sad.. but the Ad title … OIL BOOM is spot on.

          shallow sand, 10/05/2015 at 3:50 pm

          Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today, seems like OIL BUST is now the more appropriate term.

          Oil production and related liquids is generating about $5 billion per day less worldwide than it did in the 2012-2014 time frame. Big transfer of funds from one group to another.

          KSA realizing around $180 billion less on an annual basis. Wonder how long before they feel backed into a corner enough to do something. Looks like Russia may outlast them, as KSA is pegged to dollar and Russia isn't.

          Maybe Jeffrey can send KSA royals some good bean dish recipes and some free ice cream cone coupons from DQ. LOL!!

          AlexS , 10/05/2015 at 4:47 pm
          shallow sand,

          Saudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil. By that time, prices will improve.

          shallow sand , 10/05/2015 at 7:14 pm
          AlexS. KSA could go longer than that as I assume many banks would be willing to loan them money with reserves as collateral. They also could issue many more billions of unsecured bonds.

          However, OPEC did not go years without cutting in 1986, 1999 and 2009.

          Each time the cut worked. The price went up significantly. 1986 was not as successful as the other two cuts.

          I may be wrong, but for US producers, it is likely the only hope.

          AlexS, 10/05/2015 at 8:49 pm

          shallow sand,

          In 1986, OPEC actually started increasing production after unsuccessfully trying to stabilize prices by cutting output over the previous 5 years. Their market share dropped from 45.4% in 1979 to 27.6% in 1985, but was constantly increasing from 1986 and has reached 41.9% in 1998. Over the whole period prices remained low (with only a short spike during the Gulf war in 1990). But, for OPEC countries, this was partially offset by the increased production volumes from 15.9 mb/d in 1985 to 30.7mb/d in 1998 (almost twice).

          shallow sand, 10/05/2015 at 10:45 pm
          AlexS.

          I am just looking at history regarding a cut. The past may not be repeated, I agree.

          • 1985-1986. WTI dropped 62.4% from 11/85 to 7/86, from around $31 to $11.50. In November, 1986, OPEC set a target price of $18. 1/87 WTI averaged $18.65. By 7/87 the average was up to $21.34. I do agree the price collapsed again in 1988, but recovered. The price typically was 60-70% of the $31 high in 1985 until the 1998 collapse.
          • 1998-1999. The price dropped approximately 55% from late 1997 to 12/98, when the monthly average was $11.35. I remember that very well. Glum Christmas Party. We were at $8 and change. 3/23 OPEC announced 2.2 million barrel cut. 7/99 average $20.10. 12/99 average $26.10.
          • 2008-2009. Price dropped 71%. June, 2008 average $133.78. February average $39.09. OPEC announced stages of cuts, 500K 9/08, 1.5 million 10/08, 2.2 million 12/08. By 6/09, monthly average 69.64. By 12/09, $77.99
          • 2014-15. Price dropped almost 64% from June, 2014 to August, 2015. June averaged $105.79. August, 2015 averaged $42.87.

          Maybe OPEC will not cut in December, 2015. Going by history they will soon. They have not let things go more than 18 months from the peak in the past. 12/4 meeting will be at 18 months from June peak.

          Go read news stories from 1986, 1999 and 2008-2009. KSA was concerned about the price each time and stated such. Things are not peachy, contrary to both KSA and Russia official mantras.

          Again, I could be wrong, just looking at history. Otoh, maybe lower for longer is needed to stifle the ridiculous North American CAPEX. When reading stories from late 2008, COP had announced a CAPEX budget cut of 18% to $2.8 billion for 2009. By 2014 the CAPEX budget had ballooned to over $17 billion. COP, of course, is a big player in tar sands and all major US LTO plays, so would be a good proxy for "out of control spending.".

          shallow sand, 10/05/2015 at 10:56 pm

          AlexS

          We could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI.

          Apparently at this time the crude market does not believe this is enough to stifle North American (sans Mexico) production.

          What do you think about this price range from maybe 7/16-12/20? Where do you see LTO in that scenario?

          Dennis Coyne , 10/06/2015 at 9:53 am

          Hi Shallow Sands,

          That price range sounds about right for 2016, but I think we may see it creep up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching $150/b is my WAG.)

          Others predict a permanent recession (or very slow growth) due to high debt levels.

          If that hypothesis is correct, the future economic outlook is indeed very grim, even in this scenario supply would decrease faster than demand (due to low prices and lack of investment) and oil prices would eventually rise (probably not until 2020), but at a slower rate of increase maybe reaching $100/b in 2025.

          I don't find the excess debt story very compelling, but many do.

          AlexS, 10/06/2015 at 9:41 am

          Shallow sand,

          Parallels with 1985-86, 1998-99, 2001-02 and 2008-09 may lead to erroneous conclusions.

          Sharp oil price declines in 1998-99, 2001-02 and 2008-09 were caused by cyclical demand reduction during global recessions. It was relatively easy, for OPEC, to support prices by cutting output, as demand quickly rebounded. OPEC restored production levels in a few months and didn't lose its market share.

          By contrast, oil price decline in the 80s was due not only to a deep recession (1980-83), but also to long-term trends triggered by the oil price shocks of 1973-74 and 1979-80. These included oil substitution by natural gas in power generation and industry, oil/energy saving measures, and a sharp increase in oil production in the North Sea, Alaska, Mexico and Western Siberia. OPEC initially tried to offset falling demand and the tide of rising non-OPEC supplies by cutting its own output, but this proved inefficient. Competitors were taking its market share and prices continued to decline. Therefore, Saudi Arabia and other OPEC members changed their market strategy from defending prices to defending market share.

          The current oil price slump is due to long-term trends in supply (primarily LTO, but also Canada and some OPEC members). Cutting OPEC output to maintain prices would only support LTO and other non-OPEC supplies, including costly projects such as Arctic. As we have seen in 2Q15, even at $60 WTI tight oil producers are ready to increase drilling activity, but at the current $45 LTO production is declining.

          Therefore, it doesn't make sense for Saudi Arabia and its neighbors to cut output and support competitors. They will wait until rising demand and stagnating or declining non-OPEC production will finally erase excess supply. That will take much less time than in the 80-90s, as current spare capacity is only about 2.5 mb/d vs. 11-12 mb/d in 1985.

          [Oct 09, 2015] Another Petro-State Throws In The Towel The Last Nail In The Petrodollar Coffin

          "... 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF). ..."
          "... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. ..."
          "... In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016 ..."
          "... For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US. ..."
          Oct 09, 2015 | Zero Hedge
          According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs, while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF).

          While record mainland deficits covered by the petroleum sector is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in the North Sea will, again according to budget, be lower than the required amount to cover the deficit. This has never happened before and is testimony of the sea change occurring in the world of petrodollar recycling. Interestingly enough, the need to liquidate SWF holdings is helping to create further deflation in the Eurodollar system in a self-reinforcing loop.

          As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports over imports meaning it can only be utilized through future imports over exports. When the Norwegians look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading Norwegians to consume more imported goods today, without realizing they were tapping into the principal of their future. When the tide turns the gross misconception is revealed.

          The Government claims it is all fine though. The current down-cycle will, according to them, end early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax, mainland tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just as the expected 17.9 per cent increase in interest and dividend income which will make sure the SWF continue to grow at a healthy pace despite the massive mainland deficit.

          Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle.

          If we are right, a global recession is imminent, meaning the expected increase in dividend income will never materialize.

          In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016.

          For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US.

          Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims scramble for actual dollars) while paradoxically a recession in the US will lead to the exact same outcome. The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian government can hope for. It will minimize the gap between the lies and propaganda spewed out by the Ministry of Finance and reality.

          Latina Lover

          Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather, hang them high!

          [Oct 08, 2015] Crude Oil Surges Above $50 a Barrel for First Time Since July

          Oct 08, 2015 | www.bloomberg.com
          Oil surged above $50 a barrel in New York for the first time since July on speculation that demand is picking up.

          ... ... ...

          WTI for November delivery rose $1.62 to settle at $49.43 a barrel on the New York Mercantile Exchange. It was the highest settlement since July 21. Futures touched $50.07. The volume of all futures traded was 45 percent higher than the 100-day average at 3:01 p.m.

          ... ... ...

          Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMF’s International Monetary and Financial Committee. Commercial oil inventories in developed countries remain about 190 million barrels above the five year average , he said.

          [Oct 08, 2015] Oil's Rally Was A Bunch Of Noise And Won't Last, Goldman Sachs Says

          While financial market can dictate oil price for a considerable length of time then can't do it forever. At some point the fact that a lot of oil production need break-even price of 65 and realistic price $75 per barrel will change the game Wall Street is playing. Some "overenthusiastic" shorts might lose. Also credibility Wall Street is probably close to zero to attempt to manipulate market via MSM are not as effective as in the past.
          Oct 08, 2015 | Barrons.com
          Last month, Courvalin said that oil prices could fall as low as $20 as the global glut drags into next year. See last month's post, "There Will Be Blood: Goldman Slashes Oil Price Forecasts." Here's the laundry list of what Goldman says hasn't changed in the past week:
          1. The global oil market is currently well oversupplied.
          2. This oversupply is driven by strong production growth outside of the US with Lower 48 production already declining and gradually tightening light US crude balances.
          3. Low prices are required in 2016 to finally bring supply and demand into balance by year-end and sustain a US production decline of 585 kb/d next year.
          4. Although demand growth has surprised to the upside this year at 1.6 million b/d growth, risks are clearly to weaker demand growth in 2016.

          Dave wrote:

          Goldman has lost all credibility LONG ago. They are looking to load up before the rebound and are trying to drive prices down temporarily.

          Earnst wrote:

          Only about 20% of trade is between actual buyer's and seller's. There is a terrific bias towards longs and the use of technical analysis as well as conditioned responses to factors such as middle east conflict. It was a new day yesterday but by God it's an old day now; they'll capitulate.

          Big Al wrote:

          These are the same guys who called for oil in the $20s. They are either: trying to protect some short positions, clueless as to oil and gas industry fundamentals or incompetent at best. Everyone in the industry knows that shorting energy is like playing Russian roulette. You could get lucky, but if you keep playing long enough, you wind up dead.

          Jeff wrote:

          Hmmmm.... Rig count at lowest level in years. US production swinging lower. Saudis signaling for higher prices as they bleed $12B per month. Seems like higher prices up to $60 not unreasonable.

          dsr wrote:

          Not many know this, but Goldman owns a large interest in an oil refinery in Indiana. The lower oil is the higher the crack spreads for them, equals $$$$$. They also sell 70,000 barrels of crude per day to another refinery and then buy the product to sell on the market. Do a Google search on Goldman's forecast for energy over the last 18 months and you will see the light of absurdity. It's beyond funny. We have lost 1 million barrels of oil per day in non-opec production in the last 6 months, and at the same time demand is surging, and this guy says "not much has changed." No credibility.

          kim wrote:

          The vampire squids are having to eat crow right now and they are trying harder than ever to jawbone down the price of oil to save their credibility and probably make a few shekels in the process. Put a little salt and pepper on that 20 dollar per barrel crow that you are having to eat there Damien; makes it go down better.

          Phil wrote:

          If Goldman said it will go down, bet for oil, it will go up!

          George wrote:

          And where is the $200/barrel oil they predicted a couple of years ago? Oh, not here yet so now they are predicting $20. Losers.

          anonymous33 wrote:

          people should read the report. Nowhere does the analyst or Goldman predict $20 oil. That number is specified as a very specific condition which even they say is not going to happen. Typical over-reaction by the public.

          [Oct 08, 2015] A Dell-EMC deal could choke the debt market

          Oct 08, 2015 | fortune.com
          The financial turmoil of the past month has brought the high yield debt market to a screeching halt. A number of deals have been called off or shifted to the loan market. Late last month, chemical company Altice had to cut back a bond offering and increase the interest rate to 11% on a portion of a multi-billion dollar deal.

          Just $12 billion in high yield bonds were issued last week, down from $34 billion during the same week a year ago, according to S&P Leverage Commentary and Data. Total issuance of leveraged loans and high yield bonds is down by nearly $140 billion this year compared to 2014, to about $575 billion.

          [Oct 08, 2015] IMF: Up to $3 trillion in over-borrowing in emerging markets

          Oct 08, 2015 | news.yahoo.com
          The biggest risks to the global economy are now in emerging markets, where private companies have racked up considerable debt amid a fifth straight year of slowing growth, the International Monetary Fund said Wednesday.

          [Oct 08, 2015] Short-Term Energy Outlook - U.S. Energy Information Administration (EIA)

          Oct 08, 2015 | www.eia.gov

          The current values of futures and options contracts for January 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $32/b to $67/b (at the 95% confidence interval) in January 2016.

          ... ... ...

          Projected U.S. crude oil production averages 9.2 million b/d in 2015 and 8.9 million b/d in 2016.

          [Oct 08, 2015] Why Barrons Is Wrong On $75 Oil

          Blast from the past. Note that key arguments still look reasonable... But prediction is not ;-)...
          "... New unconventional oil reserves in the U.S. require an average break-even price of $65, which does not justify or support a $75 price. ..."
          "... Barrons assumes that all new unconventional reserves are here for the long term and will continue to increase production, which is not the case. ..."
          "... The article references Citigroup energy analyst Eric Lee, who believes that most of this new oil could be recovered for around under $75 per barrel, leading to a global decrease in price. ..."
          "... after examining existing extraction cost data it is hard for the supply side economics to actually work out and support $75 oil for a sustained period of time. ..."
          "... This increased demand would put worldwide oil consumption at 91.60 million barrels per day in 2014 and 92.97 million barrels per day in 2015. ..."
          Apr. 2, 2014 | Seeking Alpha
          Barron's assumptions as to the leading factors of lowered oil pricing do not make sense after examining the supply side economics.

          New unconventional oil reserves in the U.S. require an average break-even price of $65, which does not justify or support a $75 price.

          Barron's assumes that all new unconventional reserves are here for the long term and will continue to increase production, which is not the case.

          The cover of Barrons this past week read "Here Comes $75 Oil". The article highlights that due to several new "game changers" in the oil production market that within the next 5 years the oil market would fall to $75 a barrel. The three main reasons that would contribute to cheaper oil are deep-water oil, shale oil, and oil sands. All of these newfound resources are estimated at roughly one trillion barrels in newfound oil. Adding that onto the existing global oil reserve estimated at 1.5 trillion, makes this newfound oil a major factor in the future of oil pricing. The article references Citigroup energy analyst Eric Lee, who believes that most of this new oil could be recovered for around under $75 per barrel, leading to a global decrease in price.

          As much as $75 oil sounds nice and would no doubt be a major boon to the U.S. and world economies. Yet after examining existing extraction cost data it is hard for the supply side economics to actually work out and support $75 oil for a sustained period of time. According to the U.S. Energy Information Administration (EIA), they expect worldwide consumption of petroleum products to grow by 1.2 million barrels per day in 2014 and 1.5 million barrels per day for 2015.

          This increased demand would put worldwide oil consumption at 91.60 million barrels per day in 2014 and 92.97 million barrels per day in 2015.

          [Oct 08, 2015] What's Next For Oil Prices

          "... investments in new or expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130 billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices. ..."
          "... He said he expects global demand for oil will rise by 1.3 million barrels a day in 2016. ..."
          "... When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri predicted. ..."
          Oct 08, 2015 | OilPrice.com

          In London, OPEC Secretary-general Abdallah Salem el-Badri said investments in new or expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130 billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices.

          "Less supply in the very near future. Less supply means high prices," el-Badri said in a speech at the Oil and Money conference.

          El-Badri's expectations on investment were supported by the executive director of the International Energy Agency (IEA), Fatih Birol, who told the meeting that investments in oil projects this year will fall by about the same rate forecast by el-Badri.

          "Upstream investment will be at least 20 per cent lower [this year] than in 2014," said the chief of the Paris-based IEA, which represents 29 oil-consuming countries. "In terms of money spent, it's the highest [drop] in history."

          Oil prices will also rise, ironically, because the current low prices have encouraged consumers to buy more fuel, according to el-Badri. He said he expects global demand for oil will rise by 1.3 million barrels a day in 2016.

          The current low price of oil has strained the budgets of many oil-producing countries, including wealthy Middle Eastern states. The price of oil is now less than $50 per barrel, less than half what it was in June 2014. Yet el-Badri argued, "We are not in disarray. We see some light at the end of the tunnel."

          When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri predicted.

          Ben van Beurden, the CEO of Royal Dutch Shell, doesn't see oil prices stabilizing quite that soon, however. He told the conference that while oil prices are due to recover, their rise won't be as fast as el-Badri expects

          ... ... ...

          This [shale] technology can't make money unless oil sells for at least $60 per barrel.

          Related: A Key Indicator Low Oil Prices Are Lifting Demand

          [Oct 08, 2015] Oil prices are soaring as Saudi Arabia gets the upper hand over shale producers

          "... At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest level since 2003. The Department of Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an average of 8.9 million b/d next year from 9.2 million this year. ..."
          "... The International Energy Agency now expects global demand to rise by 1.7 million b/d this year. ..."
          "... Pretending that there's still some kind of competition between shale oil and OM's and ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation because of the credit collapse, and not because they're winning some artificial competition against the shale oil producers who're themselves effectively out of business. ..."
          "... Massive credit is required to drill, and it's not there. ..."
          Oct 08, 2015 | fortune.com
          October 7, 2015 | Fortune

          Baker Hughes' closely-watched rig count showed that the number of drilling rigs in the U.S. turned down sharply in September after signs of a brief revival in the previous two months. At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest level since 2003. The Department of Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an average of 8.9 million b/d next year from 9.2 million this year.

          ... ... ...

          The International Energy Agency now expects global demand to rise by 1.7 million b/d this year.

          KI time

          Pretending that there's still some kind of competition between shale oil and OM's and ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation because of the credit collapse, and not because they're winning some artificial competition against the shale oil producers who're themselves effectively out of business.

          Massive credit is required to drill, and it's not there. Government has effectively provided more than $4.2 Trillion$ in bailouts since 2005 as cover for the worldwide credit collapse. Now Government is stone broke and can't do it anymore...

          [Oct 08, 2015] Black Gold May Be Down, but Its Not Out

          "... while there are alternatives ranging from electric batteries to natural gas, none are as convenient or deliver the same energy-dense punch as plain old petroleum products. ..."
          "... the way oil is bought, sold and used has changed almost beyond recognition in less than a year. For the first time in generations, oil is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels. ..."
          "... Bad for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard Chartered Bank in London, tells OZY that U.S. production is “falling relatively quickly.” As a result, he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the $50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that government statistics overstate oil production as a result. ..."
          Oct 08, 2015 | news.yahoo.com

          For better or worse, oil never really seems to lose out in the long run. You’d think the case against it would be easy to make: It’s last century’s go-to energy source and a nightmare for the environment. There are also those nagging concerns about peak oil and even peak car, given that millennials seem way less interested in their own wheels than their elders were at that age. But oil is still by far the biggest traded commodity in the world. It’s uniquely useful, and so far irreplaceable, as a cheap, liquid fuel â€" after all, you can’t run a car on coal or fly a plane on solar, and while there are alternatives ranging from electric batteries to natural gas, none are as convenient or deliver the same energy-dense punch as plain old petroleum products. All the fracking in the world hasn’t yet diminished the sense that the days of Texas Tea are far from over.

          By contrast, the way oil is bought, sold and used has changed almost beyond recognition in less than a year. For the first time in generations, oil is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels. OPEC, long the bogeyman of the oil market, has been neutered by a huge surge in U.S. production; at the same time, low gas prices don’t seem to be encouraging people to drive longer or buy more gas guzzlers the way they have in the past. “This time it is not business as usual,” said Maria van der Hoeven, executive director of the Paris-based International Energy Agency, in a recent speech.

          The most jaw-dropping change by far: OPEC’s effective capitulation in its decades-old game of rigging oil prices. Last November, Saudi Arabia opened its oil taps in what experts considered an attempt to kill off “high cost” U.S. shale-oil production. But it turned out that U.S. operations haven’t been so high cost after all; oil expert Daniel Yergin, vice chair of the research and consulting company IHS, notes that U.S. prospectors improved their efficiency by 65 percent in just a year. U.S. oil production is up to stay, he says â€" and that means oil prices are likely to stay low.

          Bad for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard Chartered Bank in London, tells OZY that U.S. production is “falling relatively quickly.” As a result, he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the $50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that government statistics overstate oil production as a result.

          Some forecasters believe oil’s great run won’t end for decades â€" most of us still love our cars, and demand for them continues to grow in the developing world. But there’s also the threat that governments worried about global warming and pollution might finally cap the gusher.

          Says Verleger: “The oil industry has no friends.”

          [Oct 07, 2015] This Month Could Make Or Break The Oil Markets

          Russia forecasts that its production will be drop 2 million tons (to 528 from the current 530) .
          "... ... ... ... ..."
          Oct 07, 2015 | Zero Hedge

          October could be a crucial month for struggling drillers. With drillers undergoing credit redeterminations, October could see a wave of debt restructuring and cuts to credit lines, potentially forcing deeper cuts in the shale patch.

          ... ... ...

          In the U.S., production declines continue, although fitfully and inconsistently. After several months of large declines in production, the supply picture has become a bit murky. For example, output fell by 222,000 barrels per day between April and May, and then by another 115,000 barrels per day from May to June. But in July, production actually increased by 94,000 barrels per day. The gains came from the Gulf of Mexico, and not the shale patch. Offshore projects are long-term propositions and don't respond quickly to shifts in oil prices. However, even taking out the offshore gains, U.S. production would have only declined by 53,000 barrels per day, a slower pace than what was seen in previous months.

          gcjohns1971

          "Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in production from countries such as Russia, Canada, and the United States."

          This is a red herring because the United States, even in the unlikely event of an oil surplus, is by law not an oil exporter.

          What the 'Shale Revolution' has done is send those formerly exporting to the US to fight for markets elsewhere.

          ... ... ...

          cashtoash

          But Garrrrrtman said on CNBS [yesterday on fast money] that oil has bottomed, time to buy buy buy

          [Oct 07, 2015] Summers Global Economy The Case for Expansion

          Oct 07, 2015 | economistsview.typepad.com
          Economist's View

          Larry Summers continues his call for fiscal expansion:

          Global economy: The case for expansion: ...The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China. ... Industrialised economies that are barely running above stall speed can ill-afford a negative global shock. Policymakers badly underestimate the risks... If a recession were to occur, monetary policymakers lack the tools to respond. ...
          This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. ...
          Long-term low interest rates radically alter how we should think about fiscal policy. Just as homeowners can afford larger mortgages when rates are low, government can also sustain higher deficits. ...
          The case for more expansionary fiscal policy is especially strong when it is spent on investment or maintenance. ... While the problem before 2008 was too much lending, many more of today's problems have to do with too little lending for productive investment.
          Inevitably, there will be discussion of the need for structural reform... - there always is. ...
          Traditional approaches of focusing on sound government finance, increased supply potential and the avoidance of inflation court disaster. ... It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward.

          [The full post is much, much longer.]

          bakho said in reply to pgl...

          If Bush would have done fiscal stimulus instead of tax cuts and low interest rates in 2001, we could have avoided the worst of the 2008 mess. When the wealthy hoard capital in an unproductive way and use their political power to increase their wealth, it leads to a stalled economy.

          Peter K. said...

          Everyone is for fiscal stimulus. Even Republicans like Ben Bernanke and Martin Feldstein.

          "The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China."

          Interest rates are low by historical standards but monetary policy isn't "loose."

          If it was loose we'd see inflation and tight labor markets.

          bakho said in reply to Peter K....

          Monetary stimulus at the ZLB is weak and carries more risk than fiscal stimulus. The problem for Yellen and the Fed: fiscal policy is dragging the economy down. Monetary policy would be adequate if fiscal policy were doing its part. It does not even come close. The Fed can create more money, but the wealthy are positioned to grab it so very little goes to where it is needed.

          Monetary policy, no matter how good cannot fully correct for bad or inadequate fiscal and regulatory policy.

          D said in reply to Peter K....

          "Even Republicans like Ben Bernanke..."

          Maybe that should be: former Republicans like Ben Bernanke.

          http://qz.com/518111/bernanke-im-not-really-a-republican-anymore/

          "I didn't leave the Republican Party. I felt that the party left me."

          -JJF

          Peter K. said...

          "It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward."

          Summers borrows/steals from Krugman.

          bakho said in reply to Peter K....

          The Fed lacked the authority for Cramdown and Geithner who had the power block most of the help that should have bailed out home owners. Obama's Harvard buddies were against Cramdown, the GOP is a wholly owned subsidiary of the banksters so a good policy was blocked.

          BigBozat said in reply to JaaaaayCeeeee...

          "But why is Larry Summers saying that the problem before 2008 was too much lending? Said so baldly, doesn't it just support austerians, like the Tory argument that Labor caused the recession by spending too much on entitlements?"

          Only if you conflate "lending" with "public debt" (and/or argue that spending on entitlements is a totally non-productive use of the public fisc). If the Tories are good at conflating (and/or believe entitlements are a complete waste of money), then yeah I guess they could make claims... 'tho they'd be either disingenuous or ignorant in doing so.

          FWIW, I tend to associate "lending" more with private sector activity. What Larry means by "too much lending" - in this case, anyway - was the cheap & poorly/fraudulently underwritten credit-fueled housing sector bubble.

          Dan Kervick said in reply to BigBozat...

          The problem was private debt. There was long secular run of private debt to gdp prior to the crash. Eventually private debt was at its highest level since 1929.

          http://www.ritholtz.com/blog/2012/09/private-debt-is-the-main-problem/


          [Oct 07, 2015] Banks Glencore Exposure Is a $100 Billion 'Gorilla': BofA

          Shadow of Lehman Brothers over Wall Street ?
          Oct 07, 2015 | www.bloomberg.com

          Global financial firms' estimated $100 billion or more exposure to Glencore may draw more scrutiny as regulatory stress tests approach after the commodity giant's stock plunge this year.

          [Oct 07, 2015] Volatility and Oil

          "... For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion. ..."
          "... Vertical means incorporating finding, processing, converting chemically modifying, distributing and selling products. However even in the present time it is interesting to note how BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly. ..."
          "... Exxon is an interesting case since it purchases more crude oil that it actually produces, and so a lower price helps its energy and raw materials cost structure. ..."
          "... In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses the necessary infrastructure to support the global energy need. ..."
          Oct 07, 2015 | community.3dsbiovia.com
          Petroleum is a volatile product. The chemistry that enables it as such a high density energy and ubiquitous energy source is volatile. The economic environment around oil is volatile, with a growing tide of alternative energy sources, and climate change issues. The political environment around oil is volatile. However oil currently is and will I believe remain for the foreseeable future, the essential underpinning of modern societies around the globe. This is why companies like Exxon call themselves energy organizations. Its not a vain attempt to change their image but rather a real understanding of the nature of chemicals and energy and the value they bring. if you need to understand this, image that we had no fuel for transportation, goods delivery, power-stations, and lights; it would be a very cold parochial world.

          User-added imagel

          Recently we have seen a precipitous change in the energy or per barrel price of oil, across the broad markets. To many people this is shocking and upsetting; a sign of a global economic contagion. However this is not the first significant price shock in the energy sector. When I started in BP oil was about 65-70 dollars a barrel for Brent Crude and was projected to go to 80-90. Unfortunatley due to economics and supply or demand, it actually dropped. Well the oil majors learnt from that shock, the Gulf and early Oil crises. They became fully integrated corporations. The drill, produce, refine, blend, distribute and own end point of sales. They balance their exposure in the upstream and highly risky area, with that of continuous margin driven volume production in refining, and more batch driven specialty chemicals in the downstream and products domain. Now as the oil price drops, the margins and profit in upstream decreases, but the energy costs of running crackers and separating and converting columns decreases.

          For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.

          So as prices drop the downstream parts of integrated petrochemicals is healthy. The gasoline stations, do not clearly make a lot of money, but the refineries and chemical production outlets are very healthy and currently running at maximum capacity, (a friend verified last week). This balanced portfolio is how the companies manage the significant shifts in costs. It also is why they really need an integrated systems view of the whole business. They need to manage, cost, risk and velocity across different sectors, with differing information, material and economic considerations. being able to have flexibility across a refinery to take advantage of local and global price shifts and consequent supply and material shifts (quality content etc) is important.

          Further to this, oil and the exploration of oil has often been subject to regulations. There have been a number of very sad incidents involving oil companies that have affected the environment. In order to continue to operate, the petrochemical companies are very mindful of their "Green License to Operate". therefore they carefully track using inventory and supply chain technologies all of the products, their regulatory and environmental impact and their health, safety and fire code compliance. They do this across all their divisions, to both ensure information tractability and of course compliance to specified procedure.

          Lastly oil has always been as a product subject to taxation regimes. These change and as many of you will have heard the allowances for drilling in for example the United States are considerable. Exploration and Production has always been the riskiest side of the vertically integrated, oil company's portfolio. Vertical means incorporating finding, processing, converting chemically modifying, distributing and selling products. However even in the present time it is interesting to note how BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly.
          http://www.exxonmobilperspectives.com/wp-content/uploads/2011/10/Global-oil-price-factors-420x305.png

          Note Exxon is an interesting case since it purchases more crude oil that it actually produces, and so a lower price helps its energy and raw materials cost structure.

          In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses the necessary infrastructure to support the global energy need. In order to provide a mode complete energy portfolio, Petrochemical companies are actively investigating carbon capture and conversion to methanol for energy consumption. They are likewise working very hard to optimize their entire business processes, documentation and innovation activities along a systems model approach

          [Oct 07, 2015] Uncertain Times Ahead For The Saudis

          "... If the U.S. shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share ..."
          "... However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic. ..."
          Oct 07, 2015 | OilPrice.com

          ...between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi Arabia's fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an effort to help plug a hole that amounts to some 20 percent of GDP.

          ... ... ...

          Referring to reports that the number of drilling rigs deployed by U.S. shale producers is falling, Naimi said: "Eventually, economic producers will continue to prevail," the paper reported.

          Naimi disagreed with analysts who believe OPEC's market share would fall further, the paper reported. "On the contrary, OPEC's market share will be higher," he said.

          Maybe so, but make no mistake, this is a precarious time for the Saudis. If the U.S. shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share, and if Iran and Russia end up being content with preserving the regional balance of power and don't move to push the issue in Iraq and Yemen once they're done "saving" Syria, then the Saudis may well weather the storm.

          However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic.

          [Oct 06, 2015] Oil jumps $2, breaking range as supply seen ebbing

          Oct 06, 2015 | finance.yahoo.com

          Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls, according to a monthly U.S. energy report that suggests a surplus of crude is easing more quickly than expected.

          Total world supply is expected to rise to 95.98 million barrels a day in 2016, 0.1 percent less than forecast last month, the U.S. Energy Information Administration said in its Short-Term Energy Outlook. Demand is expected to rise 270,00 bpd to 95.2 million barrels a day, up 0.3 percent from September's forecast.

          Russia's energy minister said Russia and Saudi Arabia discussed the oil market in a meeting last week and would continue to consult each other.

          OPEC Secretary-General Abdullah al-Badri said at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut.

          Iran's crude sales were on track to hit seven-month lows as its main Asian customers bought less than before.

          [Oct 06, 2015] Oil needs a capitulation Goldman Sachs

          "... The problem is, you can't believe anything these Racketeers masquerading as Bankers at Goldman Sachs say ..."
          Oct 06, 2015 | finance.yahoo.com

          Jeff Currie, global head of commodities research at Goldman Sachs, says the risk of crude oil reaching $20 a barrel is driven by "breaching storage capacity."

          R.T. Arcand

          The problem is, you can't believe anything these Racketeers masquerading as Bankers at Goldman Sachs say. After all they're the ones who will tell you to buy, so they can do a pump and dump against you.

          Not to mention that these pathetic fools in 2008 had to go so low as to throw in the towel on Free Market Economics to become a bunch of pathetic Fascist TARP Welfare Queens because they were too stupid to keep their fraud with the Ratings Agencies alive with their fraudulent bundled mortgages. Goldman Sachs is the parasite that needs to be destroyed if this nation or even humanity is to advance.

          Compare how much the Apollo program cost, compared to the Fascists in the banks and their fraud and bailouts. It's time Americans go after these fascists with the same urgency the "Greatest Generation" did.

          [Oct 06, 2015] One True Measure Of Stagnation Not In The Labor Force

          "... Submitted by Charles Hugh Smith from Of Two Minds ..."
          "... This is a stark depiction of underlying stagnation: paid work is not being created as population expands. ..."
          "... jobless ..."
          "... Not in the Labor Force (NILF) ..."
          "... population 220 million ..."
          "... population 272 million ..."
          "... population 232 million ..."
          "... population 282 million ..."
          "... population 322 million ..."
          Oct 06, 2015 | Zero Hedge
          Submitted by Charles Hugh Smith from Of Two Minds

          One True Measure of Stagnation: Not in the Labor Force

          This is a stark depiction of underlying stagnation: paid work is not being created as population expands.

          Heroic efforts are being made to cloak the stagnation of the U.S. economy. One of these is to shift the unemployed work force from the negative-sounding jobless category to the benign-sounding Not in the Labor Force (NILF) category.

          But re-labeling stagnation does not magically transform a stagnant economy. To get a sense of long-term stagnation, let's look at the data going back 38 years, to 1977.

          NOT IN LABOR FORCE (NILF) 1976 to 2015

          I've selected data from three representative eras:

          • The 20-year period from 1977 to 1997, as this encompasses a variety of macro-economic conditions: five years of stagflation and two back-to-back recessions (1977 - 1982), strong growth from 1983 to 1990, a mild recession in 1991, and growth from 1993 to 1997.
          • The period of broad-based expansion from 1982 to 2000
          • The period 2000 to 2015, an era characterized by bubbles, post-bubble crises and low-growth "recovery"

          In all cases, I list the Not in Labor Force (NILF) data and the population of the U.S.

          1977-01-01: 61.491 million NILF population 220 million

          1997-01-01 67.968 million NILF population 272 million

          Population rose 52 million 23.6%

          NILF rose 6.477 million 10.5%

          1982-07-01 59.838 million NILF (start of boom) population 232 million

          2000-07-01 68.880 million NILF (end of boom) population 282 million

          Population rose 50 million 22.4%

          NILF rose 9.042 million 15.1%

          2000-07-01 68.880 million NILF population 282 million

          2015-09-01 94.718 million NILF ("recovery") population 322 million

          Population rose 40 million 14.2%

          NILF rose 25.838 million 37.5%

          Notice how population growth was 23.6% 1977-1997 while growth of NILF was a mere 10.5% As the population grew, job growth kept NILF to a low rate of expansion. While the population soared by 52 million, only 6.5 million people were added to NILF.

          In the golden era of 1982 - 2000, population rose 22.4% while NILF expanded by 15%. Job growth was still strong enough to limit NILF expansion. The population grew by 50 million while NILF expanded by 9 million.

          But by the present era, Not in the Labor Force expanded by 37.5% while population grew by only 14.2%. This chart shows the difference between the two eras: those Not in the Labor Force soared by an unprecedented 26 million people--a staggering 15.6% of the nation's work force of 166 million. (Roughly 140 million people have some sort of employment or self-employment, though millions of these earn less than $10,000 a year, so classifying them as "employed" is a bit of a stretch).

          This is a stark depiction of underlying stagnation: paid work is not being created as population expands. Those lacking paid work are not just impoverished; they lose the skills and will to work, a loss to the nation in more than economic vitality.

          [Oct 06, 2015] Have We Reached A Peak Water Tipping Point In California

          Oct 06, 2015 | Zero Hedge

          The concept of "tipping point" - a change beyond which there's no turning back - comes up a lot in climate discussions. An obvious tipping point involves polar ice. If the earth keeps warming - both in the atmosphere and in the ocean - at some point a full and permanent melt of Arctic and Antarctic ice is inevitable. Permanent ice first started forming in the Antarctic about 35 million years ago, thanks to global cooling which crossed a tipping point for ice formation. That's not very long ago. During the 200 million years before that, the earth was too warm for permanent ice to form, at least as far as we know.

          We're now going the other direction, rewarming the earth, and permanent ice is increasingly disappearing, as you'd expect. At some point, permanent ice will be gone. At some point before that, its loss will be inevitable. Like the passengers in the car above, its end may not have come - yet - but there's no turning back....

          I think the American Southwest is beyond a tipping point for available fresh water. I've written several times - for example, here - that California and the Southwest have passed "peak water," that the most water available to the region is what's available now. We can mitigate the severity of decline in supply (i.e., arrest the decline at a less-bad place by arresting its cause), and we can adapt to whatever consequences can't be mitigated.

          But we can no longer go back to plentiful fresh water from the Colorado River watershed. That day is gone, and in fact, I suspect most in the region know it, even though it's not yet reflected in real estate prices.

          Two of the three takeaways from the above paragraphs are these: "California and the Southwest have passed 'peak water'" and "most in the region know it." (The third takeaway from the above is discussed at the end of this piece.)

          [Oct 06, 2015] Icahn Earnings numbers are a mirage

          Oct 06, 2015 | finance.yahoo.com

          I think it is very dangerous. and I am not taking about market next month here or the next quarter. Right now I can't understand why companies are sold at this multiple of earning, 22 for S&P500. A lot of those earnings are mirage. I remember times when 5 or 6 were good numbers. If you really dig in earning, that nobody wants to do. Earning are overstated in many cases.

          [Oct 06, 2015] Marc Faber We Have Colossal Asset Inflation

          Oct 06, 2015 | Bloomberg Business

          Gloom, Boom & Doom Report Editor Marc Faber discusses how low interest rates have helped to raise asset prices with Bloomberg's Scarlet Fu, Joe Weisenthal and Alix Steel on "What'd You Miss?" (Source: Bloomberg)

          [Oct 04, 2015] Funds To Play Oil's (Slow) Recovery: ETF.com

          "... USO holds front-month futures, and to avoid taking physical delivery when those contracts mature, it rolls its position forward to the next futures contract-but the farther-dated contracts are often higher priced (due to storage costs and other factors), meaning that when USO sells its front-month contract it will be able to buy less of the next-month futures. This has led to underperformance for the fund this year, which has fallen nearly twice as much as spot oil prices. ..."
          Oct 04, 2015 | Barrons.com
          Unfortunately, Roy notes, the United States Oil Fund (USO), the most common way to play oil, has often backfired for investors. USO holds front-month futures, and to avoid taking physical delivery when those contracts mature, it rolls its position forward to the next futures contract-but the farther-dated contracts are often higher priced (due to storage costs and other factors), meaning that when USO sells its front-month contract it will be able to buy less of the next-month futures. This has led to underperformance for the fund this year, which has fallen nearly twice as much as spot oil prices.

          Luckily, USO isn't the only way to play oil. The PowerShares DB Oil Fund (DBO) seeks to minimize the costs of rolling contracts forward by choosing the most advantageous futures contract to switch to, instead of always using the next month's, as USO does. Roy also notes that the United States Brent Oil Fund (BNO) holds Brent oil, popular in Europe, which in recent years has started to diverge in price more frequently from West Texas Intermediate, a grade of oil commonly sold in the U.S. In the first three quarters of 2015, Brent lost less than WTI.

          However, none of those oil products were able to avoid the big drop in crude prices. For more buy-and-hold investors, Roy suggests the Energy Select SPDR (XLE) that holds energy-related stocks (like Exxon (XOM), Chevron (CVX) etc.). He concludes:

          For long-term investors, an equity-based energy ETF like XLE is superior to the futures-based ETFs mentioned earlier, for several reasons: 1) an investor doesn't have to worry about roll costs; 2) the companies can grow their oil production, creating value for shareholders even in a flat oil price environment; 3) they often pay dividends. XLE currently has a yield of more than 3.3 percent.

          Year-to-date, XLE is down by 21 percent, less than the futures-based ETFs. Over the past five years, XLE is up 20.4 percent, compared with losses ranging from 40 to 58 percent percent for the other three ETFs.

          [Oct 04, 2015] Nonsense on data revisions

          "... I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired. ..."
          "... they are all of the neo-liberal religion; group-thinkers ..."
          Oct 04, 2015 | mainlymacro.blogspot.com
          mainly macro
          Anonymous, 1 October 2015 at 01:04
          When I reread my collection of BBC articles for the period 2008-15, some of which I have reposted on this blog in the past, I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired.

          Since 2008, Robert Peston, Stephanie Flanders, Hugh Pym, and Andrew Neil have had terrible economic crises, and it must be more than just governmental pressure that has produced such concentrated ineptitude.

          acorn, 1 October 2015
          Alas, they are all of the neo-liberal religion; group-thinkers. Peston has never understood the difference between a currency issuing government and a currency using non-government sector. Hence, government financial accounts are totally different to a households financial accounts.

          They all think that the government has to tax and/or borrow "money", before it has any to spend. Never stopping to think where the people it taxed or borrowed from, got such "money" in the first place.

          Politicians and the IFS peddle the same myth. Liars and fakers the lot of them. Stick with the accountants.

          http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases/fall-in-tax-receipts-hinders-progress-in-deficit-reduction-says-icaew

          [Oct 04, 2015] Worries about a Global Economic Slowdown

          Oct 04, 2015 | economistsview.typepad.com

          Jim Hamilton:

          ... What evidence is there that worries about a global economic slowdown are figuring prominently in recent oil prices? Exhibit one is the remarkable comovement between commodity and asset prices. Concerns about global economic weakness show up in commodity prices and asset markets across the board. ...

          Gavyn Davies:

          The turbulence in the global financial markets in the past few weeks has been widely attributed to a "China shock" that has increased the risks of a major downturn in global activity. Last month, this blog concluded that our regular "nowcasts" for global activity had not yet corroborated this narrative.
          This month, we have identified the first clear evidence that the global economy has slowed down since mid year, with emerging markets and advanced economies both now growing more slowly. ...

          Posted by Mark Thoma on Sunday, October 4, 2015 at 10:24 AM in Economics | Permalink Comments (33)

          Fred C. Dobbs said...

          The world economy remains adrift in
          choppy waters http://brook.gs/1NeDNZY
          Brookings - Oct 2

          The latest update of the Brookings-Financial Times TIGER (Tracking Indexes for the Global Economic Recovery) reveals sharp divergences in growth prospects between the advanced economies and emerging markets, and within these groups as well.

          Growth prospects for the advanced economies have improved, but this is largely on account of good growth in the U.S. and the U.K. The euro zone remains mired in low growth and Japan's economy appears to have stalled again. Commodity-exporting countries, both advanced and emerging, have been hit by sharp growth slowdowns.

          The U.S. economy continues to strengthen, with domestic demand picking up momentum, as reflected in rising retail sales and investment. Despite healthy employment growth and a falling unemployment rate, wage pressures remain muted. Inflation has stayed low, aided by a strong dollar and weak energy prices, and the CPI index has flirted on and off with deflation. Credit growth remains robust but U.S. equity markets, industrial production, and exports have all been held back by economic weakness in the rest of the world. The strong possibility that the Federal Reserve will commence its rate hike cycle in December points to how asynchronous the U.S. recovery is relative to business cycle conditions in most other advanced economies.

          The euro zone and Japan face a difficult combination of weak growth, near-deflationary price changes, and the absence of fundamental reforms needed to revive domestic demand. Any growth at all in the euro zone is considered a victory and the zone has certainly kept to those expectations, growing at less than half a percent in the second quarter. The Japanese economy contracted in the second quarter. Despite highly expansionary monetary policies, inflation in both economies is barely positive.

          Emerging market economies, which had become the main drivers of global growth in the aftermath of the financial crisis, are now leading the world economy into a slump. Growth has fallen, business and consumer confidence are eroding, and financial markets have taken a beating in these economies.

          Most economic indicators point to a loss of growth momentum in China, with high-frequency indicators such as electricity consumption and freight volumes pointing to an even sharper manufacturing slowdown. While policymakers still have some room to boost growth closer to the 7 percent target, the inability of monetary policy measures to gain traction in raising growth has elevated risks to the financial system and shaken confidence in the economic management skills of the leadership. These concerns have been exacerbated by recent missteps in managing stock market volatility and the shift to a more market-determined exchange rate, both of which have been marred by an unclear strategy and weak communication.

          Among the major emerging markets, India alone continues to maintain strong GDP growth, although industrial production and other indicators of economic activity suggest that the economy is in less robust shape. ...

          Fred C. Dobbs said in reply to pgl...

          Could be...

          China is dumping U.S. debt http://cnnmon.ie/1Q4ENx0
          via @CNNMoney - Sep 10

          ...to raise stimulus funds?

          [Oct 04, 2015] Carl Icahn Warning About the High Yield Bond Market Bubble

          Icahn predicts junk bind crash for almost a year now. that does not mean that he is wrong. But that does mean that he is a bad timer. Also he might be a buyer of CDS on junk bonds. Carl Icahn mentioned that although the short-term outlook for the energy sector is bad, the sector as a whole could make a comeback in a couple of years.
          "... In the context of the high yield bond market, activist investor Carl Icahn mentions the use of credit default swaps as a form of protection or insurance against credit events. However, he terms these products as "arcane" and implies that investors should possess sophisticated knowledge of the fixed income markets to enter that playing field. ..."
          Oct 04, 2015 | marketrealist.com
          May 15, 2015 | Market Realist

          Oil price nosedive could trigger a crash in the junk bond markets

          According to Sean Hanlon's December 16, 2014, article Oil's Price Decline Weighs On High Yield Debt in Forbes, US energy companies borrowed heavily using the junk bond market to finance hydraulic fracking operations. However, this occurred when oil prices were above the $100 per barrel level, resulting in an economically viable business model.

          With the nosedive in oil prices in the latter half of 2014, the ability of these energy firms to retain their profitability was called into question-including their ability to service the payments on their high-yield debt.

          ... ... ...

          As seen in the above graph, the prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) declined with the fall in oil prices. With the looming uncertainty over oil prices, the times ahead are probably not bright for the high yield bond market.

          Credit default swaps and a correction in high yield bonds

          In the context of the high yield bond market, activist investor Carl Icahn mentions the use of credit default swaps as a form of protection or insurance against credit events. However, he terms these products as "arcane" and implies that investors should possess sophisticated knowledge of the fixed income markets to enter that playing field.

          Credit default swaps (or CDS) are analogous to insurance contracts. The buyer of the CDS makes periodic fixed payments to the seller of the CDS, who receives these premiums and in exchange, compensates the buyer in the event of a default involving the underlying reference entity.

          ProShares launched the ProShares CDS North American HY Credit ETF (TYTE) and the ProShares CDS Short North American HY Credit ETF (WYDE) in August 2014. Although TYTE offers investors a long exposure to North American high yield bonds, WYDE offers a short exposure to the same. For instance, investment in WYDE could hedge a portfolio of high yield bonds against a drop in prices. The decreased prices typically result from increasing defaults by energy firms due to falling oil prices.

          In the final part of this series, we'll discuss Carl Icahn's view on the energy sector. The analysis specifically focuses on the outlook for oil companies such as EOG Resources (EOG), Exxon Mobil (XOM), Phillips 66 (PSX), and Valero Energy Corporation (VLO). Phillips 66 and Valero are oil refiners, EOG Resources is independent and lacks downstream operations, and Exxon Mobil is an integrated company.

          EOG Resources has an 8.2% weight in the iShares US Oil & Gas Exploration & Production ETF (IEO). Phillips 66 has a 7.2% weight in IEO, and Valero has a 4.9% weight in IEO. EOG is also part of the iShares US Energy ETF (IYE), with a 3.1% exposure.

          [Oct 03, 2015] They Just Dont Want A Job - The Feds Grotesque Explanation Why 94.6 Million Are Out Of The Labor Force

          Oct 03, 2015 | Zero Hedge

          In a note seeking to "explain" why the US labor participation rate just crashed to a nearly 40 year low earlier today as another half a million Americans decided to exit the labor force bringing the total to 94.6 million people...

          ... ... ...

          ... this is what the Atlanta Fed has to say about the most dramatic aberration to the US labor force in history: "Generally speaking, people in the 25–54 age group are the most likely to participate in the labor market. These so-called prime-age individuals are less likely to be making retirement decisions than older individuals and less likely to be enrolled in schooling or training than younger individuals."

          This is actually spot on; it is also the only thing the Atlanta Fed does get right in its entire taxpayer-funded "analysis."

          However, as the chart below shows, when it comes to participation rates within the age cohort, while the 25-54 group should be stable and/or rising to indicate economic strength while the 55-69 participation rate dropping due to so-called accelerated retirement of baby booners, we see precisely the opposite. The Fed, to its credit, admits this: "participation among the prime-age group declined considerably between 2008 and 2013."

          two hoots

          Just for reference see US, France, Germany, Japan labor participation rates: Seems we are joining global parity.

          http://www.multpl.com/france-labor-force-participation-rate

          http://www.tradingeconomics.com/united-states/labor-force-participation-rate

          http://www.multpl.com/germany-labor-force-participation-rate

          http://www.tradingeconomics.com/japan/labor-force-participation-rate

          Not that it helps anyone get a job.

          Bring the Gold

          Yeah see what happens! Great idea! Remove the only thing keeping this country in one piece! Let's not close corporate tax loopholes and handouts, egregious MIC spending or in any significant way stop financial crime. Before we address those trifling concerns which amount to many trillions, let's cut TANF and SNAP benefits to recipients who statistically are mostly CHILDREN. I for one hate having cities that aren't on fire and have been pining for LA Riots times one hundred thousand. Yes let's not address elites crimes first let's crack down on single moms and children. We wouldn't want to do anything to address Jamie Dimon, Lloyd Blankfein and Hank Paulson's crimes. Let's go after the real power brokers who got us here, children in poverty. And by doing so let's unleash days of rage and an American Spring. Absolute genius!!!!

          cynicalskeptic

          Sadly that is exactly what will happen when the merde hits the fan. The poor and starving WILL riot in the streets - as they have throughout history when they lose all hope. Clearly TPTB know this - and know time is running out. They are preparing - militarized police and an obsession with monitoring the population, repressing ANY discontent (like Occupy Wall Street).

          Things are as bad as they were in 1932 - government money is the only thing preventing 'Hoovervilles' and obvious signs of what has happened - minimal payments to keep people from taking to the streets. Yes, some people do abuse these programs and the abuse of things like disability is increasing as people run out of options, but the root cause of all this is the LACK OF JOBS. Our political leaders - following the wishes of corporate leaders - have embraced 'free trade' - sending American jobs overseas - and bringing in cheap labor (illegal at the low skill end and H1B's at the high skill end), all in a never ending effort to find the cheapest possible labor costs. Some goods may be cheaper but that means little if people are unemployed and cannot afford to buy anything. A toaster from China may cost less but who cares when you can't afford the bread to put in it?

          Perimetr

          Fed to the unemployed:

          "Let them eat cake"

          And remember what happened to the French aristocrats . . .

          ZerOhead

          DEA might be hiring... they are looking into possibly replacing their workers who are failing drug tests.

          http://www.huffingtonpost.com/entry/dea-drug-tests_560abff4e4b0af3706de0211


          [Oct 03, 2015] Reflections on Ten Years Deficits, the Financial Crisis, Textbook Economics and Data Paranoia

          Oct 03, 2015 | Econbrowser

          "When so many think the numbers are manipulated to some nefarious end, it is no wonder that empirical observations carry so little weight in informing thought on how the economy works."

          [Oct 03, 2015] Huge Carl Icahn Energy Purchases Highlight Recent Insider Buying

          "... Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This liquefied natural gas player had a very high-profile buyer step up to the plate more than once. Activist investor and Wall Street legend Carl Icahn bought a gigantic amount of the company's stock. ..."
          Oct 03, 2015 | 24-7 Wall St.

          We cover insider buying every week at 24/7 Wall St., and we like to remind our readers that while insider buying is usually a very positive sign, it is not in of itself a reason to run out and buy a stock. Sometimes insiders and 10% owners have stock purchase plans set up at intervals to add to their holdings. That aside, it still remains a positive indicator.

          Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This liquefied natural gas player had a very high-profile buyer step up to the plate more than once. Activist investor and Wall Street legend Carl Icahn bought a gigantic amount of the company's stock. He purchased 2,042,928 shares at a price of $47.14 apiece. The total for the buy came to a massive $96.3 million. Not stopping there, Icahn purchased an additional 1,503,313 shares at $48.30. The total for second buy was a whopping $72.6 million.

          ALSO READ: September Worst Month in History for Energy MLPs: 3 Bargains Right Now

          Oddly enough, as Icahn was buying millions of shares of Cheniere Energy, the CEO of the company was selling. He parted with a total of 100,000 shares at between $46.25 and $50.42 per share. The total for the sale came to $4.8 million. It was also the only one major company that reported insider selling last week. Cheniere shares ended trading on Friday at $50.50, and it is pretty easy to assume that Icahn's high-profile purchase was viewed as very positive.

          [Oct 03, 2015] Oil Tanker Rates Soar Above $100,000 a Day as China Hiring Jumps

          Oct 03, 2015 | Bloomberg Business

          The world's biggest crude oil tankers earned more than $100,000 a day for the first time since 2008, amid speculation that a surge in Chinese bookings is curbing the number that are left available for charter.

          Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.

          [Oct 03, 2015] Shale High depletion rates in Bakken

          "... Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines. ..."
          "... ... ... ... ..."
          "... Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've warned you. ..."
          Oct 03, 2015 | www.oil-price.net

          As you can see, Bakken is the star of the region. So, who wants to point that the Emperor has no clothes? In other words, the higher-than-normal rate of depletion of fracked wells?

          Well, what is depletion? Depletion is a naturally occurring phenomenon. All non renewable resources undergo reduction over a period of time. Oil and gas aren't exempted from this equation, either

          ... ... ...

          Fracked wells age very fast. The initial production is very high so is the rate of depletion. The point is, a newly fracked well may produce 1,000 barrels a day, but this falls by sixty percent the next year, thirty five by the third and fifteen percent by the fourth. Oil companies should replace forty to forty five percent of the current production each year to maintain/increase production. For now at least, the number of wells and cost of production can keep pace with profits because of the higher oil prices. But what happens when the price comes down?

          The depletion rates will make the wells unviable and the search of oil will continue elsewhere. Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines.

          ... ... ...

          Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've warned you.

          [Oct 03, 2015] Oil Bulls Lose Faith in Recovery as Russia Adds to Global Glut

          Looks like Bloomberg is becoming Fox of economic and financial news...
          "Other countries, such as Russia, are pumping at full tilt" looks like a lie. Russia production might be cur if additional tax on oil producers is restored by government.
          I also like ""The U.S. producers are the only ones doing their part to reduce the global glut," -- another lie. shale producers are uncompetitive at this level f prices and some can't even serve their debt. the same is true for oil sands. They are cutting all corners, endangering the environment.
          There is no return to "cheap oil" regime despite period of overinvestment that was bright by prices above $80 per barrel.
          The fact that "Retail investors which pulled $393 million in September" just confirm that they are a food for Wall Street sharks... Moreover investment in oil ETFs with their complex "futures based" algorithms of matching oil price is in itself probably a sign of not being too intelligent. The game on this table of Wall Street casino is a for professionals and HFT robots, not for lemmings (aka retail investors).
          "... U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. ..."
          Oct 03, 2015 | Bloomberg Business

          Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift recovery as Russia boosted output to the highest since the Soviet Union collapsed.

          Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.

          U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. WTI traded in the tightest range since June last month as China's slowing economy and the highest Russian output in two decades signaled the global glut will linger.

          "The U.S. producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "Other countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren't going to have much impact, especially given the slowing global economy."

          ... ... ...

          Russian oil output rose to a post-Soviet record last month as producers took advantage of the weak ruble to push ahead with drilling. The nation's production of crude and condensate climbed to 10.74 million barrels a day, 1 percent more than a year earlier and topping a record set in June, according to data from the Energy Ministry's CDU-TEK unit.

          ... ... ...

          Investors pulled $393 million in September from United States Oil Fund, the largest U.S. exchange-traded product that tracks crude futures, the biggest withdrawal since April.

          See also:

          [Oct 03, 2015] Icahn to Yahoo Finance Its going to be a real bloodbath

          "... Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a short-term high, just as heroin does to their users." ..."
          Oct 03, 2015 | finance.yahoo.com
          September 28, 2015

          Yahoo Finance has obtained a policy paper written by Carl Icahn on income inequality that the billionaire financier recently sent to Donald Trump and others on Wall Street and in Washington. In the paper, Icahn warns of "dangerous systemic problems that will affect each and every American in the coming years."

          The five and a half page paper has some similarities to the video that Icahn is releasing on www.carlicahn.com, but focuses more on imbalances in our society.

          The paper was sent to Trump before the GOP presidential candidate revealed his economic proposals. "I sent it to a number of people," Icahn said. "A few of the ideas in the paper are reflected in Donald Trump's plan. I think that shows what an open-minded guy he is, which is what we need in the White House."

          In the paper, Icahn takes a decidedly egalitarian tone, writing:

          "The average worker makes approximately $50,000 per year. The average annual compensation of the thirty highest paid CEOs is approximately $47 million per year. (I don't believe this disparity was ever this great even in most dictatorships!) You will hear many politicians argue that government should not interfere with the 'business judgment', of our companies and, therefore they cannot pass laws to encourage 'income equality.' This is completely untrue – the sad fact is that the government has actually passed many laws that have brought about 'income inequality.'"

          In a phone interview with Yahoo Finance Icahn says, "In this country, you talk about the wealth gap and politicians say, 'well, you can't legislate equality,' but we legislate inequality."

          Of all the corporate raiders and junk bond kings that came of age in the 1980s, Carl Icahn has become the richest and most powerful. He shows little sign of slowing down. Now 79, and with a net worth of some $21 billion according to Forbes, Icahn has moved beyond being a fixture of CNBC and the business pages to being something of a general news subject. With unusual tentativeness and nuance Icahn has linked himself to Donald Trump thereby guaranteeing him a place at the grown-ups' table this news cycle. In the recent phone interview with Yahoo Finance, Icahn says that while he admires Trump, (the two worked with each other in the maw of the Atlantic City casino business) the two don't see eye to eye on everything. Icahn wouldn't comment specifically on where they disagree. As for being Trump's Treasury Secretary, Icahn apparently said he would and then retracted that point. "He's his own man," Icahn says of Trump.

          In the policy paper, Icahn writes about the complicity of CEOs and Wall Street:

          "…the American worker is also getting 'screwed' …boards and CEOS have allowed property, plants and equipment of our companies to become the oldest on record and, as a result, the growth rate in productivity per hour of our workers has also become the worst on record and has actually decreased compared to last year. The average age of corporate property, plants and equipment is an astounding 22.3 years, the oldest it has reached since 1941. But I do not believe that most boards and CEOs really give a damn. With many exceptions, CEOs only care about short term results. Perhaps you can't really blame them because unfortunately, Wall Street judges them based on quarter to quarter results and CEOs receive their egregious compensation based on those short-term results."

          Icahn also writes about CEOs and how hard it is to remove them: "How would we feel if laws were passed that certain criteria had to be met to vote for President and there were no term limits on the President's ability to serve, thus making it almost impossible to remove Obama? Amazingly, there are many state laws in existence that protect the CEOs that are analogous to the example I just made."

          Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a short-term high, just as heroin does to their users."

          Icahn closes his piece by again coming back to the plight of the common man versus CEOs: "When it comes time to pay the Piper, CEOs will have taken their bonuses and again the workers will be left, holding the proverbially 'empty bag.'"

          [Oct 03, 2015] Icahn's bold warning about… Icahn

          Carl Icahn warn about junk bonks bubble. more then 2 trillion of junk bond spread in various ETF and mutual funds in case of crisis will be illiquid. Warning of many companies are fallacious. They are archived by tricks like mergers and acquisitions and stock back backs. It's all financing engineering. It's loading companies with bet.
          Oct 03, 2015 | www.cnbc.com
          Billionaire investor Carl Icahn reiterated his warnings about high-yield bond ETFs in a wide-ranging video released on his website overnight, complaining that these so-called junk bonds "are being sold en masse to the public" by companies such as BlackRock, whose high-yield bond ETF (HYG) holds about $13 billion worth of assets.

          "People are buying these not really understanding what they're buying," Icahn said in the video, referring specifically to BlackRock's "junk bond" ETFs.

          Ironically, nearly 1 percent of what those people are buying is debt issued by Icahn's company itself.

          The HYG ETF holds four separate bonds issued by the investor's company, Icahn Enterprises. These four bonds cumulatively make up 0.7 percent of the ETF - for a total notional value of $91 million, according to data available from BlackRock's ETF arm, iShares.

          It is worth noting that BlackRock does not have any say in the holdings of its ETF; the HYG simply tracks the Markit iBoxx USD Liquid High Yield Capped Index. Nor is the presence of Icahn Enterprises bonds in the ETF new; various Icahn Enterprises securities can be found in it going back to April 2012.

          Icahn's broader point about high-yield debt is that stimulative Federal Reserve policies have created a stock and bond bubble that will be resolved messily, due to a lack of willing buyers and hence loss of liquidity. BlackRock, for its part, contends that ETFs can provide liquidity and improve market stability

          Icahn's office did not immediately respond to a call for comment.

          Read More5 things that keep Carl Icahn up at night

          [Oct 03, 2015] U.S. manufacturing barely expands in September as global growth weakens, oil drillers cut back

          Oct 03, 2015 | finance.yahoo.com

          New orders and production both fell sharply and a measure of hiring also declined, according to the ISM, a trade group of purchasing managers. All three measures still barely remained in expansion territory.

          U.S. manufacturers are getting hit by slower growth in China, the world's second-largest economy, and a stronger dollar, which makes U.S. goods more expensive overseas. The 15 per cent rise in the dollar's value in the past year has also made imports cheaper compared with U.S.-made goods. Oil and gas drillers are also cutting back on their orders for steel pipe and other equipment in the wake of sharply lower oil prices.

          [Oct 03, 2015] What Blows Up First Part 5 Shale Oil Junk Bonds

          Prediction "The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. " definitely proved to be false. But it looks like junk bond problem does exist. see Icahn warning Spe 26, 2015. Actually he issues similar varning in Ocr 2014 -- Carl Icahn says high-yield 'junk' bond market in a bubble - CNBC Reuters
          "... As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads. ..."
          "... ... ... ... ..."
          Oct 03, 2015 | November 18, 2014

          One of the surest signs that a bubble is about to burst is junk bonds behaving like respectable paper. That is, their yields drop to mid-single digits, they start appearing with liberal loan covenants that display a high degree of trust in the issuer, and they start reporting really low default rates that lead the gullible to view them as "safe". So everyone from pension funds to retirees start loading up in the expectation of banking an extra few points of yield with minimal risk.

          This pretty much sums up today's fixed income world. And if past is prologue, soon to come will be a brutally rude awakening. Most of the following charts are from a long, very well-done cautionary article by Nottingham Advisors' Lawrence Whistler:

          Junk yield premiums over US Treasuries are back down to housing bubble levels...

          ... ... ....

          As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads.

          ... ... ...

          The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. This will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around.

          Bruce C

          The whole "shale oil" theme is a "scam". The original investors fell for the very same thing that continues to be rehashed, so they engineered a way to unload it onto the "relatively dumb" money. That's where we are now. After those new INSIDE investors/suckers realized that projected resources were not the same as extractable ones (at certain price levels) and that current production rates were subject to (downward) change (because the whole process is basically insane and extreme) it only makes sense that more funding could only be obtained by issuing bonds (equity was extracted in the "first round" when new wells geysered, etc.)

          But don't laugh too hard, yet. Between a totally foolish and pathetic Congress, a totally full of shit President, a desperate national central bank, and "TBTF" philosophy in general, this construct may well be supported way beyond its "natural" life.

          History is a fascinating spectrum of human nature. There doesn't seem to be any limits to the lows or the highs, and especially the durations of effort and "pragmatism" to advance certain agendas and IDEALS. That's not always "good" or "bad", and it is definitely hard to know in real time.

          socalbeachdude

          John, you are 100% correct in your article, particularly with your conclusion that this "will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around."

          Frank DiGiovanni

          Funny.. Your website is about the demise of the dollar.. Than its about oil stocks who have plunged along with oil due to a strong dollar
          .. Seems you are just looking for negatives..

          digriff > Frank DiGiovanni

          While you are assuming the strong dollar is the cause of the oil prices I would say "the last guy to drown in the pool is technically the best swimmer (dollar) but did still drown in the end".

          Frank DiGiovanni > digriff

          Point is .. You have been complete incorrect on the dollar.. Then write negatively on oil.. You are just a negative person.. Currency value is all relative to other currency; have to have winners and losers.. Not everybody drowns. You seem foolish with such a comment..

          [Oct 02, 2015] EIA's Latest Petroleum Report Yields Few Surprises

          "... If the government approves the planned tax hike, investments could slump by 50 percent and total oil production drop by 100 million metric tons over next three years, Energy Minister Alexander Novak said in an interview to state TV Friday. ..."
          Oct 02, 2015 | OilPrice.com

          ... ... ...

          I took the Weekly Energy Review and averaged it into monthly average. As you can see it differs greatly from both the Monthly Energy Review and the Petroleum Supply Monthly. However for last July and August it agrees pretty closely with the Monthly Energy Review. And it says [USA] production dropped just over 200,000 barrels per day from August to September.

          This is the weekly data, since December from the Weekly Petroleum Status Report. It has U.S. production dropping every month since June.

          ... ... ...

          I thought the below article said a lot about Russia.

          Russian Oil Producers Head for Tax Showdown Amid Output Warnings

          Russia's Energy Ministry estimated last week that oil output would be stable until 2035 at a level of about 525 million metric tons a year, or 10.5 million barrels a day, as investment in new projects offset declines at older fields. If the government approves the planned tax hike, investments could slump by 50 percent and total oil production drop by 100 million metric tons over next three years, Energy Minister Alexander Novak said in an interview to state TV Friday.

          "In a lower capex environment, the output decline at mature Russian fields may reach some 5 percent already next year," Alexander Nazarov, oil and gas analyst at OAO Gazprombank, said by phone. "New projects won't be able to cushion the total decline."

          They are saying that if they get enough investment in new projects to offset declines in their old fields, then they can keep production flat for the next 20 years. Otherwise they are headed lower. Their old fields will be declining at about half a million barrels per year. I don't think even if they do get the tax breaks they can come up with that much new oil. And most certainly they cannot do it for 20 years.


          [Oct 02, 2015] This Week In Energy Don't Be Fooled By Latest U.S. Production Data

          "... Libya is producing less than 400,000 barrels per day, far below the 1.6 million barrels per day it produced during the Gaddafi era. ..."
          Oct 02, 2015 | OilPrice.com

          ... ISIS attacks in Libya could have a much more direct impact. On October 1, ISIS militants attacked one of Libya's main oil ports, Es Sider. The port is under the control of the recognized government and has been closed since December 2014, preventing Libya from reviving oil exports. One guard at Es Sider was reportedly killed but the attack was repelled. Still, Libya has been torn apart by conflict, and the two warring factions are at a stalemate, with a security vacuum across most of the country.

          Libya is producing less than 400,000 barrels per day, far below the 1.6 million barrels per day it produced during the Gaddafi era.

          [Oct 02, 2015] Job Growth Weakens in September

          Oct 02, 2015 | economistsview.typepad.com
          Economist's View

          Dean Baker:

          Job Growth Weakens in September:

          ... ... ...

          The average hourly wage dropped slightly in September, bringing the annual rate of growth over the last three months compared with the prior three to 2.2 percent, the same as its rate over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3 percent drop in the average weekly wage.

          ... ... ...

          On the whole this report suggests the labor market is considerably weaker than had been generally believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector. In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011. The strong growth in government jobs is not likely to continue with budgets still tight. With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make it much more difficult for the Federal Reserve Board to raise rates this year.

          Mike Sparrow:

          This looks like a adjustment to the ADP's 2015 mean more than anything else. That is the trouble with the birth/death model. It misses turning points and this mid-cycle correction started in January. Yet, they kept NFP elevated in many of the next 7 months outside March which was another mess(created by the weather that time). ADP was much more tamed and consistent.

          The good news is, it looks like the global economy may have bottomed in September and China's move to more consumption balance is panning out a bit, which will help growth there. Though the multi-national boom is over as investment driven growth necessarily reduces in these countries. Monthly wages also accelerated.

          anne said in reply to Mike Sparrow...

          I think the ADPs are better than the NFPs, though on a wet field field hockey in tricky and who knows which school will win. Anyway, Go ADPs! I was a midfielder.

          am said...

          Correct take off by DB that this weak report makes rate rises this year difficult to justify. Chair Yellen identified weakness in the labour market in her last report. This latest monthly labour report shows that that weakness continues.

          DB concentrates on the weak stats for the prime age groups of men and women and states that it is clearly not retirement related. If he has any analysis on older cohorts continuing in employment longer than normal and impacting on the 25-54 cohort employment rates then I would appreciate a link.


          anne said in reply to am...

          http://data.bls.gov/pdq/querytool.jsp?survey=ln

          January 4, 2015

          Employment-Population Ratio, 2000-2015

          2000 ( 81.5) *
          2001 ( 80.2) Bush
          2002 ( 78.8)
          2003 ( 77.9)
          2004 ( 78.1)

          2005 ( 78.5)
          2006 ( 79.2)
          2007 ( 79.5)
          2008 ( 78.5)
          2009 ( 74.5) Obama

          2010 ( 73.9)
          2011 ( 73.8)
          2012 ( 74.9)
          2013 ( 75.2)
          2014 ( 75.9)

          September

          2015 ( 76.5)

          * Employment age 25-34

          am said in reply to anne...

          Thanks again.

          It is clear that there is a structural change in employment. It may also be partly demographic but it is more than that hence I say structural.

          cm said in reply to JohnH...

          You can only offshore jobs that can actually be performed offshore. Not to deny offshoring which has been rampant in tech and various industries where services/labor can be delivered over the internet, but the probably more significant factors overall have probably been automation and computer/IT enabled "self service" i.e. pushing work off to the customer/client or just cutting the service level - e.g. "self help" web FAQs instead of printed manuals and phone support, or phone support (offshore or not) who basically read from the same documents/scripts you can search on the internet for yourself.

          cawley said in reply to JohnH...

          While I want to be cautious in thinking that I speak for anyone else, I would guess most of the QE supporters on this blog fully recognize that there are other factors besides interest rate/fed policy.

          In fact, I would hazard (tho I may be wrong) that most of them would have preferred stronger fiscal policy.

          Maybe I'm just projecting my own view which is that fiscal policy would have been preferable. Unfortunately, it was not happening. Clearly the republicans weren't in the mood - at least as long as there was a non white muslim atheist socialist communist dictator from the other party in the House f/k/a White. To me, it doesn't seem like Obama had a sufficient appetite either - altho some argue that didn't matter.

          That being the case, monetary policy was pretty much the only game in town. Is it a panacea? Hell no. Has it been enough to get the economy back to full employment? Obviously not. Is it possible there are/will be some pernicious unintended consequences? Maybe, but I would argue they are second order concerns compared to employment and probably manageable.

          But I've got no reason to think that withholding QE would have resulted in better fiscal policy - or any other change that would have improved employment. And I tend to think that the counterfactual consistent with no QE and the same fiscal policy would have been even worse employment.

          Peter K. said in reply to JohnH...

          "Strong dollar, weak dollar. It doesn't seem to matter. "

          You're just a nihilist. Facts and theory don't matter. Dean Baker:

          "In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011."

          New Deal democrat said in reply to pgl...

          This downshifting in the employment numbers was foreseeable, and foreseen:

          http://bonddad.blogspot.com/2015/10/told-you-so-weakening-job-growth-edition.html

          It is party strong US$, partly oil patch collapse, and part pass-through from last year's stall in housing starts.

          Fred C. Dobbs said...
          What the Terrible September Jobs Report Means for the
          Economy http://nyti.ms/1Vsx2rO via @UpshotNYT
          NYT - Neil Irwin - Oct 2

          The September jobs numbers are easily the worst of 2015 so far. They offer an unpleasant combination of a bad overall headline, bad details and bad timing, amid a volatile and unsettling time in global markets.

          The weak numbers offer some vindication for those Federal Reserve officials who preferred to hold off on interest rate increases last month to ensure the economy was on sound footing before tightening the money supply. They also give reason to worry that those wild market swings in August were less random fluctuations and more an indication that something deeper is wrong with the global economy - not so much that the stock market drop in August caused weak September jobs numbers, but that there is an underlying economic fragility causing both.

          The question now is whether it means anything - whether the United States economic expansion, which seemed set to roar into 2015, is slowing in some meaningful way. We don't know that yet, and it would be a mistake to leap to that conclusion. But that possibility became quite a bit more plausible after the September numbers popped onto economists' computer screens.

          As always, it is a useful exercise on jobs report Fridays to take a deep breath and remember that this is but one set of indicators, with a large margin of statistical error, that will be revised repeatedly. But the fact that the latest jobs numbers are consistent with another report, from the Institute of Supply Management, earlier this week that suggested United States manufacturing slowed to a standstill in September doesn't do anything to help an economy-watcher maintain that zen perspective.

          The new numbers are poor on pretty much every level. American employers added a mere 142,000 jobs last month, far below the analyst forecast of 201,000 or the average over the last year of 229,000. Revisions pushed July and August numbers down substantially. The unemployment rate was unchanged at 5.1 percent.

          This is usually the point in one of these stories where we would list the silver linings - the countervailing details that suggest it isn't as bad as all that. This report doesn't really offer any. Average weekly hours fell. Average hourly pay was unchanged. The number of people in the labor force fell by 350,000, and the number of people who reported having a job fell by 236,000.

          We don't even have a major snowstorm or other weird weather event to blame, nor a strike in a major industry, nor some outsize shift in the results from one category of employer that might suggest an aberration.

          The most positive angle I could come up with, with credit to the anonymous Twitter user @modestproposal1, is the possibility that with the unemployment rate scraping relatively low numbers, we should expect the rate of job creation to slow simply because the pool of potential workers is dwindling.

          That said, that theory doesn't match up with the stagnant hourly pay and data in the survey of households suggesting people may be leaving the work force. ...

          modest proposal @modestproposal1
          Remain cognizant that job growth may naturally slow as we approach full employment and will instead be interpreted as economy slowing

          Fred C. Dobbs said in reply to Fred C. Dobbs...
          The pool of skilled/trained
          workers dwindles; those who remain
          are simply not worth hiring?

          [Oct 02, 2015] Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline

          "... Not only were far fewer jobs added than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff. ..."
          Oct 02, 2015 | davidstockmanscontracorner.com

          Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline (Fed's Fischer See No Bubbles)

          The September jobs report was nothing short of disastrous. Not only were far fewer jobs added than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff.

          jobs by industry_sept15

          Even worse, higher paying manufacturing jobs declined.

          Any wonder why wage growth is so tepid?

          [Sep 30, 2015] Becoming China From Shale Malinvestment Boom To We Are Overbuilt Bust

          "... As Bloomberg reports ..."
          "... The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough to support the oil-fueled building explosion ..."
          Sep 30, 2015 | Zero Hedge

          many previous oil-boomtowns across Texas and North Dakota are facing a real-estate crisis. As Bloomberg reports, the former bustling "man-camps" of towns like Williston, ND are now desolate with hundreds of skeletons or wood & cement as predictions that fracking would sustain production and a robust tax base for decades have failed completely.

          ... ... ...

          Chain saws and staple guns echo across a $40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers. As Bloomberg reports, after struggling to house thousands of migrant roughnecks during the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough to support the oil-fueled building explosion.

          Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them.

          "We are overbuilt," said Dan Kalil, a commissioner in Williams County in the heart of the Bakken, a 360-million-year-old shale bed, during a break from cutting flax on his farm. "I am concerned about having hundreds of $200-a-month apartments in the future."

          The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically feasible. The process forces water, sand and chemicals down a well to crack rock and release the crude. Predictions were that fracking would sustain production and a robust tax base for decades.

          Laborers descended on the state, many landing in temporary settlements of recreational vehicles, shacks and even chicken coops. Energy companies put up some workers in so-called man camps. In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county building official.

          Everyone levered up on this "no-brainer"...

          The camps were supposed to be an interim solution until subdivision and apartment complexes could be built.

          Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding.

          and many remain delusional...

          "We didn't build temporary housing on purpose because we viewed North Dakota as a long-term play," said Israel Weinberger, a principal at Coltown Properties, which invests in multi-family real-estate developments.

          "We think the local production of oil is here to stay. Yes, prices have dropped, but it's a commodity and commodities fluctuate. There is always a risk."

          Fracking's success has created another glut...

          As the migrant workers leave, their castoffs pile up in scrap yards such as TJ's Autobody & Salvage outside Alexander, about 25 miles (40 kilometers) south of Williston. More than 400 discarded vehicles crowd its lot, including souped-up pickup trucks and an RV with rotting potatoes and a dead mouse in the sink.

          "I wake up and RVs are in my driveway," said owner Tom Novak. "It's insane; there are empty campers everywhere."

          HedgeAccordingly

          welp.. was only matter of time..
          IMF raises red flag about Canada's 'overheated' housing market

          bluskyes

          It's a golden age for the repo game

          bluskyes

          Oil has been boom/bust forever...

          Unfortunately most are no longer from agrarian roots, and have no concept of living within one's means, and storing away excess in times of feast - for the times of famine that inevitably follow.

          [Sep 30, 2015] Are American Schools Making Inequality Worse

          Sep 30, 2015 | Economist's View

          Education is not the only cause of inequality, but it's part of the problem:

          Are American schools making inequality worse?, American Educational Research Association: The answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's most economically disadvantaged students of critical math skills, according to a study published today in Educational Researcher, a peer-reviewed journal of the American Educational Research Association.

          Findings from the study indicate that unequal access to rigorous mathematics content is widening the gap in performance on a prominent international math literacy test between low- and high-income students, not only in the United States but in countries worldwide.

          Using data from the 2012..., researchers from Michigan State University and OECD confirmed not only that low-income students are more likely to be exposed to weaker math content in schools, but also that a substantial share of the gap in math performance between economically advantaged and disadvantaged students is related to those curricular inequalities. ...

          "Our findings support previous research by showing that affluent students are consistently provided with greater opportunity to learn more rigorous content, and that students who are exposed to higher-level math have a better ability to apply it to addressing real-world situations of contemporary adult life, such as calculating interest, discounts, and estimating the required amount of carpeting for a room," said Schmidt, a University Distinguished Professor of Statistics and Education at Michigan State University. "But now we know just how important content inequality is in contributing to performance gaps between privileged and underprivileged students."

          In the United States, over one-third of the social class-related gap in student performance on the math literacy test was associated with unequal access to rigorous content. The other two-thirds was associated directly with students' family and community background. ...

          "Because of differences in content exposure for low- and high-income students in this country, the rich are getting richer and the poor are getting poorer," said Schmidt. "The belief that schools are the great equalizer, helping students overcome the inequalities of poverty, is a myth."

          Burroughs, a senior research associate at Michigan State University, noted that the findings have major implications for school officials, given that content exposure is far more subject to school policies than are broader socioeconomic conditions.

          Anonymous -> Anonymous...
          do you think schools in China/India have funding on the level you are implicitly arguing for? As Eva Maskovich is showing in NYC - it takes better teachers, not more money.

          pgl -> Anonymous...

          I live in NYC

          "According to Success Academy Charter Schools founder and President Eva Moskowitz".

          Ah yes - the charter school crowd. As in Mayor Bloomberg's push for privatizing our public education system. They have a lot of really dishonest ads attacking our new mayor. So you are with these privatization freaks? Go figure!


          Anonymous -> kthomas...

          I am an Asian immigrant who came to the US to pursue the American dream. My education allowed me to run circles around most students at the university. I ended up with triple major and a post grad degree. So, go ahead. call the rigorous schooling horrifying all you want. It is silly to raise kids in an ultra sheltered environment. The jobs are going to go where qualified highly productive people who want less money are. Then they will have to face reality anyway. We can sit here and argue about it all we want. The truth is that kids in Asia can do the job I started with sitting there better for a fraction of the cost here. And this is a job requiring advanced degrees.

          Anonymous -> Anonymous...

          And you can add Eastern Europe to Asia. The competition is going to degrade our standard of living as it has whether we like it or not.


          DrDick -> Anonymous...

          Sorry, but this is pure BS. We are talking about the presence of AP, foreign language, and advanced math classes. Having new textbooks and enough textbooks for all students, class sizes, laboratory equipment for science classes, and building maintenance, among many other very significant differences.

          https://edtrust.org/press_release/funding-gap-states-shortchange-poor-minority-students-of-education-dollars-2/

          https://www.washingtonpost.com/news/local/wp/2015/03/12/in-23-states-richer-school-districts-get-more-local-funding-than-poorer-districts/

          https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&ved=0CEYQFjAGahUKEwiglsjRgZ_IAhWJOIgKHQgGAW8&url=http%3A%2F%2Fwww.schoolfunding.info%2Fnews%2Fpolicy%2FFundingGap2005.pdf&usg=AFQjCNGL7igeCiXrs8pI7cxcwgb0JTKdtg&cad=rja

          Anonymous -> DrDick...

          yes. they spend on things that count. instead of hockey rinks and olympics standard gyms for toddlers.

          DrDick -> Anonymous...

          None of which are characteristic of public schools. Have you ever even visited reality? Charter schools suck up a much greater share of available public resources and further starve the schools serving the poor and minorities, as happened in Chicago. Unlike you, I believe in fact based decision making.

          http://www.washingtonpost.com/blogs/govbeat/wp/2013/10/15/charter-schools-are-hurting-urban-public-schools-moodys-says/

          https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CCwQFjACahUKEwiB5ci8rZ_IAhWLRYgKHR5dCgU&url=http%3A%2F%2Fwww.luc.edu%2Fmedia%2Flucedu%2Flaw%2Fcenters%2Fchildlaw%2Fchilded%2Fpdfs%2F2015studentpapers%2FReyes.pdf&usg=AFQjCNFP1l3BdJ-Hjm0FFv-KDtYMk3E5FA&cad=rja

          http://www.progressillinois.com/posts/content/2014/05/20/report-school-closures-charter-expansion-causing-catastrophic-harm-us-minor

          EMichael -> Tom aka Rusty...

          few anecdotes

          geez

          " The new school year has been marred for many students all over the country by severe budget cuts, shuttered schools, and decimated staff. Philadelphia, where students went back to school Monday, is seeing some of the most extreme effects of these budget cuts.

          Nine thousand students will attend 53 different schools today than they did last fall after 24 were closed down. Class sizes have ballooned in many schools, with parents reporting as many as 48 students in one classroom. Meanwhile, the district laid off 3,859 employees over the summer.

          A new policy also eliminates guidance counselors from schools with fewer than 600 students, which is about 60 percent of Philadelphia schools. Now one counselor will be responsible for five or six schools at once. Arts and sports programs have also been sacrificed.

          Philly's new barebones regime was implemented after Gov. Tom Corbett (R) and the Republican-dominated legislature cut $961 million from the basic education budget, or 12 percent overall. Federal stimulus funds cushioned schools from state cuts for a couple of years, but they are now dwindling.

          The district is struggling to fill a $304 million deficit. In order to open schools on time, the state gave an extra $2 million in funding and the city borrowed $50 million. Corbett is also withholding a $45 million state grant until teachers unions agree to concessions of about $133 million in a new labor pact. The district plans to sell 31 shuttered school properties. "

          http://thinkprogress.org/education/2013/09/09/2588691/philly-schools-budget-cuts/

          pgl -> Anonymous...

          I love how the Aussies do the terminology:

          "All Australian private schools receive some commonwealth government funding. So they are technically all "Charter" schools although the term is not used in Australia."

          Charter schools are precisely what Milton Friedman recommended. He has the integrity to call this privatization. Anonymous does not. Funded by taxpayers but these schools are for profit entities.

          Anonymous - have the courage to admit your agenda next time.

          ilsm -> pgl...

          Charter schools are like privatized arsenals, all cost cutting, profit and no performance.

          US privatized the arsenals starting after WW I when a lot of "qui tammers" got to send arms to the Brits.

          How long before the charter industry complex has enough unwarranted influence to ruin education?

          djb -> Anonymous...

          the charter schools cherry pick the best students and they don't deal with problem kids

          this I known, they do poorly especially in new York city

          as pgl said it is the fact that schools are fund locally that is the problem

          to use a favorite right wing phrase

          public education is an "unfunded mandate"

          it should be paid for by the federal government

          then all the mostly right wing politician could use property tax for divide and conquer politics

          and funding can go where it is needed

          djb -> djb...

          then all the mostly right wing politician could NO LONGER use property tax for divide and conquer politics

          DrDick -> pgl...

          I think this is the primary issue. The schools in my hometown of 30K, national headquarters for Phillips Petroleum with a major research facility at the time, were excellent and most students went to college. Elsewhere in Oklahoma, students from similar sized towns were barely literate when they graduated. The primary reliance on local funding guarantees perpetuation of inequalities and the failure of the poor. This is exacerbated in larger communities by differential funding and resources allocated to schools within the district. When I lived in Chicago, Lincoln Park High School, in an affluent neighborhood, had world class programs. Meanwhile, schools on the predominately black west side and south side were literally falling apart with peeling lead paint and asbestos insulation falling on the students (along with occasional pieces of the cielings).

          [Sep 29, 2015] Carl Icahn Says Market Way Overpriced, Warns God Knows Where This Is Going Zero Hedge

          "... The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. ..."
          Sep 29, 2015 | www.zerohedge.com
          Here's a list of Icahn's concerns:
          • Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped fuel the housing bubble and given what we know about how monetary policy is affecting the financial cycle (i.e. creating larger and larger booms and busts) we might fairly say that the Fed has become the bubble blower extraordinaire. See the price tag attached to Picasso's Women of Algiers (Version O) for proof of this.
          • Herding behavior: The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost.
          • Financial engineering: Icahn is supposedly concerned about the myopia displayed by corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and make no mistake, there's something a bit ironic about Carl Icahn criticizing companies for short-term thinking and buybacks as he hasn't exactly been quiet about his opinion with regard to Apple's buyback program (he does add that healthy companies with lots of cash should repurchases shares).
          • Fake earnings: Companies are being deceptive about their bottom lines.
          • Ineffective leadership: Congress has demonstrated a remarkable inability to do what it was elected to do (i.e. legislate). To fix this we need someone in The White House who can help break intractable legislative stalemates.
          • Corporate taxes are too high: Inversions are costing the US jobs.
          Here's more from Reuters:

          ... ... ...

          In a video entitled "Danger Ahead" and released on Tuesday, Icahn said the Fed's rate policy had enabled U.S. chief executives - many of whom he describes as "nice but mediocre guys" – to pursue "financial engineering" that he said has exacerbated an already wide gap between rich and poor in America.

          Icahn, who slammed money managers who benefit from the so-called "carried interest" loophole under which their earnings are taxed as capital gains rather than ordinary wage income, also endorsed Donald Trump's presidential bid.

          Trump unveiled a tax plan on Monday that he said would eliminate the loophole.

          "Those guys who run these companies are borrowing money very cheaply, leveraging up their companies, using it to do two things … They are going in and they are buying back stock or even worse, making stupid takeovers," said Icahn, adding some recent acquisitions have been done at a too high a price.

          Much of this debt is bought via exchange-traded funds, a popular vehicle for trading baskets of bonds and stocks.

          Icahn said retail investors had a false sense of security about how easy it would be to sell their holdings of such debt if the market turns.

          "It's like a movie theater and somebody yells fire. There is only one little exit door," he said. "The exit door is fine when things are OK but when they yell fire, they can't get through the exit door … and there's nobody to buy those junk bonds."

          [Sep 29, 2015] World set for emerging market mass default, warns IMF - Telegraph

          "... Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress. ..."
          "... We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. ..."
          "... The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world. ..."
          Sep 29, 2015 | telegraph.co.uk

          TheBoggart

          "The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging
          market corporate defaults"

          https://www.youtube.com/watch?...

          blueba • 7 hours ago

          Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress.

          We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. Then a few more small transfers and the the big "crisis" of 2007-8 which is ongoing and where close to a trillion in assets were consolidated in the hands of oligarchs.

          First load on the debt with money created out of thin air by banks, then foreclose after the phony "bubble" bursts. Then walk away Scott free with the assets.

          The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world.

          [Sep 28, 2015] Why I Believe Paul Krugman Over Jim Hamilton Why a Chinese Slowdown Is by itself Little Threat to the U.S. Economy

          "... that the U.S. economy was adjusting to and shrugging off ..."
          "... until the financial crisis began the collapse of Wall Street ..."
          "... With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle). ..."
          "... With 700 trillion in outstanding derivatives we don't know where the risks are and neither do the banks or the regulators. One mistake in one spreadsheet could sweep away all the big banks in the world. ..."
          Sep 28, 2015 | www.bradford-delong.com

          Over at Equitable Growth: The collapse of housing investment in the U.S. after the bubble pop began in late 2005 was absolutely huge:

          FRED Graph FRED St Louis Fed

          READ MOAR

          Economic importance of China: "How important would an economic downturn in China be for the United States?...

          ...Paul Krugman reviews... reasons why... [we] shouldn't worry too much.... I've long believed that to understand business cycles we need to consider not just net flows but also gross interdependencies.... While China may only account for 15% of world GDP, it has been a huge factor in commodity markets... 55% of the increase in global petroleum consumption between 2005 and 2013.... Arezki and Matsumoto note that China now accounts for about half of global consumption of iron ore, aluminum, copper, and nickel.... U.S. exports of goods and services to China... [are] only about 1% of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch.... This development alone has already subtracted about 0.3% from U.S. GDP.... Another concern comes from financial linkages.... I don't know what the ultimate implications for the U.S. of a significant recession in China would be. But things I don't know cause me to worry.

          If we take the current shock to oil-patch investment of 0.3% of GDP to be half the shock from China, right now the shock from China is one-quarter of the 2005-2007 shock from the housing market that the U.S. economy was adjusting to and shrugging off without much difficulty until the financial crisis began the collapse of Wall Street. Thus, IMHO, the major lesson of 2005-7 is that for the macroeconomy it is finance and only finance--plus the ability of the government to react properly and in a timely fashion--that matters. A sectoral shock one-quarter as large as 2005-7, or indeed one-sixth as large as 1999-2001, ought not to matter much at all.

          J. Bradford DeLong on September 27, 2015 at 06:55 PM in Economics: Finance, Economics: Macro, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink

          https://www.quandl.com/collections/economics/gdp-as-share-of-world-gdp-at-ppp-by-country

          In the US prior to the bursting of the housing bubble in 2006, residential fixed investment had grown 6.6%, from its usual average of around 5%. That seems relatively small, but a collapse in that one market and its layers of overvalued derivatives led to a broader US collapse.

          https://research.stlouisfed.org/fred2/graph/?g=1xJ2

          So China is a larger component of the global economy now than US housing investment was in 2006. That wouldn't matter much for the rest of us is China were isolated from foreign investment. But China overtook the US this year as the number one spot for foreign direct investment.

          http://www.bbc.com/news/business-31052566

          Maybe the world has learned from the global financial crisis, and larger capital requirements and other regulatory measures are protecting us better than they did in 2007/8. But these facts all seem relevant, and I would like to see some analysis of the situation from a systemic financial risk perspective.

          Dan Kervick said...

          By the way, this quote utterly depresses me:

          "That, at least, is the lesson I draw from 2005-2007. As long as aggregate demand is properly managed, a decentralized market economy is a wonderfully flexible thing. It can and does adjust swiftly to even big sectoral shocks."

          If that is the main lesson you have taken away for 2005-07, then God help us all. Count me now as officially terrified that the neoliberal techno-democrats, under Hillary Clinton and her 20th century retro machine, are going to take the White House again in 2017.

          I hope the view is nice, at least, from inside your rectum.

          jonathan said...

          The obvious counterpoint is that from August 2007 to August 2008, the Federal Funds rate fell 300 basis points. This monetary stimulus was likely responsible for the rise in exports and non-residential investment, and thus the stability of aggregate demand. The Fed doesn't have such an ability to offset negative AD shocks today.

          [Very true--but the rest of the government does...]

          jorgensen said in reply to Dan Kervick...

          Dan, what lesson do you say should have been learned from 2005-2007 (I thought that main lesson was that the Bush tax cuts were a very, bad housing bubble producing, policy.)

          T said...

          Brad -
          The level of certainty in your tone is , er, troubling.

          And it's odd coming from you after you bravely admitted that you completely missed the financial crisis and still can't explain the effects of NAFTA.

          It could well be that the macro boys will be furiously modelling international linkages just like they're trying to incorporate a financial sector if this all heads south. Best to stay humble on this China stuff. And you'd think you'd have started to figure out the distributional effects baked into the neoliberal agenda by now. Maybe that's one item you can add to the year end mea culpa list.

          jorgensen said in reply to Dan Kervick...

          China may be sixteen per cent of the world economy but most of that will be produced and consumed in China and a huge drop might be hard on China but not directly effect the U.S. very much.

          Canada, Australia and Brazil are going to be much harder hit than the U.S. There may be some feed through effects - Canadian revenues from resources drop so its imports from the United States have to fall but most of the pain will be felt in Canada and American consumers benefit from lower commodity prices (lumber, copper, oil, steel).

          We don't know how big the financial effects might be. We have reason to suspect that the Chinese financial system is a house of cards. But we know that China has been exporting massive amounts of capital for years so the amount of foreign exposure to the Chinese financial system should be limited.

          I think that the biggest risk to America from China is not financial contagion or some diminution of China as a market for American goods and services but rather that a slowing China will become even more hyper-competitive than it already was in global markets for manufactured goods.

          jorgensen said in reply to Dan Kervick...

          "China's economy might be relatively small, but it's share of the global economy is now over 16%."

          As an afterthought - the 16% is calculated at purchasing power parity which will probably inflate the relative importance of China in world trade.

          Robert Waldmann said...

          I have to say that I don't find strong support for your view in your graph. Up until December 2007, it shows huge increases in non-residential investment and exports balancing the decline in residential investment and government purchases,but for example is not solid statistical analysis. It seems to me equally possible that there was a strange coincidence causing aggregate demand to remain roughly constant from the peak of the housing bubble through December 2007.

          In particular, I don't see the magic of the market in the increase in US exports (I see insane fluctuations in exchange rates which were obviously unpredictable since I didn't predict them).

          As you note, the case of 2001 is another example, but that really looks to me like a housing bubble coming to the rescue after the dot com bubble burst. I don't know what bubble, if any, will protect the US from a Chinese recession.

          Also, you seem to be discussing the actually existing USA, yet you discuss the hypothetical ability of "the government to react properly and in a timely fashion". That's the same government which might or might not be open for business on Thursday. I don't see how any discussion of the US government maybe, possibly, conceivably reacting properly has any relevance to the real world.

          Dan Kervick said...

          Jorgenson, in my opinion, the housing bubble was over a decade in the making and grew from overly-liberalized financial conditions that were put in place in the decade before that. And the housing bubble is only part of a larger, secular credit bubble that lead to an unsustainable rise in private debt to GDP. The surge in private indenturing and indebtedness goes hand in hand with the ongoing destruction of the social contract in the US, an obscene and decadent widening of inequality, the explosion of corporate power, the bloating of the financial sector of that corporate economy, and the erosion of the public sector as a coordinating driver of economic policy and long-term planning and public investment strategies.

          Brad is an intellectual stakeholder in the economic philosophies of the administration for which he worked. He has become notorious - in my mind at least - for his blithe conviction that nothing is really wrong with the prevailing order other than some bad short-term technocratic management decisions in the (unexplained by him) implosion of much of the US financial sector in 2007/8. As much as I like him personally, I have zero interest in his brand of neoliberal political economy being given another crack at things.

          I don't belong to a political party, and regard most of the economic policy of past 40 years as a mistake.

          Kansas Jack said...

          BDL, but you end by saying, "plus the ability of the government to react properly and in a timely fashion–that matters." BUT!! That is, to me, the key of it all. For what happens in the case of a commodity market slowdown -- even if it is a smaller share than Hamilton believes as you argue-- that we have governments who cannot react properly. Markets that spiral downward because the fiscal managers in Congress see no reason to intervene -- nay, believe it is morally wrong to do so and further believe that it means we ought to tighten our belts-- has a bigger multiplier than I think you are suggesting. So, while I agree with you that China OUGHT not to be a big deal, I think politics today makes is a VERY big deal. Why am I wrong about that?

          jorgensen said in reply to Dan Kervick...

          Dan

          I agree that financial deregulation of the late 1990s was a mistake. I believe it to have been founded on a rather naive blindness (or corrupt looking the other way) on how many people in the financial industry are stupid or dishonest or both.

          I see the housing bubble itself as a reaction to the Bush tax cut and the dot com bubble bursting - in 2003 people had money to invest and thought houses were safer than stocks.

          Financial deregulation enabled the housing bubble by making it easier for fraud to go undetected but did not itself cause the bubble.

          Pinkybum said in reply to jorgensen...

          No the lesson was that deregulation of the financial industry forced the banks to give loans to people who could not repay them. Less government regulation is really more in the deranged right-wing world.

          claudius said...

          The crash in 2008 came from large financial institutions realizing that their collateral, hedges, and reserves were actually worthless. Lehman gone and AIG bankrupt, and the house of cards falls over.

          So the only relevant question is, is there still a house of cards on wall st that will go tumbling down with the first stiff breeze?

          In 1998 and 1995, there were major economic collapses elsewhere, with no major negative wall st impacts (LTCM aside). Are we back in 1998 with a robust system, or 2008 with a fragile system?

          With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle).

          Thomas More said...

          Dan is unfortunately correct.

          Let's sort out specifically what's wrong with Brad's analysis:

          [1] The collapse in housing investment wasn't isolated. It was closely connected to the huge bubble in the stock market, much of which consisted of fraudulent mortgage-backed securities which were sold in tranches to investors as low-risk, but were actually extremely high risk.

          [2] We need to recall that as late as late 2008 economists like Brad were still claiming that because the subprime mortgage market constituted only 5% of the total housing market, the broader economy was in no danger of collapse even if the subprime mortgage market imploded. Clearly neoliberal economists like Brad did not recognize that the huge amount of leverage created in the financial markets by the subprime mortgage securities generated an enormously sensitive and unstable financial situation in which a very small collapse in one sector could ripple outward nonlinearly to create a huge cascade of financial and housing collapses.

          [3] Brad appears to base his reasoning on normative macro models. Those work well for equilibrium conditions in the markets. Normal macro models use linearized equations to model a system with relatively small shocks. If we want to get technical, the equations are typically linear ordinary differential equations with small Reynolds numbers. The problem is that since circa the mid-1990s the world has experienced extremely non-normal macroeconomic conditions. How so? Well, in 1991 the USSR imploded and turned capitalist, releasing some 800 million workers in the former communist countries. In 1989, the Tiananmen uprising forced Chinese leadership to pivot to a capitalist economic system, releasing some 1.3 billion workers. Together, the collapse of the USSR + China's switch to capitalism increased the global labor market by circa 60%. This exerted a tremendous shock on labor prices -- to put it technically, the Reynolds number became very very big. Adding in the gigantic shadow banking sector, which ballooned under Clinton/Bush deregulation to a size that dwarfed the regular financial sector, and include the exponential growth of bizarrely complex financial instruments like CDOs, and the equations themselves became nonlinear, because very small changes in a CDO could potentially produce enormous financial losses. Cap it off with the fact that the ex-physicists designing all the complex financial derivatives using computers themselves often did not know what the financial derivatives would do under boundary (extreme) conditions. You get a chaotic financial system not well modeled by linear equations.

          What's the upshot of Brad's faulty reasoning here?

          First: the underlying conditions creating financial bubbles and huge nonlinearities in the financial system have not been fixed.

          "The Dodd-Frank legislation does not reform Wall Street. Rather it preserves the system that existed prior to the 2008 crisis, according to Martin Wolf of the Financial Times of London. According to former Treasury Secretary Tim Geithner, "The goal of financial reform was to make the system safe for failure. It wasn't to prevent the failure of individual firms that take on too much risk, but to make the aftershocks of failure less threatening to the system as a whole." Most importantly, Dodd-Frank amended the Federal Reserve Act of 1913 to prohibit the central bank from bailing out an insolvent financial institution on the verge of bankruptcy. It can only lend or inject capital if the bank is solvent. According to Harvard economist Larry Summers the Fed is simply not capable of understanding even when a member bank becomes insolvent.

          "The Fed's monetary policy model at present does not take into consideration any factual or numerical input from events either in domestic financial markets or global markets. This lack of input means the Fed will always have trouble spotting a bubble that is developing out of speculation in the financial or commodity markets." ["The Ten Reasons Why There Will Be Another Systemic Financial Crisis," Forbes magazine, op. cit.]

          Second: in 2007, America suffered from a single subprime real estate bubble and huge numbers of risky investments in the form of derivatives. Today, in 2015, America suffers from four different financial bubbles: the college loan bubble, the real estate rental-backed securities bubble, a second tech bubble, and a subprime auto loan bubble. Plus, in 2015 the deregulations and opportunities for fraud in the financial markets have *still* not been fixed. Viz., Gramm-Leach-Bliley repealing the Glass-Steagall act has still not been repealed.

          These statements are well documented and noncontroversial. Let's start with the fragility of today's financial markets, unchanged since 2007:

          "A major factor in the last crisis was, of course, the rapid growth of low-quality mortgages. Between 2000 and 2006, the combination of subprime and Alt-A loans rapidly grew their share of mortgage originations. Since the crisis, subprime alone has fallen from a peak of more than 20% of originations in 2006 to roughly 0.3% as of 2014. However, the spigot has opened elsewhere. Auto loans have grown rapidly to $970 billion. Through the middle of 2014, about 29% of all the securities based on auto loans to individuals were classified subprime, and defaults are now rising. Student loans are not broken out by quality (i.e., subprime), but there are two issues with them that are important to note. First, they have grown rapidly to $1.36 trillion. Moreover, as graduates and younger people are having a difficult time entering the work force, delinquencies on student loans in repayment are an estimated 27.3%. As it happens, the Federal government owns $883 billion (65%) of the student loans, so defaults will lead to more government bond issuances and, ultimately, more inflation." ["Are we headed for another financial crisis?" CFA institute, 11 June 2015]

          "No one understands the derivative risk positions of the Too Big To Fail Banks, JP Morgan Chase, Citigroup, Bank of America, Goldman Sachs or Morgan Stanley. There is presently no way to measure the risks involved in the leverage, quantity of collateral, or stability of counter-parties for these major institutions. To me personally they are big black holes capable of potential wrack and ruin. Without access to confidential internal data about these risky derivative positions the regulators cannot react in a timely and measured fashion to block the threat to financial stability, according to a National Bureau of Economic Research study." ["Another Financial Crisis Is Inevitable, Promises The Fed Vice Chairman," Forbes, 19 July 2014]

          We could go on to mention the enormous growth in high-speed trading which firms themselves can't predict and don't understand, ever larger disruptions as a result of these automated trading systems, including the "flash crash," but the point is clear: lack of transparency, the skyrocketing growth of the shadow banking system with its complex derivative financial instruments, and the failure to regulate or break up the "too big to fail" banks have resulted in a financial system _more_ fragile today than it was in 2007.

          As for the college loan bubble, see "The scary reality of the student loan bubble in 5 charts." The rate of increase in student debt compared to inflation is now worse than at the peak of the subprime mortgage bubble, total student loans are now larger than the total outstanding amount of U.S. credit card debt:
          http://moneymorning.com/2013/03/05/the-scary-reality-of-the-student-loan-bubble-in-5-charts/

          As for the rental-back mortgage securities housing boom, see the following:

          "Analyst: Housing bubble not a question of if but when - As in, when is it going to implode?"
          http://www.housingwire.com/articles/33970-analyst-housing-bubble-not-a-question-of-if-but-when

          "Here's what's driving up housing prices," CNN money, 4 May 2015.

          "`Price increases -- even in the most desirable places -- can't continue to outstrip income growth forever,' said Keith Gumbinger, vice president of HSH.com. `At some point, no one will be able to afford a home.'"

          http://money.cnn.com/2015/05/04/real_estate/real-estate-housing-bubble/

          "Housing Market's Foundations Crack - Sales of New and Existing Homes Look Less Than Inspiring," Wall Street Journal, 29 December 2014.

          "California Housing Market Cracks in Two, Top End Goes Crazy," Wolf Richter, 26 November 2014. The median price for a house in San Francisco is now $661,000: the median price for a house in San Diego is $520,000. For comparison, at the peak of the last real estate bubble the median price for a house in San Diego was $650,000 and San Francisco has now surpassed its previous median price peak at the top of the bubble.

          As for the second tech bubble, see the article "Bubble 2.0?" techcrunch website, 16 May 2015. Fed chair Janet Yellen recently warned about this:

          "Federal Reserve Chairwoman Janet Yellen weighed in on the prospects of an equity bubble at a meeting with International Monetary Fund Director Christine Lagarde earlier this month. The danger warnings beat to the drums of Mark Cuban's worse than 2000 prediction because the tech sector was singled out as the asset class with overinflated valuation.

          "A quick glance at the NASDAQ Composite Index's breach of the infamous 5000 would seem to support these claims."

          As for subprime auto loans. see the article "Next subprime bubble to burst: auto loans," New York Post, 7 February 2015.
          http://nypost.com/2015/02/07/next-subprime-bubble-to-burst-auto-sales/

          Third: there has been no progress in forcing transparency on the global shadow banking system since 2007. As a result, the economists at the Federal Reserve (and economists like Professor DeLong) are not even able to estimate the size and nature of financial risk in the shadow banking markets.

          "Nor does the Fed have any oversight powers over the Shadow Banking System, which amounts to $75 trillion worldwide of financial activities by non-banks that in 2008 triggered runs on the system that threatened its stability. Shadow banking, which runs the gamut from money market mutual funds to short term repurchase financing agreements, commercial paper and other aspects of investment banking, are activities that can trigger panicky runs on the financial system. Shadow banking is also inherently fragile due to the lack of a central bank safety net or the deposit insurance that supports bank deposits. The whole inter-relationship between shadow banking and traditional banking is not very well understood. In short, shadow banking increases the likelihood that systemic risk will be triggered from the breakdown and gaps that exist between it and traditional banking." ["The Ten Reasons Why There Will Be Another Systemic Financial Crisis," Forbes magazine, op. cit.]

          Given this evidence, it becomes incumbent on a reasonable observer to ask -- on what basis does Brad issue his confident claim that a small downturn in China will not produce a nonlinear ripple effect leading to the bursting of one or more of these new 2015 financial bubbles and a subsequent crash of the whole U.S. economy?

          Did Brad predict the bursting of the last financial bubble? Was he even aware that it existed?

          Economists like Professor DeLong seem to believe that the current financial system is perfectly fine and that only slight tinkering around the edges is needed to keep everything shipshape. By contrast, other people like Nassim Taleb have been warning about financial black swan events for a number of years. Given the track record of events since the year 2000, which of these two groups should we believe?

          jorgensen said in reply to claudius...

          "With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle). "

          With 700 trillion in outstanding derivatives we don't know where the risks are and neither do the banks or the regulators. One mistake in one spreadsheet could sweep away all the big banks in the world.

          Another Scott said...
          By the end of 2007, about $400 billion/year--2.5% of GDP--of spending on residential construction that had been there in 2005 was no longer. Yet the U.S. economy was not in recession.

          I know you and Dean Baker have gone round-and-round about this, but I'm confused as to why you don't seem to agree on the scale of the problem.

          In CEPR's Housing Bubble Fact Sheet from July 2005 he says:

          5. The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession.

          Housing construction is equal to approximately 5 percent of GDP. Construction of new homes has been going on at a near-record pace over the last few years, in response to the run-up in housing prices. Home construction could easily fall back 40 percent (this was the drop off in the 1981-82 recession), which would imply a direct loss in demand equal to 2 percentage points of GDP.

          In addition, the large wealth effect associated with the housing bubble, which has spurred a consumption boom in the last few years, will go into reverse as housing prices plummet. Research from the Federal Reserve Board shows that a dollar in additional housing wealth leads to 4 to 6 cents of annual consumption. This implies that a loss of $5 trillion in housing wealth would lead to a decline in annual consumption of between $200 billion and $300 billion. This loss in consumption is equivalent to 1.6 to 2.5 percentage points of GDP.

          Combining the 2 percentage point drop in demand due to a falloff in housing construction with the 1.6 to 2.5 percentage point drop in demand due to the reversal of the housing bubble's wealth effect leads to a falloff in demand of between 3.6 and 4.5 percentage points of GDP. If employment fell in the same proportion, this would imply the loss of between 5.0 million and 6.3 million jobs. Since the federal government is already running a large deficit, and the country is running a very large trade deficit, the government's ability to use fiscal and monetary policy to boost the economy out of the recession will be severely restricted.

          That seems to me to be a cogent prediction of what actually happened, though actually on the low side (8.8 M jobs were lost according to Google). But since there were still 2 years before the implosion, I can cut him a little slack on that. ;-)

          Are you ignoring the "wealth effect" that he talks about? Or is your argument that the timing shows that the bursting of the housing bubble didn't correspond to the start of the Great Recession?

          I think the timing can be explained as simply the fact that normal people knew that the bubble was deflating (I recall seeing new construction in-fill developments in my area listed for $1.4M and not going anywhere, then being listed at $1.0M a few months later....), but thought that it wasn't going to affect *themselves* before they could refinance or sell. Remember everyone talking about a "soft landing"? We were still saturated with "Flip this House" TV shows (which premiered in July 2005)and "refinance now!" TV ads until the day Lehman collapsed. And probably even later.

          And the banksters were doing everything they could to keep their earnings inflated so they could keep collecting their fat bonuses. When they finally couldn't hide their housing losses any more, that's when the dominoes finally started tumbling (Countrywide, AIG, Lehman, etc., etc.). But it all goes back to the housing bubble.

          Cheers,
          Scott.

          [Sep 28, 2015] Exuberance and Disappoin4tment at Shell's About-Face in the Arctic

          Looks like Shell wants to wait out the period of low oil prices, cutting investments to bare minimum.
          "... More than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a deep dive into a state savings account. ..."
          Sep 28, 2015 | The New York Times

          In Alaska, Shell's announcement that it would suspend drilling in the Chukchi Sea after a test well showed less promise than hoped for was one more blow to a state where energy-tax revenues - which pay for most of the budget - are drying up as prices and production have fallen. More than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a deep dive into a state savings account. The Trans-Alaska Pipeline that made the state rich after its completion in the 1970s is pumping only a quarter of its oil capacity.

          "It's tough times," said Kara Moriarty, the president of the Alaska Oil and Gas Association, who said that rumors of layoffs in the next few weeks or months, in both the corporate offices of oil companies in Anchorage and in the drilling fields, were flying everywhere. "It's an incredibly sobering day," she added.

          [Sep 28, 2015] Shell Exits Arctic as Oil Slump Forces Industry to Retrench

          Sep 28, 2015 | The New York Times

          As oil prices have continued their steady decline this year, rig after rig has been shut down, costing thousands of jobs in the United States. Yet major oil producers have been loath to pull the plug on their most ambitious projects - the multibillion-dollar investments that form the backbone of their operations.

          Until now. On Monday, Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic - a $7 billion investment - in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.

          ... ... ...

          The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force. Companies also have retreated from less profitable fields in places like the North Sea, West Africa, and some shale prospects in Louisiana and North Dakota.

          American oil companies have decommissioned more than half of their drilling rigs over the last year, and production is beginning to drop in the United States...

          ... ... ...

          With demand dwindling, the current market of 94 million barrels a day has roughly two million barrels in surplus supply.

          Steve Projan

          This decision was not based on the test results of a single well but the current glut of oil and its depressed price and renders the expensive to get arctic oil a poor investment, for now. But I'll bet that Shell isn't giving back its lease. The (short term) losers are the Alaskan citizens who are addicted to oil money that is rapidly running out (heavens these takers might actually have to pay taxes rather than getting a check from the government).

          At least for today a modest, although probably short term, win for the environment.

          rexl, phoenix, az. 1 hour ago

          Just think what is going to happen when the price of oil goes back above one hundred dollars per barrel.


          [Sep 28, 2015] Economic impo4rtance of China

          "... China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing hasn't happened yet. ..."
          "... I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment, ..."
          "... Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending and central banking run amok are coming home to roost. ..."
          "... US QEs went into the stock market and via the carry trade into EM debt. ..."
          "... For example, gasoline and jet fuel demand in China were both up more than 20% in August year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any notion of recession. ..."
          "... India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late 1970s, the onset of deindustrialization and financialization of the US economy. The world is where the US was in the late 1970s ..."
          "... Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time. ..."
          "... Here are China's commercial inventories, just for you. They are a solid 19 mb below normal for oil, and 27 mb below for all crude and product inventories taken together. ..."
          Sep 28, 2015 | Econbrowser
          U.S. exports of goods and services to China in 2014 were $167 billion, only about 1% of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch. This means that in the absence of offsetting gains elsewhere, this development alone has already subtracted about 0.3% from U.S. GDP.

          Of course, lower commodity prices will force layoffs for oil companies and miners but leave more money in the hands of consumers. However, additional spending from that channel has been more modest than many of us were anticipating.


          Tom Warner, September 27, 2015 at 1:22 pm

          China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing hasn't happened yet.

          I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment, which was to some extent driven by wrong hopes that the Saudis would accommodate higher US output by cutting theirs. The global knock-on effects are mainly among oil producers, many of which didn't pass on the oil price drop to their domestic consumers, and many of which have reacted to falling oil prices by increasing their net energy exports.

          But the general tone of caution about China I agree with. The main effect from China globally has been to reduce prices of building materials and metals, especially iron ore.

          BC, September 27, 2015 at 5:58 pm

          Tom, WRT to China's oil imports, take a look at China's oil production, consumption, imports as a share of consumption, net imports of oil, the extent to which China is storing/hoarding oil as a share of consumption, and electricity consumption, and the aggregate suggests that the Chinese economy is growing at a fraction of the reported 7% real rate.

          JBH, September 28, 2015 at 9:03 am

          Tom: The main effect from China has been to wreak havoc on EM economies. Simultaneous with the reversal of the US dollar carry trade, this has caused an increasing number of EMs to tilt toward recession. EMs (ex China) have the largest ppt contribution to global growth this recovery.

          When the locomotive slows, the train slows. EM currencies are plunging. To support them, monetary policies are being tightened. Much EM corporate and sovereign debt is denominated in dollars. Hence the need to support currencies to service debt and stave off default.

          Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending and central banking run amok are coming home to roost. Since 2014:Q1, the net export contribution to real GDP has been minus 0.6%. Another leg down coming. The daisy-chain from EMs to the US is multi-stemmed real and financial. Growing fissures in the financial system are the worry. US QEs went into the stock market and via the carry trade into EM debt. All this is unwinding, as it was always going to. Promises to become known the Great Unwind.

          BC, September 27, 2015 at 1:23 pm

          What must be understood is that China's "miracle" was not an organic process but one "made in the USA" (and in part Japan), in that US supranational firms have invested (via offshoring in search of labor arbitrage) trillions of dollars since the 1980s-90s, resulting in a scale and rate of growth per capita in China that otherwise would not have occurred.

          US and Japanese FDI peaked in 2011-13 and began contracting in the past year or so, not coincidentally when China's "exports" (largely from US and Japanese firms' production of components, intermediate goods, and finished goods) and goods-producing sectors began to contract.

          Since 2013, China's labor force has been contracting. Along with reported wage growth, contracting production, M1 and M2 growing 9-13%, and money supply at ~195-200% of GDP, China's productivity is growing no faster than ~1%. Then, at a population growth rate of 0.5%, in aggregate, China's real potential GDP per capita hereafter is effectively 0%, which is the post-2007 average trend rate (new normal of secular stagnation) for the US, EZ, and Japan.

          This outcome was never in doubt, as it was implied by the precedent of the middle-income trap, excessive debt to GDP, and the demographic drag effects China is now experiencing, as is occurring for the countries that make up 70-75% of world GDP.

          Moreover, under these conditions, it should be no surprise that growth of trade has peaked and begun contracting, as the US-China "trade" flows made up the largest share of global "trade" for what I refer to as the Anglo-American imperial trade regime, which is not unlike that of Britain from the 1870s-80s to WW I.

          Now with the onset of the cumulative, self-reinforcing effects of Peak Oil, record debt to GDP coinciding with unprecedented asset bubbles to GDP, hyper-financialization of the economy (net flows to the financial sector absorbing all output), population overshoot, climate change, low labor share, decelerating productivity, extreme wealth and income inequality, decelerating money velocity, and fiscal constraints, the world faces the new normal/neutral of global secular stagnation, which is likely to be further entrained by another global deflationary recession and bear market possibly underway.

          Tweaking tax, fiscal, and monetary policies under the foregoing conditions will make little difference. The assumptions and policies that were deemed appropriate during the inflationary and reflationary regimes of the Long Wave will be rendered ineffective or irrelevant during the current debt-deflationary regime. The primary causes of the malaise are demographics, low labor share, too much debt, overvalued assets hoarded by the top 1-10% at zero velocity, and extreme inequality exacerbating the effects on capital formation and productivity (and growth of profits) from low labor share and excessive debt.

          Until debt is forgiven sufficiently and labor share/purchasing power increases (by higher wages or lower or no regressive taxation on earned income) for the bottom 80-90%, the secular stagnation will persist and its effects worsen until a crisis that risks the collapse of the mass-consumer economy and of the institutions that depend on growth of the economy per capita.

          It's "different this time", but apparently most eCONomists don't know it, don't know why it's different and the implications, or they aren't paid to tell us.

          Steven Kopits, September 27, 2015 at 3:06 pm

          For those interested, please find the first edition of my China Tracker here: http://www.prienga.com/blog/2015/9/27/china-tracker-sept-2015

          The evidence suggests that China most likely has been suffering the side-effects of an over-valued yuan since Q3 2014. Such a situation would benefit importers and consumers and hurt exporters and producers. And it has.

          For example, gasoline and jet fuel demand in China were both up more than 20% in August year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any notion of recession.

          On the other hand, the Chinese have resisted devaluing the yuan in line with the won, yen or Euro, and so China's competitiveness has substantially eroded, and that's clearly visible in capital flows, exports, and industrial production. In principle, if China devalues, the demand for Nikes and oil should ease off a bit, and exporters should be revitalized.

          I would add that China's private debt-to-GDP ratio is very high, indeed, at levels associated with financial crisis in many other countries historically. However, the proximate issue in China is the exchange rate. We would get a better sense of the state of the underlying economy once that issue is addressed.

          Find more in the Tracker.

          BC, September 28, 2015 at 6:49 am

          Jeffrey, I suspect that the "Limits to Growth" (LTG) to global real GDP per capita from Peak Oil, falling GNE, population overshoot, etc., will force a decline in demand for oil imports in China and India as trade slumps and real GDP per capita decelerates to 0%.

          India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late 1970s, the onset of deindustrialization and financialization of the US economy. The world is where the US was in the late 1970s, i.e., peak industrialization. India is 40-45 to 80+ years too late to industrialization, and China's growth has peaked and will decelerate to ~0% real per capita.

          The oil/commodities cycle is contracting, implying $20-$30 oil in the years ahead.

          That fits with the ongoing decline per capita for US oil production (now at the level of the late 1940s) as the log-linear US oil depletion regime inexorably continues. Despite the fastest 5- and 9-year rates of US oil production since 1927-30, the shale boom/bubble is but a blip for the long-term US oil depletion regime per capita.

          At the long-term trend rate of US oil depletion, US oil production per capita will have declined by 50% since 1970 by no later than the early 2020s; however, the 50% threshold could occur sooner were another global deflationary recession to occur, which appears increasingly likely. In fact, as little as a decline in US oil production to 8-8.2Mbd in the next 3-5 years will achieve the 50% decline per capita. I suspect that we will see the 50% per-capita threshold exceeded before 2020.

          And we know what the implications are for when the US reaches and sustains 50% oil depletion per capita. The structural effects have already begun to occur with real GDP per capita since 2007-08 averaging barely faster than ~0% for the US, EZ, and Japan, and now for China's real potential GDP. No amount of QE, ZIRP in perpetuity, and unprecedented asset bubbles can reverse the inexorable US depletion regime and its effects of real GDP per capita.

          Neither will wind and solar (renewable energy or RE) make much of a difference during the remaining oil depletion regime's descent. In fact, growth of wind and solar has likely peaked with the price of oil and will follow the oil cycle into negative growth in the years ahead. In effect, given Peak Oil and LTG, we cannot afford to grow real GDP per capita AND build out RE to necessary scale AND maintain the fossil fuel infrastructure indefinitely hereafter. Something has to give and it will be growth of real GDP per capita and the RE build-out.

          As a result, we are likely to experience a last-man-standing contest between the West and China for the world's remaining vital resources of finite planet Earth.

          Jeffrey J. Brown, September 28, 2015 at 4:15 am

          Through 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that appears to have continued in 2014 (complete data not yet available from EIA). GNE fell from 46 MMBPD (million barrels per day) in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids). The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.

          Here are the mathematical facts of life regarding net exports:

          Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.

          In addition, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

          For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

          Jeffrey J. Brown September 28, 2015 at 3:48 pm

          Minor correction: In 2013, India's total petroleum liquids production + other liquids production was 25% of total liquids consumption, China's was 42%.

          Jeffrey J. Brown September 28, 2015 at 6:57 am

          Interesting article on Saudi Arabia:

          The collapse of Saudi Arabia is inevitable

          http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679

          Steven Kopits September 28, 2015 at 12:23 pm

          Here's a bit I wrote on oil prices and Arab unrest. Interestingly, unrest seems more correlated with high oil prices, rather than low prices.

          Keep in mind, the Saudi fiscal model went to hell after 1983, and particularly after the big oil price drop from Feb. 1986–and this at a time when they were pumping only 3 mbpd. And yet the monarchy survived.

          It's not entirely clear that low oil prices lead to revolution.

          http://www.prienga.com/blog/2014/12/1/arab-unrest-linked-to-oil-price-spikes-not-price-collapses

          And by the way (speaking of being quoted), I should be on NPR's Marketplace again tonight.

          Steven Kopits September 28, 2015 at 7:32 am

          Do you ever have a cheery day, BC?

          Here are China's commercial inventories, just for you. They are a solid 19 mb below normal for oil, and 27 mb below for all crude and product inventories taken together.

          BC September 28, 2015 at 1:08 pm

          Thanks, Steven, but what's "normal" WRT inventories going forward? Do your data account for tanker oil storage?

          China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output," the IEA said in a report on Sept. 11.

          What if "normal" for 2011-14 is well above the trend rate of growth of demand hereafter?

          What is the source of your data? Thanks.

          Cheers!

          Ricardo September 28, 2015 at 4:56 am

          The Professor wrote:

          "I've long believed that to understand business cycles we need to consider not just net flows but also gross interdependencies. A downturn in China will affect some businesses much more than others. If specialized labor and capital do not easily move to other sectors, that can end up having significant multiplier effects.

          Professor,

          Thank you once again for a bit of reason in your analysis. Krugman as the leaders of the far-left Progressive economists leads so many astray with his ultra-aggregate economics.

          Excellent article!

          Steven Kopits September 28, 2015 at 8:36 am

          "Demand out of China [for Apple iPhone 6s] looks white-hot," Ives said.

          http://news.yahoo.com/apple-reports-record-sales-iphone-6-6s-plus-124914752–finance.html

          Doesn't really scream recession, does it. It sure screams over-valued currency, though.

          [Sep 28, 2015] No shelter for U.S. stocks as trapped global investors flail

          After spectacular rise there should be spectacular fail. the neoliberal mechanism of redistributing wealth up in full swing. And I thin S&P500 is below 200 days average just for 21 day.
          "... Plenty more are using the 2011 panic as a guide, which would mean a drop below 1750. ..."
          Sep 28, 2015 | finance.yahoo.com

          The twelve-month average level of the S&P 500 has dropped for two straight months, something that has only happened twice since 1995 – both as bear markets got underway.

          ... ... ...

          So many people are assuming the S&P 500 must at least "re-test" its August low of 1867, down more than 3% from here, it might be tempting to take the other side.

          Plenty more are using the 2011 panic as a guide, which would mean a drop below 1750. Now that we have Congressional dysfunction and a threatened debt-ceiling standoff on the radar, maybe traders are over-extrapolating the similarities.

          [Sep 27, 2015] Argentina vs vulture funds

          "... The Argentine government managed to restructure about 93% of that debt through heavily discounted bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted bonds for new securities, and they have hounded Argentina in courts across the globe for close to a decade seeking full repayment. ..."
          Sep 27, 2015 | marknesop.wordpress.com

          et Al, September 26, 2015 at 1:44 pm

          http://blogs.wsj.com/moneybeat/2014/06/30/argentina-vs-bondholders-the-epic-saga/

          The Argentine government managed to restructure about 93% of that debt through heavily discounted bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted bonds for new securities, and they have hounded Argentina in courts across the globe for close to a decade seeking full repayment.

          https://en.wikipedia.org/wiki/Argentine_debt_restructuring

          As part of the restructuring process, Argentina drafted agreements in which repayments would be handled through a New York corporation and governed by United States law. The holdout bondholders found themselves unable to seize Argentine sovereign assets in settlement, but realized that Argentina had omitted to provide for holdout situations and had instead deemed all bonds repayable on pari passu (equal) terms that prevented preferential treatment among bondholders. The holdout bondholders therefore sought, and won, an injunction in 2014 that prohibited Argentina from repaying the 93% of bonds that had been renegotiated, unless they simultaneously paid the 7% holdouts their full amount due as well. Together with the agreement's Rights Upon Future Offers ("RUFO") clause, this created a deadlock in which the 93% of renegotiated bondholders could not be paid without paying the 7% holdouts, but any payment to the holdouts would potentially (according to Argentina) trigger the 93% being due repayment at full value too; a sum of around $100 billion which Argentina could not afford.[6] The courts ruled that as Argentina had itself drafted the agreement, and chosen the terms it wished to propose, it could not now claim the terms were unreasonable or unfair, and that this could not be worked around by asserting sovereign status since the injunction did not affect sovereign assets, but simply ruled that Argentina must not give preferential treatment of any group of bondholders over any other group when making repayments.

          …NML Capital Limited, a Cayman Islands-based offshore unit of Paul Singer's Elliott Management Corporation, purchased many holdings in 2008, paying an estimated USD49 million for one series of bonds whose face value was over USD220 million;[22] with the subsequent boom in Argentine bond values, this face value grew to USD832 million by 2014.[26] They in turn established the American Task Force Argentina lobbying group against Argentine bond restructuring efforts,[19] and sued to enjoin Argentina's ongoing payments to the bondholders who had participated in the earlier restructurings.[2]
          ####

          Nothing can stop red blooded capitalists! I suspect that death is but a minor inconvenience.

          https://www.youtube.com/watch?v=fhw9qvoxKMM

          https://youtu.be/IXKEKQ8vU28

          ucgsblog, September 26, 2015 at 1:55 pm

          And this is what awaits Ukraine. Welcome to Capitalism Kiev, please read the small font. Oh, you don't read? Wonderful! We shall have a good time doing business together! How much for Dnepropetrovsk?

          Warren, September 26, 2015 at 2:24 pm

          These hold-out creditors aren't called fondo buitre for nothing!!!!!

          [Sep 27, 2015] Ukraine was downgraded to default

          "... the inept idiots in Kiev borrowed from whomever they wanted, including a group that helped push Argentina into near bankruptcy. ..."
          "... "If Aurelius also refuses to take part, the bonds it holds will remain in default, potentially allowing the hedge fund to chase Ukraine in courts in London and elsewhere. "That bond will remain out there like some of the Argentine debt. Ukraine will remain in default," Nomura strategist Tim Ash said, although he noted that Ukraine had fewer assets than Argentina for hedge funds to seize." ..."
          "... the judges in the US ruled in favor of the hedge fund over Argentina, so there's clear precedent ..."
          Sep 27, 2015 | marknesop.wordpress.com
          ucgsblog, September 26, 2015 at 12:55 pm
          Time for Financial News. As a result of the Gas/Oil Wars, Russia pulled ahead, because Putin used the money intended for recapitalization of the gas/oil industry, to recapitalize the gas/oil industry. Some in the West are shocked at that, firmly believing that he was supposed to steal the money. Ah yes, the power of believing in your own propaganda.

          In other news, Ukraine was downgraded to default: https://www.rt.com/business/316521-standardpoors-ukraine-selective-default/

          Why you ask? Because the inept idiots in Kiev borrowed from whomever they wanted, including a group that helped push Argentina into near bankruptcy. And now they're about to do the same to Ukraine: http://www.buenosairesherald.com/article/199119/%E2%80%98vulture%E2%80%99-fund-aurelius-targets-ukraine-debt

          "If Aurelius also refuses to take part, the bonds it holds will remain in default, potentially allowing the hedge fund to chase Ukraine in courts in London and elsewhere. "That bond will remain out there like some of the Argentine debt. Ukraine will remain in default," Nomura strategist Tim Ash said, although he noted that Ukraine had fewer assets than Argentina for hedge funds to seize."

          Oh yeah, the judges in the US ruled in favor of the hedge fund over Argentina, so there's clear precedent. Whoopsie. The reason this looks really bad, is that there are no good solutions out of this. If Ukraine defaults, it'll be stuck permanently on the teat of the US/EU, as I predicted in June: https://ucgsblog.wordpress.com/2014/06/09/the-box-not-seen/

          If the judges flip flop, Argentina will have a clear cut case against the hedge funds, pushing Obama into a battle with the hedge funds, when they have the Republicans on their side. If Obama pays this hedge fund, Franklin-Templeton will demand the same exact treatment, adding to Obama's sentiment as the Debt King of the United States. Not to mention that Congress wouldn't authorize that big a sum. There are no good options of out this, for either Poroshenko or Obama. To quote Gordon: "da, cheburashke ne vezet"

          [Sep 27, 2015] Where Will 78 Million Boomers Retire Facing the Challenge of Aging in Place

          They will be selling their 401K assets. Who will buy them?
          Sep 27, 2015 | finance.yahoo.com

          With roughly 78 million baby boomers at or near retirement and average life expectancies climbing, many independent-minded seniors are resisting the pressure to move to often costly retirement communities or assisted living facilities and are instead making plans to stay at home.

          [Sep 27, 2015] How Russia and Iran Plan to Push Oil Prices Back above $100

          Notable quotes:
          "... And in turn, Remove the United States as a Superpower in the Middle East ..."
          "... The bigger story however has not been the fighting but the subterfuge which was ignored by the Western mainstream media with regards to an economic war against Russia and Syria has been quite successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC ..."
          "... This indiscreet economic and political war on Russia might have been perceived as a clever method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact on Western economies and enough to help the Wests Middle East petro partners. ..."
          "... The idea is a not so subtle message to the United States and Saudi Arabia; if you continue to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back into your lap for your nation to deal with it. ..."
          "... Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed. ..."
          "... Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda to its north thus there is a high probability that terrorist units will have little trouble penetrating deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over $100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and Russia the opportunity for their forces to act in support of such an offensive in a peace keeping role is viable, usurping the U.S. hegemony in the region. ..."
          "... The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning. Now the incompetency of their strategy may soon backfire and impact their economies far more severely than Russias, leaving a greater vacuum of power on the world stage; a void which will be filled by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative peace. ..."
          Sep 27, 2015 | johngaltfla.com
          September 27, 2015 | Shenandoah

          And in turn, Remove the United States as a Superpower in the Middle East

          On post super blood moon Monday, Vladimir Putin will be meeting with President Obama to discuss the ISIS crisis in the Middle East. There are many within the U.S. media who are promoting this meeting as some strange idea that the Russians are about to ask the Americans for help against ISIS. While there might be a small gnat's hair bit of truth to this, in reality, Putin is about to dictate terms and the United States is ill prepared to deal with the consequences.

          In 2014, I penned a piece reflecting the true reason ISIS was created so that the Arabian sheikdoms could establish pipelines through Iraq and Syri a to permanently shift Europe's dependency on Russian oil and natural gas over to their own private market where they can re-assert control over the world market price. The problem is that Russia failed to see the US, British, and Arab point of view and offered what they thought was enough support to block ISIS from overthrowing Bashir Al-Assad and keep this dream from becoming reality.

          ... ... ...

          The bigger story however has not been the fighting but the subterfuge which was ignored by the Western mainstream media with regards to an economic war against Russia and Syria has been quite successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC as of Friday, 9/25 ):

          This indiscreet economic and political war on Russia might have been perceived as a clever method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact on Western economies and enough to help the West's Middle East petro partners.

          ... ... ...

          The Middle East is aflame right now and the economic situation along with terrorist Islamist ideologues have exported their problems into Europe with a massive migration of millions of refugees from Syria, Jordan, Libya, and Iraq. Mixed within these people are numerous terrorist operatives as was promised by ISIS and Al Qaeda years ago but ignored by the naive European Union. The future problems this will create are another story but the question has been promoted by some in the United States asking why the Arab nations of the Arabian Peninsula have not taken any of the refugees. That answer is obvious; their economies and domestic political situations are so tentative and fragile that an influx of millions of new residents would probably tip nations like Kuwait and Saudi Arabia closer to full blown civil war within their own borders.

          ... ... ...

          The idea is a not so subtle message to the United States and Saudi Arabia; if you continue to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back into your lap for your nation to deal with it. By later on this year and early next year their should be sufficient forces on the ground in Syria and Iraq to push the ISIS militants into a meat grinder, eventually cutting them off from their northern forces somewhere in north central Iraq. Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed.

          Meanwhile in the southern part of Iraq, ISIS will be left unchecked for a short duration and eventually pushed into Saudi Arabia and the GCC states, to let the sponsors of this terrorist army deal with the problems they funded and created. The brilliance of this strategy by the new alliance of Egypt, Russia, Iran, Iraq, and Syria (which may soon include Jordan) is obvious; the return of the malcontents who will feel betrayed by the House of Saud and other various sheikdoms of the region will create domestic instability and as a result the destruction wrought on Iraq's oil infrastructure will now become a GCC problem.

          Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda to its north thus there is a high probability that terrorist units will have little trouble penetrating deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over $100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and Russia the opportunity for their forces to act in support of such an offensive in a "peace keeping" role is viable, usurping the U.S. hegemony in the region.

          The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning. Now the incompetency of their strategy may soon backfire and impact their economies far more severely than Russia's, leaving a greater vacuum of power on the world stage; a void which will be filled by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative peace.

          [Sep 27, 2015] Wall Street braces for grim third quarter earnings season

          Sep 27, 2015 | finance.yahoo.com
          Forecasts for third-quarter S&P 500 earnings now call for a 3.9% decline from a year ago, based on Thomson Reuters data...

          [Sep 27, 2015] Shiller Stocks and housing are overvalued-- here's what to do about it

          Sep 27, 2015 | finance.yahoo.com

          The correction in August brought the market down ten percent," Shiller says. "But it's halfway back up. It's still looking pretty frothy."

          Shiller adds that his valuation confidence index, known as the CAPE ratio, is far above the historical norm of 17. The ratio, which compares current stock prices to earnings over a ten-year period, currently measures 24.5, near the peak it reached before the financial crisis in 2007.

          "On top of that, I have survey data showing that [a high percentage of] people think the market is overpriced," he says. "This this creates a little bit of fear that there could be a correction. When we saw the correction in August of this year, there was some anxiety thrown into people's hearts."

          [Sep 27, 2015] A Few Less Obvious Answers on What is Wrong with Macroeconomics

          "... ...IMF Survey ..."
          "... there ..."
          "... There is no and never has been "economics". Only political economy. That means that neoliberal "Flat Earth Theories" will be enforced, by force if necessary. ..."
          "... Blanchard is a pro system guy. A maintainer not a disrupter. When he lauds the thousand schools cacophony, it's simply to spread caution about government macro engineering ..."
          Sep 27, 2015 | economistsview.typepad.com
          Sep 26, 2015 | Economist's View

          From an interview with Olivier Blanchard:

          ...IMF Survey: In pushing the envelope, you also hosted three major Rethinking Macroeconomics conferences. What were the key insights and what are the key concerns on the macroeconomic front?

          Blanchard:

          Let me start with the obvious answer: That mainstream macroeconomics had taken the financial system for granted. The typical macro treatment of finance was a set of arbitrage equations, under the assumption that we did not need to look at who was doing what on Wall Street. That turned out to be badly wrong.

          But let me give you a few less obvious answers:

          The financial crisis raises a potentially existential crisis for macroeconomics. Practical macro is based on the assumption that there are fairly stable aggregate relations, so we do not need to keep track of each individual, firm, or financial institution-that we do not need to understand the details of the micro plumbing. We have learned that the plumbing, especially the financial plumbing, matters: the same aggregates can hide serious macro problems. How do we do macro then?

          As a result of the crisis, a hundred intellectual flowers are blooming. Some are very old flowers: Hyman Minsky's financial instability hypothesis. Kaldorian models of growth and inequality. Some propositions that would have been considered anathema in the past are being proposed by "serious" economists: For example, monetary financing of the fiscal deficit. Some fundamental assumptions are being challenged, for example the clean separation between cycles and trends: Hysteresis is making a comeback. Some of the econometric tools, based on a vision of the world as being stationary around a trend, are being challenged. This is all for the best.

          Finally, there is a clear swing of the pendulum away from markets towards government intervention, be it macro prudential tools, capital controls, etc. Most macroeconomists are now solidly in a second best world. But this shift is happening with a twist-that is, with much skepticism about the efficiency of government intervention. ...

          pgl said...

          "That mainstream macroeconomics had taken the financial system for granted. The typical macro treatment of finance was a set of arbitrage equations, under the assumption that we did not need to look at who was doing what on Wall Street. That turned out to be badly wrong."

          Ah yes - the Efficient Markets Hypothesis (EMH). Nice academic theory but Wall Street exists because they are deviations from EMH. And the scale of operations there - even the slightest deviation can generate huge profits for them. And when the rest of us are not careful - huge costs to the rest of the world.

          It is not that these deviations are not known and how to address the downsides of them are that complicated. What is complicated is making sure Congress and not and paid for by the Wall Street crowd. Dodd-Frank was a nice start. It is a same that our expert on everything - Rusty - has joined in the chorus to get rid of Dodd-Frank.

          RC AKA Darryl, Ron said in reply to djb...

          "now its getting spooky"

          [Welcome to my world. I have always been ahead of trend, but usually by several decades rather than just a few hours :<)

          I would venture that you don't know the half of it yet. Let me elucidate.]

          "...Olivier Blanchard will step down as Economic Counsellor and Director of the IMF's Research Department at the end of September.

          He will join the Peterson Institute for International Economics in October as the first C. Fred Bergsten senior fellow, a post named for the founder of the influential 35-year-old, Washington-based think tank..."

          [Now tell me how that you can imagine anyone to be more mainstream status quo establishment than that in the general spectrum of academic research and study economics? The plot thickens. Like I said earlier today, we have been solidly in a Second Best world practically since FDR died from the perspective of economics as a socio-political discipline exercised for the common good in any manner discernible by the wage class.

          The social expression of our anxiety and grief post-2008 is being played out in compartmentalized parallel tracts organized by socio-economic class. We are experiencing denial, anger, bargaining, depression and acceptance all at once now. Since the crisis was caused by the conservative agenda of financial innovation and deregulation then they are expressing most of the denial. People that lost their jobs and homes are expressing much of the anger, but a threatened white male population deeply invested in the emotional capital of white supremacy and chauvinism is even louder in their anger (and they are having a Tea Party to get to know each other and celebrate being white men). Elites are doing the bargaining because they really don't want to lose establishment control to populists. Folk that still don't have a job or a home are expressing the depression. Finally most people that do have a home and a job that do not fall into any of the other groups are expressing the acceptance.

          Me? I recently got laid off, but was lucky enough having just turned 66 that with six years service credit taken from my severance benefits added to my pension plus what little I had in 457 and 401 plans then I could retire and still pay my bills including four more years of mortgage and HELOC payments. So, I am a bit cash strapped presently but have time to work on some projects. I have been waiting to get the establishment on the ropes for nearly fifty years. So, I am not healing from grief. I have been released and am looking for an opportunity to get the establishment on its intellectual ropes.

          I thought it was getting spooky when I first began to learn about mainstream economic thought regarding capital gains windfalls, corporate mergers, and financial "innovation" in the mid-sixties. For the first time in my life I am beginning to see a tiny glimmer of it starting to get real.]

          JohnH said...

          "Mainstream macroeconomics had taken the financial system for granted."

          It's actually worse than that. Mainstream macroeconomics willfully ignores the impact of rising asset prices on inequality, democracy, and power dynamics between the 1% and the rest.

          Cui bono from their willful negligence? The powerful and wealthy, of course!

          Amateur said...

          I'm a fan of Olivier.

          The leaders of the IMF were in a unique position to see new insights into our macro problems because they are largely caused by the globalization of capital flows and labor.

          I think he's getting there, but I suspect the old frameworks are still going to be an impediment to mainstream economic thinking.

          I'm glad to hear there are more people that we might be aware of that are rethinking macro in this context.

          Dan Kervick said...

          "The plumbing matters."

          Yes, that's it. I hope that is the main lesson the economics profession takes away from the current crisis. It would be nice if we get a new generation of practitioners who think a bit more like engineers and technicians, and less like mathematical physicists.

          Paul Mathis

          "Some propositions that would have been considered anathema in the past are being proposed by "serious" economists: For example, monetary financing of the fiscal deficit."

          Wasn't Keynes a "serious" economist? Monetary financing of the fiscal deficit was his idea 80 years ago. Today's economists are just getting the message.

          likbez said...

          There is no and never has been "economics". Only political economy. That means that neoliberal "Flat Earth Theories" will be enforced, by force if necessary.

          greg said...

          Pathetic half measures. No need to question any of the fundamental assumptions underlying the whole sorry mess, eh? Like what is money, really? Or: How does the production of the various sectors actually combine to create value in the whole economy?

          Matt Young said...

          Macroeconomists are not up to speed? How long has this been going on? Ever since the Kanosian dandy from England. Sick, sick and fraudulent science.

          RC AKA Darryl, Ron said in reply to djb...

          That is a good start. You just need to get the context switch straight and then you may find yourself in an epiphany (metaphorically speaking). Likbez up thread touches another live wire, but lacks faith in democratic alternatives. Shocking!

          Larry said...

          No mention of the end of the ZLB? Of NGDP targeting? Of the missing trade-off between inflation and unemployment? Of the abject failures of governments/CBs to respond to the crisis and restore normal times? Of new levers such as reverse repos, QE and IoER? Maybe the excerpt was ill-chosen...

          Davis X. Machina said in reply to Larry...

          "Of the abject failures of governments/CBs to respond to the crisis and restore normal times?"

          "Normal" for whom, and at whose expense?

          Squint just right, and this *is* normal.

          Paine said...

          Blanchard is a pro system guy. A maintainer not a disrupter. When he lauds the thousand schools cacophony, it's simply to spread caution about government macro engineering

          We've recently learned doing the right sorts of interventions but too cautiously.
          Works more like " Let the markets correct themselves "

          We need to isolate those who try by various means to minimize state intervention

          ... ... ...

          [Sep 27, 2015] Cash flows beat stocks for first time since 1990

          Sep 27, 2015 | finance.yahoo.com

          Investors piled into cash-equivalent, money-market funds over the last week, making the asset class more popular than bond and equity funds for the first time in 25 years, new data shows.

          Some $17 billion was pumped into cash funds in the week to Wednesday, while $3.3 billion where pulled out of stocks through ETFs and mutual funds, according to research from Bank of America Merrill Lynch and EPFR Global published Friday.

          Meanwhile bond funds saw just $400 million in inflows over the same period, meaning cash is outperforming both asset classes this year for the first time since 1990, the data reveals.

          Money market funds invest in very short-term, liquid debt such as U.S. Treasurys and offer investors low volatility, meaning they are often thought of as a cash-equivalent.

          Corporate bonds saw their twelfth straight week of outflows, with safe-haven Treasury bond funds picking up some of the slack.

          Global chief investment officer at UBS Wealth management, Mark Haefele has cut his U.S. high-yield corporate bond position this month, having been overweight the asset class since the end of 2011.

          ... ... ...

          As well as sticking to cash, investors pulled $7.4 billion from the State Street's SPDR S&P 500 ETF (NYSE Arca: SPY), the world's largest ETF.

          [Sep 27, 2015] Paul Craig Roberts Warns The Entire World May Go Down The Tubes Together

          The problem with Paul Craig Roberts thinking is that China and Russia are also neoliberal economies which exist within global financial system, controlled from Washington. But this not a typical ZeroHedge "dooms day porn". He manages to make some relevant observations about the current situation, without he definitely underestimates the resilience of the American financial empire.
          "... Submitted by Paul Craig Roberts, ..."
          "... China is America's largest creditor after the Federal Reserve. If the Chinese government were so inclined, China could cause Washington many serious economic, financial, and military problems. Yet China pursues peace while Washington issues threats. ..."
          "... he Wolfowitz Doctrine states that Washington's principal objective is to prevent the rise of countries that could be sufficiently powerful to resist American hegemony. Thus, Washington's attack on Russia via Ukraine and Washington's re-militarization of Japan as an instrument against China, despite the strong opposition of 80 percent of the Japanese population. ..."
          "... Afghanistan, Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Benin, Bosnia/Herzegovina, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Cote d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Ghana, Greece, Guinea, Guyana, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, South Korea, Kyrgyzstan, Laos, Latvia, Liberia, Lithuania, Luxembourg, Macedonia, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Mongolia, Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Tanzania, Timor-Leste, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, UK, Uzbekistan, Venezuela, Vietnam, and Yemen. ..."
          "... neoliberal economics is blind to reality and serves to justify the destruction of the economic prospects of the Western World. It remains to be seen if Russia and China can develop a different economics or whether these rising superpowers will fall victim to the "junk economics" that has destroyed the West. ..."
          "... With so many Chinese and Russian economists educated in the US [neoliberal] tradition, the prospects of Russia and China might not be any better than ours. ..."
          Sep 27, 2015 | Zero Hedge
          Submitted by Paul Craig Roberts,

          Washington's IQ follows the Fed's interest rate - it is negative. Washington is a black hole into which all sanity is sucked out of government deliberations.

          Washington's failures are everywhere visible. We can see the failures in Washington's wars and in Washington's approach to China and Russia.

          The visit of Chinese President Xi Jinping, was scheduled for the week-end following the Pope's visit to Washington. Was this Washington's way of demoting China's status by having its president play second fiddle to the Pope? The President of China is here for week-end news coverage? Why didn't Obama just tell him to go to hell?

          Washington's cyber incompetence and inability to maintain cyber security is being blamed on China. The day before Xi Jinping's arrival in Washington, the White House press secretary warmed up President Jinping's visit by announcing that Obama might threaten China with financial sanctions.

          And not to miss an opportunity to threaten or insult the President of China, the US Secretary of Commerce fired off a warning that the Obama regime was too unhappy with China's business practices for the Chinese president to expect a smooth meeting in Washington.

          In contrast, when Obama visited China, the Chinese government treated him with politeness and respect.

          China is America's largest creditor after the Federal Reserve. If the Chinese government were so inclined, China could cause Washington many serious economic, financial, and military problems. Yet China pursues peace while Washington issues threats.

          Like China, Russia, too, has a foreign policy independent of Washington's, and it is the independence of their foreign policies that puts China and Russia on the outs with Washington.

          Washington considers countries with independent foreign policies to be threats. Libya, Iraq, and Syria had independent foreign policies. Washington has destroyed two of the three and is working on the third. Iran, Russia, and China have independent foreign policies. Consequently, Washington sees these countries as threats and portrays them to the American people as such.

          Russia's President Vladimir Putin will meet with Obama next week at the UN meeting in New York. It is a meeting that seems destined to go nowhere. Putin wants to offer Obama Russian help in defeating ISIS, but Obama wants to use ISIS to overthrow Syrian President Assad, install a puppet government, and throw Russia out of its only Mediterranean seaport at Tartus, Syria. Obama wants to press Putin to hand over Russian Crimea and the break-away republics that refuse to submit to the Russophobic government that Washington has installed in Kiev.

          Despite Washington's hostility, Xi Jinping and Putin continue to try to work with Washington even at the risk of being humiliated in the eyes of their peoples. How many slights, accusations, and names (such as "the new Hitler") can Putin and Xi Jinping accept before losing face at home? How can they lead if their peoples feel the shame inflicted on their leaders by Washington?

          Xi Jinping and Putin are clearly men of peace. Are they deluded or are they making every effort to save the world from the final war?

          One has to assume that Putin and Xi Jinping are aware of the Wolfowitz Doctrine, the basis of US foreign and military policies, but perhaps they cannot believe that anything so audaciously absurd can be real. In brief, the Wolfowitz Doctrine states that Washington's principal objective is to prevent the rise of countries that could be sufficiently powerful to resist American hegemony. Thus, Washington's attack on Russia via Ukraine and Washington's re-militarization of Japan as an instrument against China, despite the strong opposition of 80 percent of the Japanese population.

          "Democracy?" "Washington's hegemony don't need no stinkin' democracy," declares Washington's puppet ruler of Japan as he, as Washington's faithful servant, over-rides the vast majority of the Japanese population.

          Meanwhile, the real basis of US power-its economy-continues to crumble. Middle class jobs have disappeared by the millions. US infrastructure is crumbling. Young American women, overwhelmed with student debts, rent, and transportation costs, and nothing but lowly-paid part-time jobs, post on Internet sites their pleas to be made mistresses of men with sufficient means to help them with their bills. This is the image of a Third World country.

          In 2004 I predicted in a nationally televised conference in Washington, DC, that the US would be a Third World country in 20 years. Noam Chomsky says we are already there now in 2015. Here is a recent quote from Chomsky:

          "Look around the country. This country is falling apart. Even when you come back from Argentina to the United States it looks like a third world country, and when you come back from Europe even more so. The infrastructure is collapsing. Nothing works. The transportation system doesn't work. The health system is a total scandal–twice the per capita cost of other countries and not very good outcomes. Point by point. The schools are declining . . ."

          Another indication of a third world country is large inequality in the distribution of income and wealth. https://www.cia.gov/library/publications/the-world-factbook/fields/2172.... ">According to the CIA itself, the United States now has one of the worst distributions of income of all countries in the world. The distribution of income in the US is worse than in Afghanistan, Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Benin, Bosnia/Herzegovina, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Cote d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Ghana, Greece, Guinea, Guyana, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, South Korea, Kyrgyzstan, Laos, Latvia, Liberia, Lithuania, Luxembourg, Macedonia, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Mongolia, Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Tanzania, Timor-Leste, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, UK, Uzbekistan, Venezuela, Vietnam, and Yemen.

          The concentration of US income and wealth in the hands of the very rich is a new development in my lifetime. I ascribe it to two things.

          One is the offshoring of American jobs. Offshoring moved high productivity, high-value-added American jobs to countries where the excess supply of labor results in wages well below labor's contribution to the value of output. The lower labor costs abroad transform what had been higher American wages and salaries and, thereby, US household incomes, into corporate profits, bonuses for corporate executives, and capital gains for shareholders, and in the dismantling of the ladders of upward mobility that had made the US an "opportunity society."

          The other cause of the extreme inequality that now prevails in the US is what Michael Hudson calls the financialization of the economy that permits banks to redirect income away from driving the economy to the payment of interest in service of debt issued by the banks.

          Both of these developments maximize income and wealth for the One Percent at the expense of the population and economy.

          As Michael Hudson and I have discovered, neoliberal economics is blind to reality and serves to justify the destruction of the economic prospects of the Western World. It remains to be seen if Russia and China can develop a different economics or whether these rising superpowers will fall victim to the "junk economics" that has destroyed the West.

          With so many Chinese and Russian economists educated in the US [neoliberal] tradition, the prospects of Russia and China might not be any better than ours.

          The entire world could go down the tubes together.

          Oh regional Indian

          PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once a DC insider" gravitas...

          And while there will be a lot of going down together (seems un-avoidable at this point), questions is who will rise back up first?

          Hint: not nations considered "westerley". so to speak...

          UndroppedClanger

          'Leader' implies people at the front with some direction. Perhaps a different word would be more appropriate for this global circlejerk cadre!

          ToSoft4Truth

          The inverse of 'Leader' is 'follower'

          Anytime you hear a person say, "There's no leadership"…. They are telegraphing to you, "I need someone to follow."

          kaiserhoff

          So Chomsky would rather live in Argentina?

          Who's stopping him?

          ebear

          "I was once a DC insider"

          You don't understand. I coulda had class. I coulda been a contender.

          philipat

          "You don't understand. I coulda had class. I coulda been a contender."

          I do think that there is large dose of spite in PCR's writings, probably as a result of "The Establishment's" refusal to elect him to the CFR. However, better late than never? The one's that do get religion always do so after the event, which is, of course, part of the problem also....


          Bach's_bitch

          PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once a DC insider" gravitas...

          "Kabuki story-lines"? Did you make that up yourself or something?

          questions is who will rise back up first?

          Whoever is least affected, meaning none of the big economies.

          Oh regional Indian

          I don't think you appreciate the subtle push of an old adage: The bigger they are, the harder they fall. You can keep nursing dreams of manifest destiny as they turn into mani-festering realities....

          Jeffersonian Liberal

          Any nations or ethnicities that have benefitted from parasiting on this failed, corrupt monetary system will also fall together.

          The BRICS are sinking like stones. They tried to parasite off what they saw was an unending Western economic boom, unrealizing, or perhaps turning a blind eye to the fact that it has all been a bubble since the central banks took control of the currency.

          TheEndIsNear

          I doubt that American Generals could be bribed as easily as our government politicians.

          Thick Willy

          Actually, they are probably much cheaper to bribe. Dimon had to give Eric Holder a $77,000,000 per year salary to keep bankers out of prison. The generals are easily bribed with a mid 6 figure salary at some defense contractor. Some for even less.

          algol_dog

          I Strongly encourage people to read Mish's short blog and then check out the accompanying video. It will enlighten much more about China than this guys rant.

          http://globaleconomicanalysis.blogspot.com/2015/09/how-us-corporations-c...


          [Sep 27, 2015] Kiev professes itself "satisfied" with the gas price deal

          Sep 27, 2015 | marknesop.wordpress.com

          marknesop, September 25, 2015 at 12:34 pm

          Kiev professes itself "satisfied" with the gas price negotiated in the deal, in which the fact that Ukraine's gas supply will be entirely paid for by Europe is spun as a victory for Naftogaz and Demchysin personally, after he wrestled Russia into submission and made them drop their prices.

          "As customers, we're interested in a lower price". Dear God, you could laugh until you died. As customers who have to beg our boss for money because we're broke, we're interested in at least the appearance of being in control of something. Anything.

          marknesop, September 25, 2015 at 3:22 pm
          Ha, ha, ha!! If you were thinking "Nord Stream II in Ukrainian Perspective" could be summarized as "Wahhhh!!! I Went Crazy And Now Russia Won't Talk To Me!" crackpottery, you would be right.

          Standout points are (1) Raising transit fees is normal procedure when transit volumes drop, and (2) Ukraine's transit system will register a net loss if transit drops below 40 BCm a year. The volume in 2015, while Ukraine is still being used as a transit country, is expected to top out at 51 BCm.

          I would say the writing is on the wall there, and the message does not…ummm…look positive for Ukraine. You pissed in the pickles one time too often. Notably, however, although some of the reduced transit volume is due to Europe taking less gas, a stronger limiting factor is more gas being sent through Nord Stream. You can see why Europe was desperate to stop South Stream, and why it is now trying out a tough-guy approach as if it can force Russia to continue using Ukraine as a transit country, to a background of despairing wails from Ukraine.

          [Sep 26, 2015] Full text of Pope Francis speech before Congress

          Notable quotes:
          "... A political society endures when it seeks, as a vocation, to satisfy common needs by stimulating the growth of all its members, especially those in situations of greater vulnerability or risk. ..."
          "... All of us are quite aware of, and deeply worried by, the disturbing social and political situation of the world today. Our world is increasingly a place of violent conflict, hatred and brutal atrocities, committed even in the name of God and of religion. ..."
          "... We are asked to summon the courage and the intelligence to resolve today's many geopolitical and economic crises. Even in the developed world, the effects of unjust structures and actions are all too apparent. ..."
          "... If politics must truly be at the service of the human person, it follows that it cannot be a slave to the economy and finance. ..."
          "... At the risk of oversimplifying, we might say that we live in a culture which pressures young people not to start a family, because they lack possibilities for the future. Yet this same culture presents others with so many options that they too are dissuaded from starting a family ..."
          Sep 26, 2015 | UPI.com

          ... ... ...

          Each son or daughter of a given country has a mission, a personal and social responsibility. Your own responsibility as members of Congress is to enable this country, by your legislative activity, to grow as a nation. You are the face of its people, their representatives. You are called to defend and preserve the dignity of your fellow citizens in the tireless and demanding pursuit of the common good, for this is the chief aim of all politics. A political society endures when it seeks, as a vocation, to satisfy common needs by stimulating the growth of all its members, especially those in situations of greater vulnerability or risk. Legislative activity is always based on care for the people. To this you have been invited, called and convened by those who elected you.

          ... ... ...

          All of us are quite aware of, and deeply worried by, the disturbing social and political situation of the world today. Our world is increasingly a place of violent conflict, hatred and brutal atrocities, committed even in the name of God and of religion. We know that no religion is immune from forms of individual delusion or ideological extremism. This means that we must be especially attentive to every type of fundamentalism, whether religious or of any other kind. A delicate balance is required to combat violence perpetrated in the name of a religion, an ideology or an economic system, while also safeguarding religious freedom, intellectual freedom and individual freedoms. But there is another temptation which we must especially guard against: the simplistic reductionism which sees only good or evil; or, if you will, the righteous and sinners. The contemporary world, with its open wounds which affect so many of our brothers and sisters, demands that we confront every form of polarization which would divide it into these two camps. We know that in the attempt to be freed of the enemy without, we can be tempted to feed the enemy within. To imitate the hatred and violence of tyrants and murderers is the best way to take their place. That is something which you, as a people, reject.

          ...We are asked to summon the courage and the intelligence to resolve today's many geopolitical and economic crises. Even in the developed world, the effects of unjust structures and actions are all too apparent. Our efforts must aim at restoring hope, righting wrongs, maintaining commitments and thus promoting the well-being of individuals and of peoples. We must move forward together, as one, in a renewed spirit of fraternity and solidarity, cooperating generously for the common good.

          The challenges facing us today call for a renewal of that spirit of cooperation, which has accomplished so much good throughout the history of the United States. The complexity, the gravity and the urgency of these challenges demand that we pool our resources and talents, and resolve to support one another, with respect for our differences and our convictions of conscience.

          In this land, the various religious denominations have greatly contributed to building and strengthening society. It is important that today, as in the past, the voice of faith continue to be heard, for it is a voice of fraternity and love, which tries to bring out the best in each person and in each society. Such cooperation is a powerful resource in the battle to eliminate new global forms of slavery, born of grave injustices which can be overcome only through new policies and new forms of social consensus.

          ...If politics must truly be at the service of the human person, it follows that it cannot be a slave to the economy and finance. Politics is, instead, an expression of our compelling need to live as one, in order to build as one the greatest common good: that of a community which sacrifices particular interests in order to share, in justice and peace, its goods, its interests, its social life. I do not underestimate the difficulty that this involves, but I encourage you in this effort.

          ... ... ...

          The fight against poverty and hunger must be fought constantly and on many fronts, especially in its causes. I know that many Americans today, as in the past, are working to deal with this problem.

          It goes without saying that part of this great effort is the creation and distribution of wealth. The right use of natural resources, the proper application of technology and the harnessing of the spirit of enterprise are essential elements of an economy which seeks to be modern, inclusive and sustainable. "Business is a noble vocation, directed to producing wealth and improving the world. It can be a fruitful source of prosperity for the area in which it operates, especially if it sees the creation of jobs as an essential part of its service to the common good" (Laudato Si', 129). This common good also includes the earth, a central theme of the encyclical which I recently wrote in order to "enter into dialogue with all people about our common home" (ibid., 3). "We need a conversation which includes everyone, since the environmental challenge we are undergoing, and its human roots, concern and affect us all" (ibid., 14).

          In Laudato Si', I call for a courageous and responsible effort to "redirect our steps" (ibid., 61), and to avert the most serious effects of the environmental deterioration caused by human activity. I am convinced that we can make a difference and I have no doubt that the United States – and this Congress – have an important role to play. Now is the time for courageous actions and strategies, aimed at implementing a "culture of care" (ibid., 231) and "an integrated approach to combating poverty, restoring dignity to the excluded, and at the same time protecting nature" (ibid., 139). "We have the freedom needed to limit and direct technology" (ibid., 112); "to devise intelligent ways of . . . developing and limiting our power" (ibid., 78); and to put technology "at the service of another type of progress, one which is healthier, more human, more social, more integral" (ibid., 112). In this regard, I am confident that America's outstanding academic and research institutions can make a vital contribution in the years ahead.

          ... ... ...

          ...At the risk of oversimplifying, we might say that we live in a culture which pressures young people not to start a family, because they lack possibilities for the future. Yet this same culture presents others with so many options that they too are dissuaded from starting a family.

          ... ... ...

          [Sep 26, 2015] Paul Krugman Dewey, Cheatem Howe

          "... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
          "... The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). ..."
          Sep 26, 2015 | economistsview.typepad.com

          Economist's View

          Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
          Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.
          • Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.
          • Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

          There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

          Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

          A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

          The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

          But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

          So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

          reason

          "Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."

          That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

          reason

          "So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."

          Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

          [Sep 26, 2015] The Table Is Set For The Next Financial Crisis

          "... The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. ..."
          Sep 26, 2015 | Zero Hedge
          The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.

          The millions in upfront fees, along with their lack of conscience in bribing Moody's and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child's play compared to the last six years).

          ... ... ...

          Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled "exotic" mortgages to dupes who weren't capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.

          Once the Wall Street machine runs out of people with the financial means to purchase a home or buy a new vehicle, they turn their sights on peddling their debt products to financially illiterate dupes. There is a good reason people with credit scores below 620 are classified as sub-prime. Scores this low result from missing multiple payments on credit cards and loans, having multiple collection items or judgments and potentially having a very recent bankruptcy or foreclosure. They have low paying jobs or no job at all. They do not have the financial means to repay a large loan. Giving them a loan to purchase a $250,000 home or a $30,000 automobile will not improve their lives. They are being set up for a fall by the crooked bankers making these loans. Heads they win, tails the dupe gets kicked out of that nice house onto the street and has those nice wheels repossessed in the middle of the night.

          The subprime debacle that blew up the world in 2008 was created by the Federal Reserve, working on behalf of their Wall Street owners. When interest rates are set by central planners well below levels which would be set by the free market, based on risk and return, it creates bubbles, mal-investment, and ultimately financial system disaster. Did the Fed, Wall Street, politicians, and people learn their lesson? No. Because we bailed them out with our tax dollars and have silently stood by while they have issued $10 trillion of additional debt to solve a debt problem. The deformation of our financial system accelerates by the day.

          The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. With real median household income still 6.5% BELOW 2007 levels, 7.3% BELOW 2000 levels, and about equal to 1989 levels, the only way the ruling class could manufacture a fake recovery is by ramping up the printing presses and reigniting a housing bubble and an auto bubble. They even threw in a student loan bubble for good measure.

          ... ... ...

          The entire engineered "housing recovery" has had a suspicious smell to it all along. The true bottom occurred in 2009 with an annual rate of 4 million existing home sales. An artificial bottom of 3.5 million occurred in 2010 after the expiration of the Keynesian first time home buyer credit that lured more dupes into the market. The current rate of 5.31 million is at 2007 crash levels and on par with 2001 recession levels. With mortgage rates at record low levels for five years, this is all we got?

          What really smells is the number of actual mortgage originations that have supposedly driven this 35% increase in existing home sales. If existing home sales are at 2007 levels, how could mortgage purchase applications be 55% below 2007 levels? If existing home sales are up 35% from the 2009/2010 lows, how could mortgage purchase applications be flat since 2010?

          New home sales are up 80% from the 2010 lows, but before you get as excited as a CNBC bimbo over the "surging" new home sales, understand that new home sales are still 60% BELOW the 2005 high and 25% below the 1990 through 2000 average. So, in total, there are 1.5 million more annual home sales today than at the bottom in 2010. But mortgage originations haven't budged. That's quite a conundrum.

          As you can also see, the median price for a new home far exceeds the bubble highs of 2005. A critical thinking individual might wonder how new home sales could be down 60% from 2005, while home prices are 15% higher than they were in 2005. Don't the laws of supply and demand work anymore? The identical trend can be seen in the existing homes sales market. The median price for existing home sales of $228,700 is an all-time high, exceeding the 2005 bubble levels. Again, sales are down 30% since 2005. I wonder who is responsible for this warped chain of events?

          AlaricBalth

          This FRED chart I have posted, which corresponds with the effective Fed Funds Rate chart in the article, will show exactly what a daunting problem the the US and the Federal Reserve is being forced to deal with. I have overlaid the Labor Force Participation Rate with M2 Velocity of Money, each beginning in 1960. M2 velocity refers to how fast money passes from one holder to the next. The labor force participation rate is a measure of the share of Americans at least 16 years old who are either employed or actively looking for work. If money demand is high, it could be a sign of a robust economy, with the usual corresponding inflationary pressure.

          As you can see, each peaked around 1997-98 and have been in slow decline ever since. Unless the Fed has a plan to increase the LFPR, people are not going to be spending money they just do not have.

          Demographically, this is not going to happen. Baby boomers will still be retiring at a rate of 10,000 per day and manufacturing is never coming back to the US until we are a third world country with a cheap labor force.

          This is not an issue that can be fixed by political promises. So no matter which political party is in control, this will not be repaired with platitudes. This is a structural macro-economic phenomenon which is caused by demographics and poor long term fiscal planning.

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Vst

          TeethVillage88s

          Anyone have this video?

          Elizabeth Warren Video, Late Night with Steven Colbert, 23 Sept 2015.

          Defends Dodd-Frank and gave stats to prove the value of CFPB formed, like 650,000 complaints handled, and many changes forced on corporations.

          Edit: Looks like CBS didn't release the segment of Elizabeth Warren only, so you have to go through whole show or just the 2:00 minute segment that only shows her saying she is not running for President.

          Shame on CBS, as usual.

          http://www.cbs.com/shows/the-late-show-with-stephen-colbert/video/jUNG_y...

          Apparently I don't have the computer configured to play it anyway.

          FreedomGuy

          I do not think Wall Street and your local bankers or mortgage brokers are the bad guys here. Frankly, they look at the rules and try to make a living in the mortgage business. They are not angels but neither are they demons and I do not think they purposely write bad business.

          I think the Wizard of Evil behind the curtain is first and last the government including a GSE like the Fed. They set this stuff up. You know you can load up Freddie and Fannie with smelly stuff and off-load risk. They hold rates near historic lows so people can buy more.

          This drives prices and all the flipping crap and related stuff I hate.

          I am in the middle of this. Being an avid reader of ZH I have become a proper pessimist. I did a cash-out refi and am paying off virtually all other loans...or more properly moving them to the tax deductible home loan. I was going to rent and move north because of work but after lots of research, breathtaking price increases and a few other cautions I decided to sit it out.

          I am going to see what the economic terrain looks like in 6 months or more.

          The thing is you have to play the game as it is, today, not as you think it should be.

          marts321

          Don't hate the player, hate the game.

          TeethVillage88s

          Check out the growth of Holding companies.

          Financial Business; Credit Market Instruments; Liability, Level
          2015:Q1: 14,104.57 Billions of Dollars (+ see more)
          Quarterly, End of Period, Not Seasonally Adjusted, TCMDODFS,

          Holding Companies; Credit Market Instruments; Liability, Level
          2015:Q1: 1,380.52 Billions of Dollars (+ see more)
          Quarterly, End of Period, Not Seasonally Adjusted, CBBHCTCMDODFS,
          https://research.stlouisfed.org/fred2/series/CBBHCTCMDODFS

          U.S.-Chartered Depository Institutions; Credit Market Instruments; Liability, Level
          2015:Q1: 669.90 Billions of Dollars (+ see more)
          Quarterly, End of Period, Not Seasonally Adjusted, CBTCMDODFS,

          Now, we know that in 2007 the Biggest Wall Street banks wanted access to Deposits in the USA. So maybe I don't have the date, could have been planned from Lehman Request date to become a Deposit Bank while an Investment Bank.

          So today we have Holding Companies that are allowed to have Deposits while doing commercial and investment work and proprietary trading... and now are 30% Bigger after all the Bailouts and transfer of Taxpayer and Retirement Funds to them.

          Holding Companies have Doubled Liability since 3QTR 2007

          Wow

          TeethVillage88s

          Too Bad we don't have Honest Brokers in DOJ, FBI, SEC, FINRA, FTC, GAO, CBO, FED, Treasury, OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC

          I'm not sure how you can isolate or focus your condemnation or fault.

          • - Private & Public Pensions, Retirement Funds, Deposit Insurance, The Fact that our Wall Street Banks are Borg connecting to AI Technology,... and Complexity is increasing at an Exponential Rate meaning Risk is Exponential as well
          • - Big Concern -- pay outs for Pension Benefit Guaranty Corporation (federal Trust Fund), 1999 = $1.23 Billion, 2000 = $1.35 Billion, 2001 =$1.37 Billion. Okay, but today 2010 = $5.59 B, 2011 = $5.89 B, 2012 = $5.86 B, 2013 = $5.89 B. There is a continual need to supplement Pensions. 2010 PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)
          • - Federal direct student loan program 1999 = $52 Billion, INCREASED to 2013 = $675 Billion. (Risky)
          • - 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)
          • - 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion

          Edit: This applies, $8.16 Trillion in US Deposits

          Total Savings Deposits at all Depository Institutions
          2015-09-07: 8,164.3 Billions of Dollars (+ see more)
          Weekly, Ending Monday, Not Seasonally Adjusted, WSAVNS,
          https://research.stlouisfed.org/fred2/series/WSAVNS

          dizzyfingers

          "Sociopaths" (psychopaths) rise to the top. They are not like others. http://www.healthguidance.org/entry/15850/1/Characteristics-of-a-Sociopath.html

          EndOfDayExit

          To all hysterical critics of the FED, what do you suggest they do instead? The rich can do nothing, sit it out, the poor meanwhile will starve and die (and probably riot before they die).

          The poor need jobs. Now almost at any cost, because those jobs are few and far in between as we are competing with China. So they do ZIRP, NIRP whatever, something, anything to at least marginally force the rich to spend. For, if people do not spend there will be even less jobs…and less tax revenue collected for the government to run and distribute around… and it all starts going downhill.

          The FED is just trying to keep the system at the higher spending point. It does not seem to work very well, but the next option is a direct confiscation and redistribution of assets (to keep those poor jobless souls content). Nobody gives a f* about inequality until it becomes a riot-provoking problem itself. Ugly as it is there is actually logic in what the FED is doing.

          Batman11

          The globalists rush to take the profits in the good times but run and hide in the bad.

          Where is the profit in sorting out the bad times? In the bad times national institutions, Governments and Central Banks, get left to sort out the mess loading the costs onto national tax payers.

          When things go wrong nationalism rises as each nation is left to fend for itself. We should know how it works by now, this isn't the first time.

          • 1920s/2000s - high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase
          • 1929/2008 - Wall Street crash
          • 1930s/2010s - Global recession, currency wars, rising nationalism and extremism
          • 1940s/? - Global war

          We are nearly there with the Middle East on fire and the two nuclear super-powers at each other's throats.

          Maybe next time we will know better, third time lucky.

          mianne

          Cherry picker, I agree with you : " All our government up here has to do is get out of NATO, disband our version of the CIA, divorce Homeland Security, duty and tax all imports to the hilt, keep our water, electricity and natural resources to ourselves and manufacture our own products... Then you can have all the wars you want in the middle east and we will watch it on television without worrying about whether to be part of the murder brigade or not."

          But as for ourselves, as governed by the totalitarian EU whose representatives are non elected by people, but were chosen by the international finance tycoons ( our elected presidents deprived of any power by the supranational non elected entity, US- OTAN driven European Union), we are just powerless slaves .

          However we won the referendum ( 52 % ) against the content of the Maastricht-Lisbon European Constitution, but they do not take it into account, submitting us to the ignominious treaty . Democracy ?

          [Sep 26, 2015] Is the shale gas revolution over

          "... natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years. ..."
          "... While U.S. shale gas remained resilient through several years of low natural gas prices, the collapse in oil prices are finally putting an end to the boom. ..."
          Sep 20, 2015 | www.usatoday.com

          While everyone is watching the oil bust, there is another bust going on - one for natural gas.

          Before there was a boom in oil production in the United States, there was the "shale gas revolution." That is where we all became familiar with terms like "fracking." And the Marcellus, Haynesville, and Barnett Shales were famous long before the Bakken or Permian.

          The surge in natural gas production crashed prices, fueling a huge increase in activity in petrochemicals and causing a major switch from coal to natural gas in the electric power industry. Aside from a few brief moments (such as the winter of 2014), natural gas has mostly traded around $4 per million Btu (MMBtu) or lower since the financial crisis of 2008.

          But unlike oil, the boom in shale gas did not stop with plummeting prices. U.S. natural gas production continued to climb. For example, production from the prolific Marcellus Shale – which spans Pennsylvania, West Virginia and Ohio – skyrocketed from less than 2 billion cubic feet per day (bcf/d) in 2009, to a record-high of over 16.5 bcf/d this year. And the dramatic ramp up in production occurred over several years when prices were extremely low.

          Much of that has to do with the huge innovations in drilling techniques, including fracking and horizontal drilling, which allowed for production to remain profitable despite the downturn in prices. But some of the credit also goes to drillers searching for more lucrative natural gas liquids and crude oil. Dry natural gas is produced in association with oil. With oil prices extremely high, especially in the period between 2010 and 2014, drillers continued to produce natural gas even if they were looking for oil.

          So only after oil prices busted did natural gas production start to slow down. In fact, while the markets are eagerly watching for declines in oil production, few are noticing that natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years.

          It is no surprise that the Eagle Ford will represent the largest losses, with a decline of 117 million cubic feet per day expected in October. That is because oil is a much more prized commodity in South Texas, so the decline is largely attributable to disappearing crude oil rigs.

          While U.S. shale gas remained resilient through several years of low natural gas prices, the collapse in oil prices are finally putting an end to the boom.

          MORE:

          [Sep 25, 2015] Why Dont Commercial Bankers Understand the Interests of Their Class Fraction

          " ...As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the way DeLong expects."
          " ...A banker observes that in the last epochal economic crash, the government bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates that fraud represents an excellent business model, since it socializes all the risk of running a bank and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for fraud, there's no social risk as well as no economic risk."
          Sep 25, 2015 | www.bradford-delong.com
          Cervantes said: September 14, 2015 at 11:23 AM
          Well, I'm just a medical sociologist, so what do I know, but my bank essentially pays zero interest on deposits and charges 4.5% interest on mortgages. So they seem to be in a perfectly good place as far as I can tell.

          BruceJ -> Cervantes: September 14, 2015 at 11:48 AM

          Beat me to it. My savings interest rate is 0.1%. The bank's (actually a credit union) current 30-year mortgage rate is 4.125%, inflation right now is 0.2%. (so in real world terms I'm losing money daily on my "savings").

          By my admittedly non-R-programmed mere fingermath calculations they're making 412.5- 3=409.5 basis points on those loans, comfortably above their 300 point bar. They may not be maximizing their profits, but they're making them, and playing safe to boot.

          And so long as the 0.01% have a stranglehold on profits and wages, inflation isn't going anywhere, except, of course, for yachts and Picassos.

          Of course so long as the 0.01% have that stranglehold, not much of anything is going anywhere.

          jorgensen said: September 14, 2015 at 12:13 PM

          I do not understand Brad's faith in the magical ability of inflation to stimulate the economy.

          Jerry Brown said: September 14, 2015 at 01:57 PM

          To the extent that commercial bankers are able to exploit their very special access to the Federal Reserve, they are most certainly rentiers. At least if I am understanding that term correctly.

          Michael Finn said: September 14, 2015 at 03:55 PM

          `Brad, I don't think you get that a lot these people are not rational. These are people who think that as soon as inflation starts up then the entire bill of treasuries that the Fed has will come due.

          They actually do believe in Glenn Beck and the rest of the psychos. A man that I knew who owns several million ft^2 of timber that got rid of it because he thought inflation was coming. He liquidated everything he had and I haven't seen him since.

          These people are probably not the majority of their clients but they are definitely the LOUDEST.

          Graydon said: September 14, 2015 at 06:41 PM

          They certainly are part of the rentier class. They didn't used to be, and they shouldn't be, but iron and gold they are today.

          Banks make their money on fees; the interest rate spreads are a mere bagatelle. This is a consequence of deregulation more than it's a consequence of electronic transaction technologies.

          It's pretty darn near the power to tax; banks get a cut of the entire economy because they get at least a couple percent every time money changes hands. (Look at Square's pitch to merchants -- a consistent two-point-something percent rate for clearing credit card transactions. The bank version goes up to 10%.)

          As long as that's true, the zero lower bound is annoying, but it doesn't really affect profitability. Profitability is guaranteed by the existence of an economy.

          Graydon -> Graydon: September 14, 2015 at 06:45 PM

          And I note that it purely doesn't matter what the fees are as long as the banks don't significantly vary among themselves as to what the fees should be.

          That is, there isn't a market for commercial banking services. There's an ostensibly informal cartel.

          Max Rockbin -> BruceJ: September 14, 2015 at 11:11 PM

          I'm with you guys. This article makes no sense. What loans (of any kind really) is he seeing banks make at <3%? Even a 5/1 ARM (with points) is over 3% and most loans are fixed rate anyway.

          reason said: September 15, 2015 at 12:19 AM

          Jorgensen

          I do not understand your magical faith in inflation arriving without stimulation.

          kbis said: September 15, 2015 at 01:13 AM

          Well I'm not very sure that commercial banks are intermediaries. Not anymore. They have a far bigger role in the financial landscape: money creation. There's no intermediation involved here, just leveraged money creation on the basis of the fractional reserve.
          That's a huge role, one that private off-bank lenders cannot do.

          bakho said: September 15, 2015 at 05:26 AM

          The Fed's "official" reasoning:

          "The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public's ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling--a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term. "

          http://www.federalreserve.gov/faqs/economy_14400.htm

          I don't know why they think a higher inflation rate would make it harder to make long term decisions.

          bakho said: September 15, 2015 at 05:31 AM

          Here's Stanley Fisher:
          "It is important to keep inflation low enough so that people need not pay it any attention. At 2 percent annual inflation, a dollar loses half its value in about 36 years; at 4 percent inflation it takes about 18 years. When you start getting up to 4 percent inflation you begin to see signs of indexation coming back and a whole host of the inefficiencies and distortions. A 4 percent target a mistake."

          Rob said: September 15, 2015 at 05:33 AM

          "And commercial banks really do not want to sock their depositors with unexpected fees"

          BWAHAHAHAAHAHA!

          Wow Brad that is a good joke there! Of course banks use unexpected fees. Lock in with a bank is real. do you want to go and change your autopay every month? Banks compete for deposits on rates and "free" checking and then hit customers after lock in.

          bakho said: September 15, 2015 at 05:52 AM

          Two percent inflation might work if fiscal stimulus would reliably fill the output gap during steep recessions. Fiscal policy has proved unreliable and prone to making matters worse with austerity policy.

          Current policy seems to be driven by failed models and misinformation.

          Should the Fed make policy based on ideal fiscal policy? or the ugly reality of misguided fiscal policy?
          What are the odds of a candidate from the Clown Car stepping into the driver's seat for fiscal policy?

          bakho said: September 15, 2015 at 06:07 AM

          From Money, Banking and Financial Markets. By Laurence Ball

          Inflation and the Savings and Loan Crisis
          In the early 1960s* U.S. inflation rates averaged less than 2 percent per year. This situation appeared stable, so people expected low inflation to continue in the future. However, inflation rose rapidly in the lace 1960s and 1970s. Because actual inflation over this period was higher than expected, ex post real interest rates were lower than ex ante rates. In real terms, lenders received less from borrowers than they expected to receive when they made the loans.

          Losses to lenders were greatest for long-term loans, especially home mortgage. In 1965, the nominal interest rate on 30-year mortgage was less than 6 percent. This rate was locked in until 1995. Because inflation was expected to be less than 2 percent, the ex ante real interest rate was positive. However, the inflation rate averaged 7.8 percent over the 1970s, implying negative ex post rates.

          Negative real interest rates on mortgages were a great deal for homeowners. But they caused large losses for banks that specialized in mortgages, such as savings and loan associations. These losses were one reason for the so-called S&L crisis of the 1980s, when many savings and loans went bankrupt.

          The preceding case study illustrates a general point: uncertainty about inflation makes it risky to borrow or lend money. This is true for bank loans, and also when firms borrow by issuing bonds. In both cases, borrowers and lenders agree on a nominal interest rate but gamble on the ex post real rate. Borrowers win the gamble if inflation is higher than expected, and lenders win if inflation is lower than expected.

          Can borrowers and lenders avoid this gamble? One tool for reducing risk is inflation-indexed bonds. This type of bond guarantees a fixed ex post real interest rate. Unlike a traditional bond, it does not specify a nominal interest rate when it is issued. Instead, the nominal rate adjusts for inflation over the life of the bond, eliminating uncertainty about the real rate."

          After a decade of telling the markets that the interest rate would be 2%, the Fed does not want to change to a 4% target. ARMs and a move to 15 year largely solved the mortgage problem. However if the Fed wants tight control of the inflation rate, they can't do much about the unemployment rate unless fiscal policy cooperates. Fiscal policy has been not only uncooperative but in many cases in opposition to monetary policy.

          jorgensen -> reason: September 15, 2015 at 08:11 AM

          I don't want or expect inflation. I see no benefit flowing from inflation.

          Altoid -> jorgensen: September 15, 2015 at 09:51 AM

          If you have assets or non-fixed income, or if you're projecting returns from a capital investment, a slow and steady rise in the number that expresses the value means people can behave as though they expect larger numbers in the future. Expecting numbers that will grow, they're more likely to spend today's money on consumption goods and capital assets like houses, and more likely to make capital investments because they can project that the number used for today's investment will breed numbers that grow over whatever period they're planning for. Because people use nominal figures for almost everything in ordinary life, not real inflation-adjusted values, this tends to work.

          About 15 or so years ago the Guardian had an economic columnist, Will something iirc (Will Self? don't really remember at this point), who explained this very well. Its prime virtue is that it works in a modern economy to make people feel better and act in ways that add to measurable GDP. It's a utilitarian, not a moral, view.

          bakho -> jorgensen: September 15, 2015 at 10:59 AM

          Inflation requires wage inflation meaning both wages and prices go up.
          Deflation means downward pressure on sticky wages and sticky prices. Sticky wages mean that wages, do not deflate, instead, reduction in hours worked and increase in unemployment result. Sticky occur as businesses cannot sell below cost of production for long: price deflation leads to business failure. You want your economy managed so that relative wages and prices reset in the non-sticky direction: upward. This avoids recessions, high unemployment and broad business failure.
          Inflation must be high enough that an economic shock can be absorbed by upward relative price reset. Inflation - deflation is a continuum. All economists agree deflation should be avoided for obvious reasons. A rate of inflation that is too low is only marginally less bad than deflation.
          jorgensen -> Altoid: September 15, 2015 at 11:34 AM
          An economic policy designed to trick the middle class into over spending and under saving (by confusing nominal and real gains) is a recipe for long run disaster.

          To some extent since 2007 we have been reaping the consequences of that policy as carried out since 1980.

          jorgensen -> bakho: September 15, 2015 at 11:39 AM

          I'm in private business. In my world overall wages and prices are adjustable downward at a rate of at least two percent a year. High cost employees retire or rotate out to other jobs. Companies with high cost structures re-organize or go bankrupt and are replaced by companies with lower cost structures. There is enough natural churn in the market that downward stickiness is at worst a short term phenomenon. We are 8 years into this downturn. Downward stickiness is not the problem.

          To believe that downward sticky wages are so big a problem as to justify inflation you have to believe that there are a material number of workers who are materially over-paid at the moment and whose real wages should be cut but who do not have the bargaining power to protect themselves from inflation.

          jorgensen -> jorgensen: September 15, 2015 at 11:41 AM

          sorry I should have added: If you believe in downward sticky wages then you should be able to identify the groups of workers whose real wages should be cut and could effectively be cut through inflation.

          Thomas More said... September 15, 2015 at 03:33 PM

          As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the way DeLong expects.

          Bankers act perfectly rationally, but in ways DeLong and Krugman et al. do not expect. A banker observes that in the last epochal economic crash, the government bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates that fraud represents an excellent business model, since it socializes all the risk of running a bank and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for fraud, there's no social risk as well as no economic risk.

          Consequently your typical banker finds it much more profitable to engage in control fraud today rather than the old boring business of making sensible loans at low interest to customers who are likely to pay the money back. Identifying good credit risks in a depressed economy takes a lot of work, and the result even if successful is low profits -- a squeezed profit margin of circa 300 basis points or less, as DeLong points out. But why settle for a measley 0.3% or 0.2% or less profit, when you can make 20% or 30% or 60% profit with no economic risk and no real risk of being indicted?

          The way you make 20% or 30% or 60% as banker in 2015, obviously, is to buy up large numbers of foreclosed liar-loan houses and apartment buildings and then rent them out. Since most people can't afford a home today because they're got rotten credit and are burdened down with debt from the financial crash, rents are inflated in 2015. The bankers then aggregate speculative financial instruments based on these inflated rents and the inflated valuations of the homes and apartment buildings they've bought, and issue those speculative financial instruments as investment vehicles to a gullible public and other financial institutions desperate for decent returns on their investment capital. These bogus junk-quality financial instruments made up of shares in aggregated foreclosed properties generate income which is then used to buy more overvalued foreclosed properties which can be rented out in inflated prices, which then generate more bogus securities which then generate more income...and so on. In short, you get a vicious cycle and a real estate bubble 2.0, but this time based on buying and renting out foreclosed properties with money borrowed from investors based on fraudulent securities. As opposed to real estate bubble 1.0 -- which was based on buying and selling mortgages for newly-built homes with money borrow from investors based on fraudulent securities like CDOs etc.

          Bankers in 2015 are behaving perfectly rationally and they understand with pellucid clarity the interests of their class. They simply are doing so in ways that neoliberal technocrats like Brad DeLong can't fathom, because bankers in 2015 are continuing the very profitable control fraud of real estate bubble 1.0...but by slightly different means (renting foreclosed properties, rather then mortgaging newly built properties). The bankers correctly deduce that there is no financial or criminal penalty for this kind of control fraud, since neither Bush nor Obama showed the slightest interest in prosecuting bankers for their role in robosigning fraud in real estate bubble 1.0. And when the whole ponzi scheme goes bust this time, the government will step in and bail the banks out. In the meantime, the bankers are making bank (all puns intended) on all those fees and that sweet, sweet income stream generated from all those fake liar-loaned forelosed properties being rented out.

          So why wouldn't a banker choose to make 20% or 40% or 60% by spewing out liar-loan investment instruments based on foreclosed overvalued properties that are supposedly going to rise in value limitlessly while the rents increase every year without bound? Why would a banker ever settle for a mere 300 basis points return?
          Brad DeLong, like so many neoliberal economists, is book-smart, but not street-smart when it comes to these matters.

          Richard said: September 15, 2015 at 03:39 PM

          Graydon: I'm sorry, you're wrong. Banks make their money off of the spread, loans, and markets. Fees are a negligible amount of income.

          Brad:
          One: banks are long duration/fixed income assets. Most mortgages are fixed rate mortgages. What happens to the value of a fixed rate loan when inflation or interest rates move up? What about mortgage production?
          Two: bank executives are rich. There's no reason personally for them to cheer for inflation.

          That said, yes, an upward sloping yield curve is a commercial banker's best friend.

          In any case, I haven't seen much sentiment about rates one way or the other. Commercial banks, from what I've see, are fairly subdued about rates. The increase in regulation is another matter.

          Altoid -> jorgensen: September 15, 2015 at 08:15 PM

          So, the business world has no problem with deflation because, even though there's a consistent and ongoing squeeze between what's paid at the front end for something and what can be realized at sale time later as the secular nominal price level falls, the difference can always be made up by cutting labor costs?

          I'm having trouble understanding what the desired state is: deflation, or neither deflation nor inflation but neutrality? If neutrality is the target, we know how to dampen inflation-- by raising interest rates the requisite amount. In times of deflation, how do we move out of that toward neutrality without mirror-image negative interest rates that make people pay to hold cash? Isn't there an asymmetry? What happens then?

          ezra abrams -> Richard...

          Richard, methinks it is you who is wrong on fees
          http://www.nubank.com/downloads/ep_4qtr2004_part3_DeYoung_Rice.pdf

          but maybe above is outdated, see
          http://www.wsj.com/articles/banks-fee-bonanza-dries-up-1409699980

          [Sep 25, 2015] If a counterparty liquidates, net exposure becomes gross,"

          "... A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most." ..."
          "... unfriendly ..."
          Sep 25, 2015 | www.nakedcapitalism.com

          abynormal September 24, 2015 at 8:12 pm

          "This is the best recovery in all recorded history." Lambert

          Is GS preparing to Sacrifice the next Lehman (at zh find it yourselves')
          short list:
          It goes without saying that courtesy of HFTs and China's hard landing, a 5% drop in commodities could happen overnight.

          So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly as follows:

          ** Commodity prices drop another 5%
          ** The rating agencies get a tap on their shoulder and downgrade Glencore to Junk.
          ** Waterfall cascade of margin and collateral calls promptly liquidates Glencore's trading desk and depletes the company's cash, leaving trillions of derivative contracts in limbo. Always remember: the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates, net exposure becomes gross, and suddenly everyone starts wondering where all those "physical" commodities are.
          ** Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around the globe.
          ** Fed and global central banks are called in to come up with a "more powerful" form of stimulus
          ** The money paradrop scenario proposed by Citigroup yesterday, becomes reality

          Too far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade. If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case.
          **********************************************
          i did a 4th course on Hunger http://marketwatch666.blogspot.com/2012/11/hunger-4th-course.html (scroll down to bold red, can't miss the Glen history that we WILL NOW BE BACKSTOPPING)
          A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most."

          craazyboy September 24, 2015 at 8:22 pm

          " If a counterparty liquidates, net exposure becomes gross,"

          This is the really, really important concept. Whenever someone mentions our $600 Trillion in global derivatives, Wall Street pipes up and says that is NOMINAL. It NETS out to ZERO (minus fees).

          But yeah if the chain breaks, it is really two halves, $300 Trillion a piece. Which I think someone recently estimated is 1.5 times the dollar value of the planet. (just the $300T half) Which has me wondering where the regulators went to accounting school. But I never took accounting, so maybe it's me that's mixed up.

          abynormal September 24, 2015 at 9:33 pm

          i forgot most of my Glencore 411 is in the comments following the post…i don't think the swiss are prepared for this 'issue'

          craazyboy September 24, 2015 at 10:37 pm

          Yeah, I see you've been following this fine company for some time now. Sure, they are bigger than Swissistan. What's to worry?

          craazyboy September 24, 2015 at 8:55 pm

          Just read the full ZH article.

          The only thing I'd point out is our sophisticated financiers always say don't wait for the rating agency downgrade – because they are always last to make a move.

          Other than that, sounds about right.

          Other thing I remember in 2008 was Goldman increased broker margin requirements maybe a month or two before Lehman.

          abynormal September 24, 2015 at 9:19 pm

          ck back i got a post waiting with a link that's unfriendly…don't know why IT'S THE BIS DOT ORG…my netbk should blow up any sec

          [Sep 25, 2015] Big Business Is Economic Cancer, Part I Zero Hedge

          It is under state capitalism that TBTF can't exists. Under neoliberalism they rule the country, so the question about cutting their political power of dismantling them is simply naive. Nobody give political power without a fight.
          "... Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators". ..."
          "... There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality. ..."
          "... An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition. ..."
          "... But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks. ..."
          "... Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state. ..."
          Sep 25, 2015 | www.zerohedge.com

          Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators".

          Today we have corporate monoliths which are literally orders of magnitude larger than any remotely "optimal" size, with the ultimate and most-obvious examples being those hideously bloated financial behemoths which we now know as "the Big Banks". How ridiculously too-big have the Big Banks gotten?

          Even the most-ardent admirer of the Big Banks in the entire media world, Bloomberg, couldn't stop itself from openly salivating about how much "profit" could be had, just by beginning to chop-down the financial fraud-factory which we know as JPMorgan Chase & Co.:

          JPMorgan Chase & Co, the biggest U.S. bank by assets, would be worth 30 percent more if broken into its four business segments, an unlikely scenario, an analyst at Stifel Financial Corp.'s KBW unit said.

          Note that there is not one word in the article indicating that there couldn't be a lot more profit to be made, by then smashing those pieces into much smaller pieces still. This article simply pointed to the instant profit of 30% which would be available just by beginning to chop-down this obscenely large behemoth, and in the simplest manner possible.

          Why would "smaller" be much more valuable, in our forward-looking markets, in the case of smashing JPMorgan down-to-size (or at least beginning that process)? Obviously a major portion of that profit quotient would have to be derived from greater efficiency. Smaller is better.

          However, pointing out that even the greatest admirer/biggest cheerleader of the Big Banks has observed how we would all be better off if the Big Banks were smaller is only a start. We then come to the heinous propaganda which the cheerleaders (including Bloomberg) have dubbed "too big to fail".

          This is a very simple subject. "Too big to fail" is a pseudo-concept which is entirely antithetical to any economic system which even pretends to adhere to the principles of "free markets". Free markets demand that insolvent entities fail, it is the only way for such free markets to heal, when weakened by the misallocation of assets (such as in the case of insolvent enterprises). No business, or group of businesses could ever be "too big to fail".

          There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality.

          Understand that our own, corrupt governments embarked upon this criminal insanity long after the equally criminalized government of Japan already proved that too-big-to-fail was a failed policy. Not only could there never be an argument in favor of this criminality, our governments knew it would fail before they ever rubber-stamped this systemic corruption.

          But all of these arguments against the insanity of perverting and skewing our economies in favor of Big Business, and against Small Business pale into insignificance compared to the principal condemnation of too-Big Business: the economic "cannibals" known as monopolies and oligopolies.

          For readers unfamiliar with these terms because the Corporate media and charlatan economists try to pretend that these words don't exist, a brief refresher is in order. As most readers know, a monopoly is where a single enterprise effectively controls an entire market or sector. While a "monopoly" may be desirable when playing a board-game, in the real world these parasitic entities do nothing but blood-suck, from any/every economy they are able to "corner".

          However, the majority of people, even today, are at least partially familiar with the evils of monopolies, thus the ultra-wealthy Oligarchs rarely attempt to perpetrate their systemic theft via these corporate fronts. Instead, they perpetrate most of their organized crime via oligopolies.

          An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition.

          These corporate fronts cooperate as closely as possible in systemically plundering economies. How do monopolies/oligopolies rob from us? The "old-fashioned" way for these blood-suckers to do so was via simple price-gouging. When you have complete control over a sector/market, you can charge any price you want.

          However, not surprisingly, the Little People tend to notice when the Oligarchs use their corporate fronts to engage in simple price-gouging. They actually begin to notice the general evil which oligopolies/monopolies represent, and that is "bad for business" (i.e. crime).

          Instead, the Oligarch Thieves of the 21st century engage in their robbery-by-corporation in a different, more sophisticated/less-visible manner: via corporate welfare. What other crime can monopolies and oligopolies perpetrate, with overwhelming success? Naked extortion.

          As previously explained; "too-big-to-fail" (and now even "too big to jail") is nothing but the most-obvious and most-despicable form of corporate extortion (or simply economic terrorism): give us all the money we want, or we'll blow up the financial sector. Small banks could never perpetrate such a crime (terrorism).

          But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks.

          Typically, the extortion which precedes even more Corporate welfare, occurs in this form: give us everything we want, or we will close our factory/business, and you will (temporarily) lose those jobs. Here we don't need to imagine this in the hypothetical, as we have a particularly blatant example of such Corporate extortion/welfare, courtesy of U.S. Steel:

          U.S. Steel Canada Inc. is threatening to cease operations in Canada by the end of the year if an Ontario Superior Court judge rejects its request to stop paying municipal taxes, halt payments into pension funds, and cut off health care and other benefits to 20,000 retirees and their dependents. [emphasis mine]

          ... ... ...

          kanoli

          Like most of Jeff Nielson's rants, this one is nonsensical. If small business hires more people to produce the same product or service as a big business, they cannot do so at the same or lower price unless they are paying a lower wage.

          The problem with big business isn't that it is big - it is their tendency to lobby government for regulations that stifle small business competitors.

          If politicians were not for sale, it wouldn't matter whether a business is big or small. Neither would have undue influence on the law.

          The problem is regulatory democracy where all laws are constantly subject to fiddling by an elected legislature.

          Element

          In practice a balanced mix of all sized businesses are necessary in a planetary civilization that trades products globally. Getting the mix 'right' and not having big business get away with preventing competition, or of govt throttling to skim and micro-control is most of the deleterious effect on business, and on human beings in general.

          Unfortunately humans have been trained to like Logos, and to buy 'wants' accordingly.

          iDroned on a bit,

          2c

          newnormaleconomics

          Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state.

          The current state of the evolution of "capitalism" is its advanced, late-stage, financialized, globalized phase.

          With Peak Oil, population overshoot, unprecedented debt to wages and GDP, Limits to Growth, climate change, a record low for labor share, decelerating productivity, OBSCENE wealth and income inequality, and increasing geopolitical tensions, growth of real GDP per capita is done, which means that growth of profits, investment, and capital formation/accumulation is done, which in turn means "capitalism" is done.

          ... ... ...

          [Sep 25, 2015] Upstream oil execs agree Low, long and living within means

          "...If prices throughout the budget development season … are consistent with the current 2016 forward price of around $50/b for WTI, capital spending could be down 25%-30% for the large-cap producers" in North America"
          Sep 25, 2015 | The Barrel Blog

          •Capital spending for 2016 will be lower than in 2015 - which itself has been 35%-40% below last year and could actually come in steeper in relative cuts than that, given that some operators have further slashed 2015 outlays and may still do so.

          ... .,. ...

          Said Barclays in a report on conference takeaways: "If prices throughout the budget development season … are consistent with the current 2016 forward price of around $50/b for WTI, capital spending could be down 25%-30% for the large-cap producers" in North America.

          [Sep 25, 2015] Paul Krugman Dewey, Cheatem Howe

          The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.
          "... So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell. ..."
          "... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
          "... The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). ..."
          "... The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust. ..."
          "... Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model. ..."
          "... But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go! ..."
          "...


          ..."

          Sep 25, 2015 | Economist's View
          Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
          Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.

          Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.

          Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

          There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

          Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

          A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

          The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

          But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

          So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

          reason

          "Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."

          That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

          reason

          "So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."

          Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

          RC AKA Darryl, Ron said in reply to reason...

          YEP!

          What politicians can get away with is an artifact of the limited toolset that the electorate has to express its informed will. We need a well educated democracy and the democratic part of that requires Constitutional electoral reforms (e.g., gerrymandering, campaign finance). A bit of the educational aspect of a voting actually democratic republic would naturally work itself out with a more engaged and empowered electorate participating ACTIVELY.

          With the system as it is then it takes a shock wave through the electorate for them to throw the bums out, but there is no follow through. There is a failsafe reaction function, but no more than that except on specific social issues that get overwhelming support where politicians can move with the electoral majority at zero cost while reactionary politicians can triangulate and pander some votes from the minority opinion of those too old or set in their ways to participate in the social sea change.

          ilsm said in reply to RC AKA Darryl, Ron...

          The threat is "faith voters", dogma developed by billionaires' propaganda to plunder the world.

          DrDick said in reply to reason...

          Krugman is far too kind to the businessmen. The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust.

          DeDude said in reply to reason...

          Exactly; what we need is a detailed debate on each specific regulation. What it intends to accomplish, whether that could be accomplished in a less burdensome way, and whether the accomplishment is sufficient to justify the burden. However, that is not something that can happen in the 15 second soundbite that appears to be the attention span of the average voter.

          Lee A. Arnold said in reply to Second Best...

          Second Best: "Markets work if allowed to self regulate."

          No. Never happened, except in local instances. For self-regulation you need proper prices, and for proper prices you need proper supply and demand.

          For proper supply you need perfect competition, so there must be numerous competitors entering the same market, and this requires, among other things, almost no intellectual protection.

          For proper demand, you need perfectly informed consumers, and this is not only impossible, but it is getting far far worse, because the complexity of the world is increasing.

          The problem with state regulation is that it also falls prey to the same objections, although at a slower rate. We use votes not prices, but the same imperfection of information and lack of flexibility causes problems with the voting system.

          When you combine this problem with the increase in inequality (which was masked temporarily by World War II and the subsequent spurt of blue-collar jobs productivity), we are headed into an accelerated amelioration of the market system by greater public ownership.


          RC AKA Darryl, Ron said in reply to Lee A. Arnold...

          "Peanut butter does not kill people, people kill people."

          [If you can read a opening sentence like that and not recognize it as satirical parody, then you might want to look around to find the sense of humor that you lost. When the will of the people is no more than a euphemism for dollar democracy then parody, satire, sarcasm, and a healthy dose of cynicism are called for.]

          JF said in reply to RC AKA Darryl, Ron..

          Lee A Arnold - Think Jonathan Swift and his piece about the way to reduce subsidies for the orphaned poor infants, it is to reduce their number so we feel good about the fact that we help the few poor infants left alive.

          I reacted a few times to Second Best's comments before I recognized the satire.

          But I also have used his comments as a way to bring out the more logical, real-world of facts and rationality - so commentary helps either way. I suppose that serves 2nd Best's interests too.

          JF said in reply to JF...

          I believe the Jonathan Swift recommendations are the preferred republican-party approach to Social Security too. Really need fewer claimants, that will solve the accounting problems.

          RC AKA Darryl, Ron said in reply to Second Best...

          "Peanut butter does not kill people, people kill people. Car emissions do not kill people ... high drug prices do not kill people ... people do."

          [This is an economics blog. You cannot be that "subtle (???)" and expect people to recognize your satire. Maybe there is a humorous math equation that economists can understand. I guess economics graduate school is so boring that most people lose all sense of humor. I am glad that Krugman has kept his.]

          Richard H. Serlin said...

          "Then there's for-profit education, an industry wracked by fraud - because it's very hard for students to assess what they're getting - that leaves all too many young Americans with heavy debt burdens and no real prospect of better jobs. But Mr. Bush denounces attempts at a cleanup."

          And worse, wasting their incredibly valuable and rare young years, quite possibly their only chance before age and children make it extremely hard, not getting an education. Such a big thing. You don't do it when you're young, with the power and freedom and lack of dependents of youth, the opportunity may easily be gone forever. Such a brutal cost these predators and their Republican allies extract.

          RC AKA Darryl, Ron said in reply to Richard H. Serlin...

          https://en.wikipedia.org/wiki/College_tuition_in_the_United_States

          Cost shifting and privatization

          One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s.[10] In 2011, for the first time, American public universities took in more revenue from tuition than state funding.[9][11] Critics say the shift from state support to tuition represents an effective privatization of public higher education.[11][12] About 80 percent of American college students attend public institutions...

          bakho said...

          Economics Professors of the "free market" bent for years have indoctrinated youth with the misguided notion that "regulations are bad" and market methods, no matter how RubeGoldberg, are always better. " You don't need to regulate pollution, just put a tax on it," as an example. Even cap and trade would not work without stiff emissions regulations.

          Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model.

          ilsm said in reply to bakho...

          Sanctity of the "market"......

          I got a jar of this snake oil here too!

          The market they sell is the one that runs in Honduras

          Tom aka Rusty said...

          A couple of random observations:

          Last time I looked about 150 Dodd-Frank regs had not been written yet, some of the key ACA regs are three years late.

          Obama-ites have written some of the most complex, convoluted regs of the past 40 years, the health EMR regs have practically guaranteed a windfall for IT companies and a failure for EMR/EHR.

          No mention of the Obama-Holder "too big to prosecute doctrine."

          The new overtime regs will likely be in the "driving thumb tacks with a sledge hammer" mode.

          But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go!

          pgl said in reply to kthomas...

          Rusty wants us to believe he is the only one who understands health care so he is a persistent critic of ObamaCare. But now he wants to pretend he's the expert on financial markets too? Seriously? Dodd-Frank is complicated only because the Jamie Dimons of the world milk every opportunity to game financial markets. If Rusty thinks letting Jamie Dimon evade any financial market regulation is a good idea - he is the most clue person ever.

          DrDick said in reply to pgl...

          He was just trying to do us a favor and demonstrate exactly what is meant by "knee-jerk opposition to regulation ."

          JF said in reply to Tom aka Rusty...

          Have you ever looked at the multi-party derived hedging instruments in play now - they can hardly get more complex, and indeed most didn't understand them when they were made, and these are still complex now.

          So I have to say, that the 'marketplace' makes Krugman's point about complexity. It comes from humans cunningly doing stuff that serves their interests at the time as they see it. Not always wisdom at work here.

          But it is complex, and so regulation of such complexity, if the generally applicable rules seek some fairness (classes of people are usually affected differently) and stands a test of due process too - the regulations will also need to be complex. The complexity came first, the regulations come afterwards (after society learns of the stupidity the hard way).

          Railing about this is a form of misleading sophistry, a rhetorical device to reverse the causality.

          We can think with more foresight and regulate before the stupid complexity arises, but it does take a rational policy making environment for this exploration, discussion and policy-making to occur with good foresight - I am waiting for the new Congress in 2017.

          If the Warren-Sanders people have any influence then, we may see a whole lot less complex financial system (it's a riot when you think how the Efficient Market Hypothesis, a theoretical justification for the marketplace's range of instruments in fact led to more complexity, less real efficiency and effectiveness, and ossification of the system when it needed to be resilient but stable as a well-behaved system can be).

          We will probably be better off after the 2017 debates. After all, this community of actors are only intermediaries on behalf of real productive outcomes truly needed by society - right, they are just intermediaries? How much inter-mediation does the economy need?

          david s said...

          The Obama Administration has been friendlier to corporate America than W's was.

          http://theweek.com/speedreads/454963/matt-taibbi-bush-far-tougher-than-obama-corporate-america

          im1dc said...

          While it was Ronald Reagan and his Republican Party that called for deregulation not much was done until Alan Greenspan, then Chairman of the Federal Reserve, gave federal deregulation his blessing in speeches from NY to Aspen to California in which he said "the market" will reign in excesses and regulate itself b/c of competition acting egregiously would create.

          Oopsie, Old Alan got it ALL WRONG again!

          I thought a little history would help in this thread.

          likbez said...

          My impression is that regulation always reflects the needs of who is in power today. One the key ingredients of political power is the ability to push the laws that benefit particular constituent. And to block laws that don't.

          If we assume that financial oligarchy is in power today, then it is clear that there can be no effective regulation of financial services and by extension regulation of derivatives. And if on the wave of public indignation such regulation is adopted, it will be gradually watered down and then eliminated down the road.

          And you can always hire people who will justify your point of view.

          In this sense neither Milton Friedman nor Greenspan were independent players. They sold themselves for money and were promoted into positions they have for specific purpose. I am not sure the either of them believed the crap they speak or wrote.


          [Sep 24, 2015] Don Quijones: Uruguay Does Unthinkable, Rejects TISA and Global Corporatocracy

          Notable quotes:
          "... 1.TiSA would "lock in" the privatization of services – even in cases where private service delivery has failed – meaning governments can never return water, energy, health, education or other services to public hands. ..."
          "... 2.TiSA would restrict signatory governments' right to regulate stronger standards in the public's interest. For example, it will affect environmental regulations, licensing of health facilities and laboratories, waste disposal centres, power plants, school and university accreditation and broadcast licenses. ..."
          "... 3.TiSA would limit the ability of governments to regulate the financial services industry, at a time when the global economy is still struggling to recover from a crisis caused primarily by financial deregulation. More specifically, if signed the trade agreement would: ..."
          "... 4. TiSA would ban any restrictions on cross-border information flows and localization requirements for ICT service providers. A provision proposed by US negotiators would rule out any conditions for the transfer of personal data to third countries that are currently in place in EU data protection law. In other words, multinational corporations will have carte blanche to pry into just about every facet of the working and personal lives of the inhabitants of roughly a quarter of the world's 200-or-so nations. ..."
          "... 5. Finally, TiSA, together with its sister treaties TPP and TTIP, would establish a new global enclosure system, one that seeks to impose on all 52 signatory governments a rigid framework of international corporate law designed to exclusively protect the interests of corporations, relieving them of financial risk and social and environmental responsibility. In short, it would hammer the final nail in the already bedraggled coffin of national sovereignty. ..."
          "... So, not to be snarky or anything but when does the invasion of Uruguay begin. ..."
          "... In the US, corporations largely have replaced government since WWII or so, or at least pretend to offer the services that a government might provide. ..."
          "... Neoliberalism that we have now as a dominant social system is a flavor of corporatism. If so, it is corporations which now represent the most politically powerful actors. They literally rule the country. And it is they who select the president, most congressmen and Senators. Try to ask yourself a question: to what political force Barak "change we can believe in" Obama serves. ..."
          "... "And the banks - hard to believe in a time when we're facing a banking crisis that many of the banks created - are still the most powerful lobby on Capitol Hill. And they frankly own the place" ..."
          "... This is such a huge, huge, vital issue. Privatisation of public assets has to rank as one of the highest crimes at the government level. It is treason, perhaps the only crime for which i wouldn't object capital punishment. ..."
          "... What's more, we now have some 40 years of data showing that privatisation doesn't work. surely, we can organise and successfully argue that privatisation has never worked for any country any time. There needs to be an intellectual assault on privatisation discrediting it forever. ..."
          Sep 24, 2015 | www.nakedcapitalism.com
          Posted on September 23, 2015 by Lambert Strether

          Lambert here: A little good news on the trade front, and a victory for open discussion and critical thinking.

          By Don Quijones, Spain & Mexico, editor at Wolf Street. Originally published at Wolf Street.

          Often referred to as the Switzerland of South America, Uruguay is long accustomed to doing things its own way. It was the first nation in Latin America to establish a welfare state. It also has an unusually large middle class for the region and unlike its giant neighbors to the north and west, Brazil and Argentina, is largely free of serious income inequality.

          Two years ago, during José Mujica's presidency, Uruguay became the first nation to legalize marijuana in Latin America, a continent that is being ripped apart by drug trafficking and its associated violence and corruption of state institutions.

          Now Uruguay has done something that no other semi-aligned nation on this planet has dared to do: it has rejected the advances of the global corporatocracy.

          The Treaty That Must Not Be Named

          Earlier this month Uruguay's government decided to end its participation in the secret negotiations of the Trade in Services Agreement (TISA). After months of intense pressure led by unions and other grassroots movements that culminated in a national general strike on the issue – the first of its kind around the globe – the Uruguayan President Tabare Vazquez bowed to public opinion and left the US-led trade agreement.

          Despite – or more likely because of – its symbolic importance, Uruguay's historic decision has been met by a wall of silence. Beyond the country's borders, mainstream media has refused to cover the story.

          This is hardly a surprise given that the global public is not supposed to even know about TiSA's existence, despite – or again because of – the fact that it's arguably the most important of the new generation of global trade agreements. According to WikiLeaks, it "is the largest component of the United States' strategic 'trade' treaty triumvirate," which also includes the Trans Pacific Partnership (TPP) and the TransAtlantic Trade and Investment Pact (TTIP).

          TiSA involves more countries than TTIP and TPP combined: The United States and all 28 members of the European Union, Australia, Canada, Chile, Colombia, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Taiwan and Turkey.

          Together, these 52 nations form the charmingly named "Really Good Friends of Services" group, which represents almost 70% of all trade in services worldwide. Until its government's recent u-turn Uruguay was supposed to be the 53rd Good Friend of Services.

          TiSA Trailer

          TiSA has spent the last two years taking shape behind the hermetically sealed doors of highly secure locations around the world. According to the agreement's provisional text, the document is supposed to remain confidential and concealed from public view for at least five years after being signed. Even the World Trade Organization has been sidelined from negotiations.

          But thanks to whistle blowing sites like WikiLeaks, the Associated Whistleblowing Press and Filtrala, crucial details have seeped to the surface. Here's a brief outline of what is known to date (for more specifics click here, here and here):

          1.TiSA would "lock in" the privatization of services – even in cases where private service delivery has failed – meaning governments can never return water, energy, health, education or other services to public hands.

          2.TiSA would restrict signatory governments' right to regulate stronger standards in the public's interest. For example, it will affect environmental regulations, licensing of health facilities and laboratories, waste disposal centres, power plants, school and university accreditation and broadcast licenses.

          3.TiSA would limit the ability of governments to regulate the financial services industry, at a time when the global economy is still struggling to recover from a crisis caused primarily by financial deregulation. More specifically, if signed the trade agreement would:

          • Restrict the ability of governments to place limits on the trading of derivative contracts - the largely unregulated weapons of mass financial destruction that helped trigger the 2007-08 Global Financial Crisis.
          • Bar new financial regulations that do not conform to deregulatory rules. Signatory governments will essentially agree not to apply new financial policy measures which in any way contradict the agreement's emphasis on deregulatory measures.
          • Prohibit national governments from using capital controls to prevent or mitigate financial crises. The leaked texts prohibit restrictions on financial inflows – used to prevent rapid currency appreciation, asset bubbles and other macroeconomic problems – and financial outflows, used to prevent sudden capital flight in times of crisis.
          • Require acceptance of financial products not yet invented. Despite the pivotal role that new, complex financial products played in the Financial Crisis, TISA would require governments to allow all new financial products and services, including ones not yet invented, to be sold within their territories.

          4. TiSA would ban any restrictions on cross-border information flows and localization requirements for ICT service providers. A provision proposed by US negotiators would rule out any conditions for the transfer of personal data to third countries that are currently in place in EU data protection law. In other words, multinational corporations will have carte blanche to pry into just about every facet of the working and personal lives of the inhabitants of roughly a quarter of the world's 200-or-so nations.

          As I wrote in LEAKED: Secret Negotiations to Let Big Brother Go Global, if TiSA is signed in its current form – and we will not know exactly what that form is until at least five years down the line – our personal data will be freely bought and sold on the open market place without our knowledge; companies and governments will be able to store it for as long as they desire and use it for just about any purpose.

          5. Finally, TiSA, together with its sister treaties TPP and TTIP, would establish a new global enclosure system, one that seeks to impose on all 52 signatory governments a rigid framework of international corporate law designed to exclusively protect the interests of corporations, relieving them of financial risk and social and environmental responsibility. In short, it would hammer the final nail in the already bedraggled coffin of national sovereignty.

          A Dangerous Precedent

          Given its small size (population: 3.4 million) and limited geopolitical or geo-economic clout, Uruguay's withdrawal from TiSA is unlikely to upset the treaty's advancement. The governments of the major trading nations will continue their talks behind closed doors and away from the prying eyes of the people they are supposed to represent. The U.S. Congress has already agreed to grant the Obama administration fast-track approval on trade agreements like TiSA while the European Commission can be expected to do whatever the corporatocracy demands.

          However, as the technology writer Glyn Moody notes, Uruguay's defection – like the people of Iceland's refusal to assume all the debts of its rogue banks – possesses a tremendous symbolic importance:

          It says that, yes, it is possible to withdraw from global negotiations, and that the apparently irreversible trade deal ratchet can actually be turned back. It sets an important precedent that other nations with growing doubts about TISA – or perhaps TPP – can look to and maybe even follow.

          Naturally, the representatives of Uruguay's largest corporations would agree to disagree. The government's move was one of its biggest mistakes of recent years, according to Gabriel Oddone, an analyst with the financial consultancy firm CPA Ferrere. It was based on a "superficial discussion of the treaty's implications."

          What Oddone conveniently fails to mention is that Uruguay is the only nation on the planet that has had any kind of public discussion, superficial or not, about TiSA and its potentially game-changing implications. Perhaps it's time that changed.

          The timing could not have been worse.

          Read Is Brazil About to Drag Down Spain's Biggest Bank?

          Selected Skeptical Comments

          ella, September 23, 2015 at 9:28 am

          So, not to be snarky or anything but when does the invasion of Uruguay begin. Wondering: don't they want to pay $750.00 per pill for what cost $13.85 the day before? Aren't they interested in predatory capitalism? What is going on down there?

          Jim Haygood, September 23, 2015 at 12:17 pm

          Most symbolic is that the eighth round of multilateral trade negotiations under GATT (now WTO) kicked off in Punta del Este, Uruguay in Sep. 1986.

          It went into effect in 1995, and is still known as the Uruguay Round.

          susan the other, September 23, 2015 at 1:21 pm

          And will international corporations issue their own fiat; pass their own laws; and prosecute their own genocide? Contrary to their group hallucinations, corporations cannot replace government. And clearly, somebody forgot to tell them that capitalism, corporatism, cannot survive without growth. The only growth they will achieve is raiding other corporations. They are more powerless and vulnerable than they ever want to admit.

          hunkerdown, September 23, 2015 at 8:13 pm

          And will international corporations issue their own fiat; pass their own laws; and prosecute their own genocide?

          Sure. There's prior art. Company scrip, substance "abuse" policies, and Bhopal (for a bit different definition of "prosecute").

          In the US, corporations largely have replaced government since WWII or so, or at least pretend to offer the services that a government might provide.


          likbez, September 24, 2015 at 10:54 pm

          They are more powerless and vulnerable than they ever want to admit.

          You are dreaming. Neoliberalism that we have now as a dominant social system is a flavor of corporatism. If so, it is corporations which now represent the most politically powerful actors. They literally rule the country. And it is they who select the president, most congressmen and Senators. Try to ask yourself a question: to what political force Barak "change we can believe in" Obama serves.

          As Sen. Dick Durbin (D-Ill.) aptly noted:

          "And the banks - hard to believe in a time when we're facing a banking crisis that many of the banks created - are still the most powerful lobby on Capitol Hill. And they frankly own the place"

          gordon, September 23, 2015 at 9:03 pm

          The TISA has a history. It's really just a continuation of the MAI treaty which the OECD failed to conclude back in the 1990s.

          https://en.wikipedia.org/wiki/Multilateral_Agreement_on_Investment

          Joe, September 24, 2015 at 2:38 am

          What I don't get is why all those countries want to sign up to these agreements. I can see what is in it for the US elites, but how does it help these smaller countries?

          likbez, September 24, 2015 at 10:43 pm

          Elites of those small countries are now transnational. So in a way they represent the fifth column of globalization. That explains their position: own profit stands before interests of the country.

          vidimi, September 24, 2015 at 4:19 am

          This is such a huge, huge, vital issue. Privatisation of public assets has to rank as one of the highest crimes at the government level. It is treason, perhaps the only crime for which i wouldn't object capital punishment.

          What's more, we now have some 40 years of data showing that privatisation doesn't work. surely, we can organise and successfully argue that privatisation has never worked for any country any time. There needs to be an intellectual assault on privatisation discrediting it forever.

          [Sep 24, 2015] I love free markets

          See also http://store.counterpunch.org/michael-hudson-episode-19-2/

          [Sep 24, 2015] Forget The New World Order, Here is Who Really Runs The World

          "... A complex web of revolving doors between the military-industrial-complex, Wall Street, and Silicon Valley consolidates the interests of defense contracts, banksters, military actions, and both foreign and domestic surveillance intelligence. ..."
          "... While most citizens are at least passively aware of the surveillance state and collusion between the government and the corporate heads of Wall Street, few people are aware of how much the intelligence functions of the government have been outsourced to privatized groups that are not subject to oversight or accountability. According to Lofgren, 70% of our intelligence budget goes to contractors. ..."
          "... the deep state has, since 9/11, built the equivalent of three Pentagons, a bloated state apparatus that keeps defense contractors, intelligence contractors, and privatized non-accountable citizens marching in stride. ..."
          "... Groupthink - an unconscious assimilation of the views of your superiors and peers - also works to keep Silicon Valley funneling technology and information into the federal surveillance state. Lofgren believes the NSA and CIA could not do what they do without Silicon Valley. It has developed a de facto partnership with NSA surveillance activities, as facilitated by a FISA court order. ..."
          Sep 24, 2015 | TheAntiMedia.org,

          For decades, extreme ideologies on both the left and the right have clashed over the conspiratorial concept of a shadowy secret government pulling the strings on the world's heads of state and captains of industry.

          The phrase New World Order is largely derided as a sophomoric conspiracy theory entertained by minds that lack the sophistication necessary to understand the nuances of geopolitics. But it turns out the core idea - one of deep and overarching collusion between Wall Street and government with a globalist agenda - is operational in what a number of insiders call the "Deep State."

          In the past couple of years, the term has gained traction across a wide swath of ideologies. Former Republican congressional aide Mike Lofgren says it is the nexus of Wall Street and the national security state - a relationship where elected and unelected figures join forces to consolidate power and serve vested interests. Calling it "the big story of our time," Lofgren says the deep state represents the failure of our visible constitutional government and the cross-fertilization of corporatism with the globalist war on terror.

          "It is a hybrid of national security and law enforcement agencies: the Department of Defense, the Department of State, the Department of Homeland Security, the Central Intelligence Agency and the Justice Department. I also include the Department of the Treasury because of its jurisdiction over financial flows, its enforcement of international sanctions and its organic symbiosis with Wall Street," he explained.

          Even parts of the judiciary, namely the Foreign Intelligence Surveillance Court, belong to the deep state.

          How does the deep state operate?

          A complex web of revolving doors between the military-industrial-complex, Wall Street, and Silicon Valley consolidates the interests of defense contracts, banksters, military actions, and both foreign and domestic surveillance intelligence.

          According to Mike Lofgren and many other insiders, this is not a conspiracy theory. The deep state hides in plain sight and goes far beyond the military-industrial complex President Dwight D. Eisenhower warned about in his farewell speech over fifty years ago.

          While most citizens are at least passively aware of the surveillance state and collusion between the government and the corporate heads of Wall Street, few people are aware of how much the intelligence functions of the government have been outsourced to privatized groups that are not subject to oversight or accountability. According to Lofgren, 70% of our intelligence budget goes to contractors.

          Moreover, while Wall Street and the federal government suck money out of the economy, relegating tens of millions of people to food stamps and incarcerating more people than China - a totalitarian state with four times more people than us - the deep state has, since 9/11, built the equivalent of three Pentagons, a bloated state apparatus that keeps defense contractors, intelligence contractors, and privatized non-accountable citizens marching in stride.

          After years of serving in Congress, Lofgren's moment of truth regarding this matter came in 2001. He observed the government appropriating an enormous amount of money that was ostensibly meant to go to Afghanistan but instead went to the Persian Gulf region. This, he says, "disenchanted" him from the groupthink, which, he says, keeps all of Washington's minions in lockstep.

          Groupthink - an unconscious assimilation of the views of your superiors and peers - also works to keep Silicon Valley funneling technology and information into the federal surveillance state. Lofgren believes the NSA and CIA could not do what they do without Silicon Valley. It has developed a de facto partnership with NSA surveillance activities, as facilitated by a FISA court order.

          Now, Lofgren notes, these CEOs want to complain about foreign market share and the damage this collusion has wrought on both the domestic and international reputation of their brands. Under the pretense of pseudo-libertarianism, they helmed a commercial tech sector that is every bit as intrusive as the NSA. Meanwhile, rigging of the DMCA intellectual property laws - so that the government can imprison and fine citizens who jailbreak devices - behooves Wall Street. It's no surprise that the government has upheld the draconian legislation for the 15 years.

          It is also unsurprising that the growth of the corporatocracy aids the deep state. The revolving door between government and Wall Street money allows top firms to offer premium jobs to senior government officials and military yes-men. This, says Philip Giraldi, a former counter-terrorism specialist and military intelligence officer for the CIA, explains how the Clintons left the White House nearly broke but soon amassed $100 million. It also explains how former general and CIA Director David Petraeus, who has no experience in finance, became a partner at the KKR private equity firm, and how former Acting CIA Director Michael Morell became Senior Counselor at Beacon Global Strategies.

          Wall Street is the ultimate foundation for the deep state because the incredible amount of money it generates can provide these cushy jobs to those in the government after they retire. Nepotism reigns supreme as the revolving door between Wall Street and government facilitates a great deal of our domestic strife:

          "Bank bailouts, tax breaks, and resistance to legislation that would regulate Wall Street, political donors, and lobbyists. The senior government officials, ex-generals, and high level intelligence operatives who participate find themselves with multi-million dollar homes in which to spend their retirement years, cushioned by a tidy pile of investments," said Giraldi.

          How did the deep state come to be?

          Some say it is the evolutionary hybrid offspring of the military-industrial complex while others say it came into being with the Federal Reserve Act, even before the First World War. At this time, Woodrow Wilson remarked,

          "We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

          This quasi-secret cabal pulling the strings in Washington and much of America's foreign policy is maintained by a corporatist ideology that thrives on deregulation, outsourcing, deindustrialization, and financialization. American exceptionalism, or the great "Washington Consensus," yields perpetual war and economic imperialism abroad while consolidating the interests of the oligarchy here at home.

          Mike Lofgren says this government within a government operates off tax dollars but is not constrained by the constitution, nor are its machinations derailed by political shifts in the White House. In this world - where the deep state functions with impunity - it doesn't matter who is president so long as he or she perpetuates the war on terror, which serves this interconnected web of corporate special interests and disingenuous geopolitical objectives.

          "As long as appropriations bills get passed on time, promotion lists get confirmed, black (i.e., secret) budgets get rubber stamped, special tax subsidies for certain corporations are approved without controversy, as long as too many awkward questions are not asked, the gears of the hybrid state will mesh noiselessly," according to Mike Lofgren in an interview with Bill Moyers.

          Interestingly, according to Philip Giraldi, the ever-militaristic Turkey has its own deep state, which uses overt criminality to keep the money flowing. By comparison, the U.S. deep state relies on a symbiotic relationship between banksters, lobbyists, and defense contractors, a mutant hybrid that also owns the Fourth Estate and Washington think tanks.

          Is there hope for the future?

          Perhaps. At present, discord and unrest continues to build. Various groups, establishments, organizations, and portions of the populace from all corners of the political spectrum, including Silicon Valley, Occupy, the Tea Party, Anonymous, WikiLeaks, anarchists and libertarians from both the left and right, the Electronic Frontier Foundation, and whistleblowers like Edward Snowden and others are beginning to vigorously question and reject the labyrinth of power wielded by the deep state.

          Can these groups - can we, the people - overcome the divide and conquer tactics used to quell dissent? The future of freedom may depend on it.

          [Sep 24, 2015] Peak Oil Notes - 24 Sep

          Sep 24, 2015 | www.resilience.org

          The EIA also had US domestic oil production up by 19,000 b/d last week to 9.14 million and output in the lower 48 states flat at 8.65 million b/d. Analysts are not sure what these numbers mean. Some say they could indicate that the decline in production is slowing from what the EIA has been forecasting. However, some note that if there is any indication of production actually increasing, we would quickly see oil prices down in the $30s.

          ... ... ...

          The financial press continues to highlight the woes of the global oil industry as it tries to contend with falling oil prices. Waterford International, one of the world's largest drilling contractors, failed in an attempt to borrow $1 billion from Wall Street because of its sagging stock price. ConocoPhillips is trying to sell off its Canadian assets. Total SA sold a 10 percent share in a $15 billion oil sands mine for $234 million and Wood Mackenzie says the world's oil companies have now cut $220 billion in planned investments. Wood Mackenzie also says that if oil prices stay below $50 a barrel, some $1.5 trillion worth of investments will be curtailed over the next few years. If these predictions come to pass it is difficult to foresee how world oil production can stay anywhere near current levels.

          ... ... ...

          In the Middle East, the Libyan peace talks look like they are going to collapse. The Russian military buildup in Syria continues with more tanks, attack helicopters and aircraft arriving daily. While Moscow says it is in Syria to fight ISIL, the insurgents threatening Assad's power base in northwest Syria are made up of groups backed by Turkey, the US and the Gulf Arabs, with most of ISIL's forces hunkered down in the northeast to avoid the continuing US arterial bombardment.

          Another cholera epidemic has broken out in Iraq where the sanitation and water systems continue to deteriorate. Temperatures in Iraq reached 122o F. in July and August which did not help the situation. The flow of middle class Iraqis to Europe is increasing. It becomes increasingly difficult to see how Iraq can continue to increase or even maintain its oil production given the numerous problems it is facing.

          [Sep 24, 2015] Drilling Deeper

          Sep 24, 2015 | Post Carbon Institute

          Drilling Deeper reviews the twelve shale plays that account for 82% of the tight oil production and 88% of the shale gas production in the U.S. Department of Energy's Energy Information Administration (EIA) reference case forecasts through 2040. It utilizes all available production data for the plays analyzed, and assesses historical production, well- and field-decline rates, available drilling locations, and well-quality trends for each play, as well as counties within plays. Projections of future production rates are then made based on forecast drilling rates (and, by implication, capital expenditures). Tight oil (shale oil) and shale gas production is found to be unsustainable in the medium- and longer-term at the rates forecast by the EIA, which are extremely optimistic.

          This report finds that tight oil production from major plays will peak before 2020. Barring major new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA's forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will underperform the EIA's reference case oil recovery by 28% from 2013 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly optimistic and unlikely to be realized at the medium- and long-term rates projected.

          [Sep 24, 2015] Is Goldman Preparing To Sacrifice The Next Lehman

          Sep 24, 2015 | Zero Hedge

          Wow, talk about a nice fit! The following image describes a speed wobble when going too fast on a bicycle.

          Bay Area Guy

          Paulson should most definitely be in prison. I was no fan of Lehman, but what happened to them was nothing short of a criminal conspiracy.

          Thorny Xi

          He's suffered so much though.

          http://www.forbes.com/sites/morganbrennan/2012/06/05/billionaire-john-pa...

          RopeADope

          Hank not John.

          John is the colossal failure that could not come up with a good trade idea on his own if his life depended on it.

          Debt-Is-Not-Money

          I was fascinated that Bear Stearns was the first to go as Bear was the only large company that failed to respond to the Fed's calls when LTCM almost brough down the house in 1998.

          Not if_ But When

          Well, you know........he also lied to Congress. (but that's small potatoes).

          froze25

          Very true, let them fall and then bailout the rest. Well played Goldman.

          KnuckleDragger-X

          Lehman had to die to save GS since GS were actually in more trouble......

          Bay of Pigs

          What ever happened to Douche Bank anyway?

          Edit: Damn, good ole Marty beat me to the punch.

          Deutsche Bank – the New Lehman Brothers?

          http://www.armstrongeconomics.com/archives/37443

          jeff montanye

          the greatest control fraud in history, the 2008 seizure of the u.s. government's financial/regulatory apparatus by wall street's banks and trading houses to recapitalize themselves and avoid prosecution for their enormous crimes, is tremendously evil. it will never be prosecuted or its errors corrected until the psychopaths at the head of our society are neutralized.

          only 9-11 can do this. it is the crime that is clear-cut, unambiguously wrong, provable, without a statute of limitations (treason/murder/kidnapping), sufficiently inflammatory (very important) and really comprehensive in its list of perps, especially after the fact (the editors of the new york times don't actually have to go to jail; just most people have to think they should).

          https://www.youtube.com/watch?v=OsoY3AIRUGA.

          https://www.youtube.com/watch?v=0GNww9cmZPo

          http://www.luogocomune.net/site/modules/sections/index.php?op=viewarticl...

          mind by mind. do your part.

          Divine Wind

          Bullish for PMs, right?

          HardlyZero

          After MF Global, it is not clear how the markets are safe for buyers, sellers, brokers, banks, etc.

          But as always, have your physical setup and safe first before going out to see what's going on.

          NoDebt

          "If a counterparty liquidates, net exposure becomes gross [emphasis added by me], and suddenly everyone starts wondering where all those "physical" commodities are."

          For those who may not quite grasp this, it means all your "hedging" against falling prices is null and void and you are left with full-in-the-face long exposure PLUS entities dealing in the physical commodity can suddenly be looking down a long tunnel of "failure to timely deliver" on contracts they've signed.

          But, then again, 2016 is the last year for a lame duck president... traditionally a very good year to "clean house" and get the government to bail you out.

          [Sep 24, 2015] Michael Hudson – Episode 19

          Sep 24, 2015 | store.counterpunch.org

          Audio Player

          Podcast: Play in new window | Download

          support this podcast, donate today

          This week, Eric has an in depth conversation with economist Michael Hudson, author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Eric and Prof. Hudson discuss the evolution of finance capital from its humble parasitical beginnings to the comprehensive global network of economic tapeworms and barnacles that it is today. They examine neoliberal terrorism, how debt is used as a weapon, and the disastrous effects of the financialization of the real economy. Hudson outlines the relationship between the parasites and their bloodsucking policies of austerity, providing insight using the example of Latvia, where he witnessed first hand the smash-and-grab nature of such prescriptions. Plus, Eric and Michael touch on Obama as Wall Street errand boy, the importance of left economic organizing, and much much more.

          Musical interlude from the exciting new band GospelbeacH, and intro and outtro from David Vest.

          [Sep 24, 2015] The Oligarch Recovery 30 Million Americans Have Tapped Retirement Savings Early In Last Year

          Sep 24, 2015 | www.zerohedge.com

          Zero Hedge

          Submitted by Mike Krieger via Liberty Blitzkrieg blog,

          The ongoing oligarch theft labeled an "economic recovery" by pundits, politicians and mainstream media alike, is one of the largest frauds I've witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.

          Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the "Recovery," which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here's an excerpt:

          Families' savings not where they should be: That's one part of the problem. But Mills sees something else in the recovery that's more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

          According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

          It's not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. "People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences," Mills says.

          Of course, it's not just "alternative financial services." Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a "recovery."

          From Time:

          With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

          Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

          Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic-a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

          So now we know what has kept meager spending afloat during this pitiful "recovery." A combination of "alternative loans" and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.

          Don't forget to send your thank you card to you know who:

          Screen Shot 2015-08-20 at 3.21.02 PM

          * * *

          For related articles, see:

          [Sep 24, 2015] Central Banks Have Made the Rich Richer

          Sep 24, 2015 | economistsview.typepad.com
          Economist's View
          Paul Marshall, chairman of London-based hedge fund Marshall Wace, in the FT:
          Central banks have made the rich richer: Labour's new shadow chancellor has got at least one thing right. ... Quantitative easing ... has bailed out bonus-happy banks and made the rich richer. ...

          It is no surprise that the left is angry about this, nor that they are looking for other versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the money supply by buying sovereign bonds from banks, central banks could spread the love evenly by depositing extra money in every person's bank account..., it might have been fairer.

          Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the understanding that the funds would be used to improve housing and transport infrastructure. ...

          QE had clear wealth effects, which could have been offset by fiscal measures. All political parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.

          [Sep 24, 2015] Tight Oil Reality Check

          "... The EIAs 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. ..."
          "... The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices. ..."
          "... As it has acknowledged, the EIAs track record in estimating resources and projecting future production and prices has historically been poor. ..."
          "... How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period? ..."
          "... Americas energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy cant be overstated. Its for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIAs rosy projections at face value but rather to drill deeper. ..."
          Sep 24, 2015 | www.resilience.org
          In Drilling Deeper, PCI Fellow David Hughes took a hard look at the EIA's AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism.

          Recently, the EIA released its Annual Energy Outlook 2015 and so we asked David Hughes to see how the EIA's projections and assumptions have changed over the last year, and to assess the AEO2015 against both Drilling Deeper and up-to-date production data from key shale gas and tight oil plays.

          Key Conclusions

          • The EIA's 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total tight oil production through 2040 has increased by 6.5 billion barrels, or 15%, compared to AEO2014.
          • The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel until 2031.
          • At the same time, the EIA assumes that overall U.S. oil production will experience a very gradual decline following a peak in 2020.
          • These assumptions-low prices, continued growth through this decade, and a gradual decline in production thereafter - are belied by the geological and economic realities of shale plays. The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices.
          • Perhaps the most striking change from AEO2014 to AEO2015 is the EIA's optimism about the Bakken, the projected recovery of which was raised by a whopping 85%.
          • As it has acknowledged, the EIA's track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below ground fundamentals- the geology of these plays and how well they are understood-don't change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them. As Figure 13 shows, with the exception of the Eagle Ford, the EIA's projections for the major tight oil plays have shifted up or down significantly.
          After closely reviewing the Annual Energy Outlook 2015, David Hughes raises some important, substantive questions:
          • Why is there so much difference at the play level between AEO2014 and AEO2015?
          • Why does Bakken production rise 40% from current levels, recover more than twice as much oil by 2040 as the latest USGS mean estimate of technically recoverable resources, and exit 2040 at production levels considerably above current levels?
          • How can the Niobrara recover twice as much oil in AEO2015 as was assumed just a year ago in AEO 2014?
          • What was the thinking behind the wildly optimistic forecast for the Austin Chalk in AEO2014 that required a 78% reduction in estimated cumulative recovery in AEO2015?
          • How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period?

          America's energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy can't be overstated. It's for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIA's rosy projections at face value but rather to drill deeper.

          [Sep 21, 2015] After Creating Migration Flood Merkel Throws Up Emergency Dikes

          "... The German chancellor Merkel tried to gain some points with her neoliberal friends and with big companies and donors by suddenly opening the border for "refugees" of all kinds, even for those who come from safe countries. These migrants would help to further depress German wages which, after years of zero growth, slowly started to increase again. ..."
          "... While Merkel was lauded by all kinds of Anglo-american neoliberal outlets, from the Economist over FT and Newsweek to the Washington Post the backlash in Germany was brewing. ..."
          "... Despite a major campaign of pro-migrant propaganda in Merkel friendly media the German population in general is furious with her stunt. ..."
          "... So the brave new world is coming to you also? The brave new world of depressed wages and benefits for the working classes. ..."
          "... Poor Mr. Schäuble must give "earth and water" to the German oligarchs. He must organize a new Treuhand for the whole Europe to sell-off public property, he must completely dissolve labor rights, bring down pensions and wages, destroy the social state. ..."
          "... These refugees mean workers and jobs. Or how do you think their houses will be built, or where will the doctors come from to treat them and the teachers to teach them, the shops that will feed them. ..."
          "... Would be the planed PR con of ' aren't we nice to the most needy refugees', that being used as a duel use purpose with that appeal to her real constituency in the elite and corporates with refugees as wage slaves depressing wages. ..."
          "... And when times are bad enough. the far-right actually gains and keeps power till they run a bloody muck. Nazis and Fascism is what these freaks are risking again. ..."
          "... Of course, this is all made possible because the US isn't a country anymore, it is now a corporation. The same is true for the EU. The EU isn't a union of nations anymore, it is now a collection of corporations. ..."
          "... Yes, The brave new CORPORATE world is coming to us all. Humanity be damned, profits uber alles. Workers of the globe, lube up, and bend over. ..."
          "... This migrants crisis should be seen as a fantastic opportunity to all corporatists and neolibs. Companies need cheap labor. This is an open bar to them! ..."
          "... This is really another unmasking of the EU. It is run by Germany. ..."
          "... I think German industry is angry at the Russia sanctions and has been pressuring for 'new workers', in the sense of being able to set conditions, choose candidates from a larger pool, and almost certainly, pay less, have more control over workers. ..."
          "... The makers of Western policy and the media are one and the same. Mass media now so consolidated, it's a corporate/state entity. ..."
          "... The origin of totalitarianism : Part two, Imperialism : Chapter 9, Decline of the nation-state; end of the rights of man, p. 269 ..."
          "... Nazi Conspiracy and Aggression ..."
          "... I have real sympathy for the Syrian refugees coming from the concentration camps in Turkey. These are mostly younger, middle-class, educated Syrians with small children who either lost their homes or couldn't tolerate the risk of violence to them and their families. ..."
          "... it's better lavrov speaks openly on what everyone with half a brain is thinking here.. that isis is a mercenary group paid to be where it is ought to come as no surprise.. that the usa hopes to use them to overthrow assad - they have openly stated this. ..."
          "... When refugees still managed to get into Europe in large numbers heading for Germany where they had relatives and knew that there were jobs there was not much German politicians could legally do except stop Schengen that makes it easy to go anywhere once you have crossed the European borders - which is happening now getting refugees stranded in the fields. ..."
          "... with the influx of probably millions of cheap labour, the big cats may bring back the industries from china , yes now the western Europe may be able to compete with them. ..."
          Sep 21, 2015 | www.moonofalabama.org

          The German chancellor Merkel tried to gain some points with her neoliberal friends and with big companies and donors by suddenly opening the border for "refugees" of all kinds, even for those who come from safe countries. These migrants would help to further depress German wages which, after years of zero growth, slowly started to increase again.

          But neither she nor her allies ever prepared the German public for a sudden influx of several hundred thousand foreigners. Changes in immigration policy were sneaked in without any public discussion. Suddenly 800,000 foreign people are expected to arrive this years and many more over the next years. People who neither speak German nor readily fit into the national cultural and social-economic environment. Most of these do not come out of immediate dangers but from safe countries.

          While Merkel was lauded by all kinds of Anglo-American neoliberal outlets, from the Economist over FT and Newsweek to the Washington Post the backlash in Germany was brewing. In Who Runs The Migrant Media Campaign And What Is Its Purpose? I predicted:

          There will be over time a huge backlash against European politicians who, like Merkel, practically invite more migrants. Wages are stagnant or falling in Europe and unemployment is still much too high. The last thing people in Europe want right now is more competition in the labor market. Parties on the extreme right will profit from this while the center right will lose support.

          Despite a major campaign of pro-migrant propaganda in Merkel friendly media the German population in general is furious with her stunt. The backlash comes from all sides but especially from her own conservative party. Additionally many European leaders point out that Merkel, who insistent on sticking to the letter of law in the case of Greece, is now openly breaking European laws and agreements.

          ... ... ...

          ben | Sep 13, 2015 12:39:05 PM | 3

          So the brave new world is coming to you also? The brave new world of depressed wages and benefits for the working classes. Corporate Germany is drooling at the prospect of that happening. Good luck b.

          nmb | Sep 13, 2015 12:57:08 PM | 4

          ... poor Mr. Schäuble, who recently surpassed Mrs. Merkel in popularity in Germany, is under extreme pressure, mostly by the German capital, to "restructure" the eurozone through the Greek experiment. The German oligarchy is now in a cruel competition mostly with the US companies to hyper-automate production. It sends continuous signals that human labor will be unnecessary for its big companies and presses the German leadership to finish the experiment in Greece.

          Poor Mr. Schäuble must give "earth and water" to the German oligarchs. He must organize a new Treuhand for the whole Europe to sell-off public property, he must completely dissolve labor rights, bring down pensions and wages, destroy the social state. He must end quickly with Greece and pass all the "Greek achievements" to the whole eurozone.

          http://bit.ly/1fTpHhy

          Peter B. | Sep 13, 2015 4:12:54 PM | 11

          I live in Germany in a village near the Austria border. Our village is broke: too much debt. The people in Germany are taxed to death with over a 50 percent tax rate. In addition, the Euro took a lot of buying power away from us. And Germans are fleeing many areas to get away from the Ghettos of migrants that have come before.

          The propaganda machine in running 24/7 about how great these migrants are for Germany. Unfortunately in this case, the propaganda is not working. For example, my son's school teacher tried to set an example by being nice to a local black migrant by saying a few kind words only to be told – F*ck you lady. In any case, if you have eyes you can see migrants are a burden.

          It is a fact that Migrants get everything for free. They are not allowed to work for the first year and are given free health care, dental, accommodations, etc. In addition, the police do not like to bother them, so unless it is really bad, they just get away with it.

          So, how do you expect to pay for all of this? Where is the money going to come from? And did I mention that no one in our village supports the idea of have more migrants. In my opinion, this is a case of going too far. The politicians have now lost the population and they are back-tracking.

          Susan Sunflower | Sep 13, 2015 4:23:23 PM | 12

          In These Times: Zizek: We Can't Address the EU Refugee Crisis Without Confronting Global Capitalism

          The refugees won't all make it to Norway. Nor does the Norway they seek exist.

          somebody | Sep 13, 2015 5:05:13 PM | 15

          b. you are an economic analphabet. These refugees mean workers and jobs. Or how do you think their houses will be built, or where will the doctors come from to treat them and the teachers to teach them, the shops that will feed them. And how do you think German industry will survive with a shrinking aging work force, or old age pensioners homes and hospitals keep functioning.

          It happened before. Germany had some 2.6 million "guest workers" in the 1950's and 60's. Most of them aren't counted as immigration nowadays as they have become European - Greek, Spanish, Portuguese and Italian. But recruitment was done in Turkey and North Africa, too.

          RE: Peter B. | Sep 13, 2015 4:12:54 PM | 11

          You have to be very rich to pay 50 per cent tax. I cannot say I sympathize. German countryside is quite empty, lots of room for refugees. They don't seem to want to go there though but to the cities. Like Germans, really.

          Bavaria has experience with refugees since World War II. To quote a Bavarian from one of the - formerly incestuous - valleys: We did not like them but they were good for us.

          But yes, it is beginning to feel like the end of Shengen and the end of Europe as we knew it. And yes, stupid German politicians seem to be surprised by the global effect of twitter and facebook.

          tom | Sep 13, 2015 5:40:50 PM | 16

          I thought the back up plan by Merkel and her despicable likes like mentioned by b and above;

          Would be the planed PR con of ' aren't we nice to the most needy refugees', that being used as a duel use purpose with that appeal to her real constituency in the elite and corporates with refugees as wage slaves depressing wages. Then with the final back up plan would be targeting those refugees she invited in - for hate speech against, demonisation and scape-goating those innocent refugees, for economic problems caused by her and the right-wingers in their economic class war.

          like b mentioned; that runs the risk of the far-right racists gaining more popularity and power.

          But haven't we seen that before. Political centrists planning to scapegoat innocence, but then being out hate-mongered by the far-right.

          And when times are bad enough. the far-right actually gains and keeps power till they run a bloody muck. Nazis and Fascism is what these freaks are risking again. Or does Merkel think she will fit in nicely with the possible future for Germany ?

          Cynthia | Sep 13, 2015 6:09:50 PM | 17

          The migrant crisis would be worrisome if it did not benefit corporate elites in the Western countries. It is exactly the same reason as why the same countries are outsourcing all work to the third-world countries: short term gain for a long term pain. The pain from the migrant crisis is felt by ordinary people and the state in the long term.

          This is why racism is rising in Western countries – those who lose jobs or have to compete for a home with a 12-member immigrant family hate immigrants the most. The elites, corporate or otherwise, are quite comfortable with immigration, they never go to the economically challenged and immigrant areas anyway, such crime does not reach them. Also, most Western countries have many a lawyer working on behalf of the illegal immigrants and against the society because it is so lucrative.

          The flip side is, of course, that it is often the policies of the Western governments and pillaging by Western companies which causes disasters in the places where illegal immigrants come from. How high the anti-immigration Wall needs to be when you push a country such as Libya or Syria into a 30-year civil war?

          Of course, this is all made possible because the US isn't a country anymore, it is now a corporation. The same is true for the EU. The EU isn't a union of nations anymore, it is now a collection of corporations.

          ben | Sep 13, 2015 8:10:01 PM | 21

          Cynthia @ 17: "Of course, this is all made possible because the US isn't a country anymore, it is now a corporation. The same is true for the EU. The EU isn't a union of nations anymore, it is now a collection of corporations."

          Yes, The brave new CORPORATE world is coming to us all. Humanity be damned, profits uber alles. Workers of the globe, lube up, and bend over.

          Cynthia | Sep 13, 2015 8:55:27 PM | 23

          Ben@21,

          This migrants crisis should be seen as a fantastic opportunity to all corporatists and neolibs. Companies need cheap labor. This is an open bar to them! What a great way to force Europe into the New World Order? Putting people in front of the fait accompli has always been the best recipe to success. Who cares about culture and civilization? We are consumers before anything, aren't we?

          Noirette | Sep 14, 2015 7:44:48 AM | 33

          This is really another unmasking of the EU. It is run by Germany. Merkel on her own bat decides the Dublin accords don't apply. Just like that! Then a week or more later Juncker stands in front of the EU Parliament and makes some proposal about quotas or what not and nobody says anything (except I suppose Farage and those who don't want the migrants.) Schengen is by-passed or overridden or transformed on her say so. (The part that seems to be holding is that non-signatories can't be forced to participate.) I strongly disaproved of both those accords (and the whole mismanagement of the migrant issue from day one) but just having Merkel run amok like that is utterly scandalous, and very disquieting. The whole media-hype (pro and soon contra) with the usual doctored pictures and crowd scenes etc. was totally disgusting. This is not going to end well. Incompetence, extend and pretend, shove the problem away leading to a 'crisis' which is handled with appeals to emotion and so on…bad news.

          I don't believe this was some US or Anglo-Zionist or whatever plot to harm Europe. (Unintended / uncared about consequences perhaps.) This is a purely internal EU affair. I think German industry is angry at the Russia sanctions and has been pressuring for 'new workers', in the sense of being able to set conditions, choose candidates from a larger pool, and almost certainly, pay less, have more control over workers. That may happen in part. But that is just one angle. (see tom above and somebody as well.)

          gemini33 | Sep 14, 2015 8:04:13 AM | 34

          I hate to even go here but there's a lot of public money to be made by contractors in this refugee crisis. With the media blitz, countries, corps and individuals will be pouring money into refugee funds. Look at these two articles w/ US coming onto refugee scene just as Europe shuts the gates:

          http://news.yahoo.com/us-plans-welcome-10-000-syrian-refugees-053252486.html
          http://news.yahoo.com/us-plans-welcome-10-000-syrian-refugees-053252486.html

          Never let a good crisis go to waste.

          MoonofA calls Merkel's actions a "stunt" above. I sadly agree. In the headlines here in the US, I noticed the alliteration "Generous Germany" in more than a handful of articles. Google confirms it has been used thousands of times. It conveniently counters the immense damage to Germany and Merkel's image that occurred after they fricasseed Greece on the world stage which while it may have made some northern Europeans happy, the rest of the world felt a very different emotion, despite the propaganda.

          virgile | Sep 14, 2015 9:58:02 AM | 36

          The migrant crisis is part of the amateurism of the international community in collaboration with a scoop and drama oriented media.

          The migrants move out of Turkey was long predictable. If anyone had read the Turkish law on 'refugees', they would know that Turkey does not recognize people coming from a middle eastern country as a "refugee". Therefore these people DO NOT get a UNHCR refugee card. Countries that welcome refugees request that card. Therefore people stuck in Turkey have no other way than to move to a country where they will be recognized as a valid 'refugee'.

          So it was obvious that after realizing the war in Syria was endless, masses of wannabe refugees rushed out of Turkey to Europe.

          It was obvious right from the start that Syria was no Libya, no Tunisia and no Egypt. Yet the amateur Western politicians rushed in prediction and the media went wild with youtubes, analysis, dramas..

          4 years later, both the western politicians and the media turned out to be wrong. Yet, they are so arrogant that they would never admit and continue and obsolete discourse to perpetuate their stupid predictions.

          The media have become the drivers of the Western policy. They are not elected, have no legitimacy, no accountability and yet they leade for the good and the bad.

          Only one thing, good news don't make a scoop!

          gemini33 | Sep 14, 2015 11:19:45 AM | 38

          @36 "The media have become the drivers of the Western policy"

          The makers of Western policy and the media are one and the same. Mass media now so consolidated, it's a corporate/state entity.

          TG | Sep 14, 2015 3:15:35 PM | 45

          "It may appear to be the interest of the rulers, and the rich of a state, to force population [ed. note: force = rapidly increase, as via an excessive rate of immigration], and thereby lower the price of labour, and consequently the expense of fleets and armies, and the cost of manufactures for foreign sale; but every attempt of the kind should be carefully watched and strenuously resisted by the friends of the poor, particularly when it comes under the deceitful guise of benevolence…"

          T.R. Malthus, "An Essay on the Principle of Population", 1798

          Virgile | Sep 14, 2015 7:05:37 PM | 58

          ONLY the countries that called themselves "The Friends of Syria" should be obliged to take a quota of refugees!

          That is the time to pay the fee for membership! Why the hell Slovakia or Serbia are supposed to take the refugees that the Friends of Syria created

          Here are the countries that should be OBLIGED to take Syrian refugees:

          Britain, Egypt, France, Germany, Italy, Jordan, Qatar, Saudi Arabia, Turkey, the United Arab Emirates and the United States

          http://www.dw.com/en/friends-of-syria-group-promises-more-rebel-aid-aid-workers-freed/a-17639889

          jfl | Sep 14, 2015 10:58:02 PM | 61

          Syrian Girl :

          #RefugeeCrisis: What The Media Is Hiding, Help #SyrianRefugees Go Home ~08:37 - 08:58

          ... There are forces that want to estrange people from their homeland, and to dissolve national identities altogether. Obama and other criminals are trying to make Syrians a people without a nation. A people without a nation suffer the worst humiliation. Look at what happened to the Palestinian people. One day, it could happen to you. ...

          Hannah Arendt :

          The origin of totalitarianism : Part two, Imperialism : Chapter 9, Decline of the nation-state; end of the rights of man, p. 269

          With the emergence of the minorities in Eastern and Southern Europe and with the stateless people driven into Central and Western Europe, a completely new element of disintegration was introduced into postwar Europe. Denationalization became a powerful weapon of totalitarian politics, and the constitutional inability of European nation-states to guarantee human rights to those who had lost nationally guaranteed rights, made it possible for the persecuting governments to impose their standard of values even upon their opponents. Those whom the persecutor had singled out as scum of the earth - Jews, Trotskyites, etc. - actually were received as scum of the earth everywhere; those whom persecution had called undesirable became the indésirables of Europe. The official SS newspaper, the Schwarze Korps, stated explicitly in 1938 that if the world was not yet convinced that the Jews were the scum of the earth, it soon would be when unidentifiable beggars, without nationality, without money, and without passports crossed their frontiers.[2] And it is true that this kind of factual propaganda worked better than Goebbels' rhetoric, not only because it established the Jews as scum of the earth, but also because the incredible plight of an ever-growing group of innocent people was like a practical demonstration of the totalitarian movements' cynical claims that no such thing as inalienable human rights existed and that the affirmations of the democracies to the contrary were mere prejudice, hypocrisy, and cowardice in the face of the cruel majesty of a new world. The very phrase "human rights" became for all concerned - victims, persecutors, and onlookers alike - the evidence of hopeless idealism or fumbling feeble-minded hypocrisy.

          [2] The early persecution of German Jews by the Nazis must be considered as an attempt to spread antisemitism among

          "those peoples who are friendlily disposed to Jews, above all the Western democracies"
          rather than as an effort to get rid of the Jews. A circular letter from the Ministry of Foreign Affairs to all German authorities abroad shortly after the November pogroms of 1938, stated:
          "The emigration movement of only about 100,000 Jews has already sufficed to awaken the interest of many countries in the Jewish danger ... Germany is very interested in maintaining the dispersal of Jewry ... the influx of Jews in all parts of the world invokes the opposition of the native population and thereby forms the best propaganda for the German Jewish policy ... The poorer and therefore more burdensome the immigrating Jew is to the country absorbing him, the stronger the country will react."
          See Nazi Conspiracy and Aggression, Washington, 1946, published by the U. S. Government, VI, 87 ff.

          Plus ça change, plus c'est la męme chose ... This time it's Obama's handlers copying the NAZIs, last time it was the NAZIs copying the US' genocide of North American indigenes.

          PavewayIV | Sep 15, 2015 12:11:43 AM | 63
          I have real sympathy for the Syrian refugees coming from the concentration camps in Turkey. These are mostly younger, middle-class, educated Syrians with small children who either lost their homes or couldn't tolerate the risk of violence to them and their families.

          That image stands in stark contrast to some of the odd footage coming out of Hungary about refugees refusing food and water, trashing camps and threatening Hungarian aid workers. These were obviously refugees and presumably muslim, but didn't seem like the Syrians leaving Turkish camps. Who were these people?

          Fort Russ just published an article entitled, Afghan-Kosovo Mafia Migrant Smuggling Ring and More Refugee Chaos in Macedonia. A highly recommended read for anyone like me confused about the supposed 'Syrian Refugee' problem. It's much more complex than it appears and explains Europeans reports of the general demeanor of some of the refugee groups. This will not end well for anybody.

          Noirette | Sep 15, 2015 6:21:10 AM | 67

          It seems that the refugee 'crisis' in the EU is playing right into Putin's hands. (It is not a US plot!). The Putin coalition is gingerly taking shape. On Syria.

          Germany is ready to ally with Putin. Russia Insider.

          http://russia-insider.com/en/politics/germany-may-be-leaving-us-anti-syria-coalition/ri9704

          Hollande has changed his mind. (From a newspaper yest.) Now he is sugggesting that he won't bomb there will only be reconnaissance flights. Or some such. After being seemingly keen to bomb Syria to smithereens.

          Cameron announced before Corbyn was elected that he would then (when it happened) be cautious or 'withholding' (I forget the precise words and posted the link before) about bombing Syria (Corbyn is against.) But see here, RT:

          https://www.rt.com/uk/315277-cameron-seeks-syria-consensus/

          In fact Cameron's communicated position is not clear. It is imprecise.

          Lavrov has come right out and said that the US knows ISIS positions but refuses to bomb. Which is extremely pointed of him. For a man who carefully measures his words. Fort Russ.

          http://fortruss.blogspot.ch/2015/09/lavrov-us-knows-isis-positions-refuses.html

          Kiwicris | Sep 15, 2015 7:29:02 AM | 69

          Noirette @ # 67 Yes I was a bit Swift intake of breath when I read that on Fort Russ. No, it's definitely not like him to be so, well, blunt is it? With this, we also have the arguments in the Iraqi Parliament about US & UK planes dropping arms & supplies to ISIS as in landing and unloading,(Totally separate from the parachute drops to the Kurds or Shite Militias or Iraqi Army that seem to end up in ISIS hands most of the time), Israel treating wounded militants and being al Qaeda's Air Force, with all this there should be enough now for a big exposee of it in the MSM. . . . . . . . and waiting . . . . . . . still waiting ( ͝° ͜ʖ͡°)
          james | Sep 15, 2015 4:21:57 PM | 82

          @74 noirette.. as always, thanks for your input and reasoned thoughts on these topics.. thanks for the data @66 as well..

          it's better lavrov speaks openly on what everyone with half a brain is thinking here.. that isis is a mercenary group paid to be where it is ought to come as no surprise.. that the usa hopes to use them to overthrow assad - they have openly stated this.. the only thing the usa hasn't done is said they're contributing to the funding of isis, or turning a blind eye when there cohorts saudi arabia and etc. are... it's just another mercenary group called isis getting approval to help along the western agenda here - much like blackwater, but they could state that openly with iraq - not so here..

          if anyone thinks isis are the one's the usa or their western buddies are going after here - if you believe that - make as well make a constant diet of wow posts then...

          somebody | Sep 15, 2015 8:59:25 PM | 86

          Re: dh | Sep 15, 2015 5:27:50 PM | 83

          You got my argument the wrong way round.

          Altruistic behaviour in primates relies on reciprocity

          It has got nothing to do with German guilt. Nowadays you can't be seen letting children drown in the Mediterranean or getting starved in Hungary without people disliking you.
          So European politicians first tried to throw up their hands with tears in their eyes whilst making sure the ships in the Mediterranean are military and not humanitarian.

          When refugees still managed to get into Europe in large numbers heading for Germany where they had relatives and knew that there were jobs there was not much German politicians could legally do except stop Schengen that makes it easy to go anywhere once you have crossed the European borders - which is happening now getting refugees stranded in the fields. They cannot legally send the refugees back to Syria, Iraq or Afghanistan. Neither can they send refugees back to Turkey. They might be able to do that after a lengthy legal process, but not now. In this situation European politicians have no choice - they cannot revert to racism as their populations are pretty mixed already, it would tear the whole European fabric apart, and, in the case of export driven Germany, it would destroy their global brand.

          The truth is that Turkey has a land bridge to Europe and there is a perfectly safe ferry from Turkey to the Greek islands which is closed for refugees. The other truth is that Germany has been pressuring countries on the periphery to close their borders and keep the refugees who still made it. There is no reason for countries on the periphery to agree to something as disadvantageous to them as the Dublin regulation but that their negotiation position was very week.

          It could be that Germany overdid the pressure and forgot about the reciprocity. As I understand the situation now German politicians threaten more or less openly to "stop paying" for Europe which is hilarious as the "paying" is based on an export surplus other European countries pay for with a deficit.

          duth | Sep 18, 2015 2:14:53 PM | 89

          yes indeed very soon, with the influx of probably millions of cheap labour, the big cats may bring back the industries from china , yes now the western Europe may be able to compete with them. I think this must all be part of their big plan and i think it wont work though due to the people demanding higher standards of living.

          [Sep 21, 2015] The Pope the Market

          "... Gosar is a cafeteria catholic, who ignores the thing about "loving thy neighbor", and "tossing the first stone". ..."
          "... Carbon pricing is not "market based"; it is a regulatory intervention to correct "market distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to mistake an imaginary image of an "ideal" competitive market in which all externalities are internalized for actual markets in which the ideal could never, never materialize. In fact, externalities are NOT "market failures"; they are cost-shifting successes. ..."
          "... MARKETS 'R' US! ..."
          "...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."
          "... The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending the past 70 years. ..."
          Sep 21, 2015 | economistsview.typepad.com

          ilsm -> RC AKA Darryl, Ron...

          Gosar was educated by the "Jesuits" (they are a minority of Jesuits today) who brought you the Inquisition. Gosar is a cafeteria catholic, who ignores the thing about "loving thy neighbor", and "tossing the first stone".

          Religious freedom is not the practice of bigotry and intolerance.

          Gosar would be best served listening to the Pope. He needs the truth.

          ... ... ...

          Sandwichman said...

          "...market-based environmental policies such as carbon pricing..."

          "...the fact that environmental problems are caused by market distortions rather than by markets per se..."

          Who will teach the economists?

          Carbon pricing is not "market based"; it is a regulatory intervention to correct "market distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to mistake an imaginary image of an "ideal" competitive market in which all externalities are internalized for actual markets in which the ideal could never, never materialize. In fact, externalities are NOT "market failures"; they are cost-shifting successes.

          And this is not Catholic theology -- it is economics as practiced by some of the most perceptive economists of the 20th century who must be ignored because... MARKETS 'R' US! Too bad, because I get the sense that Nordhaus's heart is in the right place even if his economic theory is in the wrong century.

          Sandwichman...

          "...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."

          [Priceless!]

          Sandwichman -> RC AKA Darryl, Ron...

          Credit to Joan Martinez-Alier, paraphrasing Karl William Kapp, "Externalities are not so much market failures as cost-shifting 'successes'."

          Kapp, Karl William (1971) Social costs, neo-classical economics and environmental planning. The Social Costs of Business Enterprise, 3rd edition. K. W. Kapp. Nottingham, Spokesman: 305-318

          Sandwichman -> Sandwichman...

          K.W. Kapp:

          "Environmental problems are being forced today into the conceptual box of externalities first developed by Alfred Marshall. In my estimation this concept was not designed for and is not adequate to deal with the full range and pervasive character of the environmental and social repercussions set in motion by economic activities of producers or the goods produced and sold by them to consumers. I agree with those who have criticized the use of the concept of externalities as empty and incompatible with the logical structure of the static equilibrium theory."

          Sandwichman -> Sandwichman...

          From "Social Costs of Business Enterprise" by K. W. Kapp. pp. 69-70:

          http://www.kwilliam-kapp.de/documents/SCOBE_000.pdf

          How the principles of business enterprise favor the emergence of the social costs of air pollution

          "The initial concentration of industrial production in a few centers, as indeed the location of industries in general under conditions of unlimited competition, will take place in accordance with private cost-benefit calculations. Once established, the industry widens the market for a host of other industries; it offers employment and income opportunities to labor and capital; it provides a broader tax base for the emerging urban communities and the necessary public services. The locality becomes generally more attractive for additional investments, enterprise and labor and urban settlement. It is this expansionary momentum which serves to 'polarize' industrial development in certain 'nodal' centers, which soon gives rise to secondary and tertiary spread effects in the form of increasing outlets for agricultural products and consumers' industries in general. In the light of traditional economic theory the process seems to proceed in harmony with the principle of social efficiency. For, after all, internal economies combine with external economies (in the narrow Marshallian sense) to make it appear rational to concentrate production in centers which are already established and offer some guarantee that the necessary social overhead investments (in roads, schools, communication) can be shared by a larger community. What is overlooked is that the concentration of industrial production may give rise to social costs which may call for entirely new and disproportionate overhead outlays for which nobody may be prepared to pay. Thus by concentrating on the analysis of internal and external economies, and by stopping short of the introduction of the concept of social costs of unrestrained industrial concentration, traditional theory lends tacit support to the overall rationality of cumulative growth processes, no matter what their socially harmful effects may be. After all, what could be more 'rational' than to exploit to the fullest extent the availability of internal and external economies? As long as social costs remain unrecognized and as long as we concentrate on costs that are internal to the firm or to the industry we shall fail to arrive at socially relevant criteria.

          "It may be argued that, while the neglect of social costs may contribute to the cumulative growth process it still would not explain the incomplete and inefficient process of combustion which gives rise to the emanation of pollutants into the atmosphere. For obviously, if air pollution is a sign of inefficient and incomplete combustion of coal or oil the question arises why would business enterprise permit such waste to continue? The answer is simply that what may be technologically wasteful might still be economical considering the fact that not only social costs can be shifted with impunity but, above all, that discounted private returns (or savings) obtainable from the prevention of the technological inefficiency and social costs may not be high enough to compensate for the private costs of the necessary abatement measures. The fact that the resulting pollution of the atmosphere may cause social costs far in excess of the costs of their abatement is not, and indeed cannot, be normally expected to be considered in the traditional cost-benefit calculations of private enterprise."

          Sandwichman -> Sandwichman...

          More K. W. Kapp:

          "My central thesis was and has remained that the maximization of net income by micro-economic units is likely to reduce the income (or utility) of other economic units and of society at large and that the conventional measurements of the performance of the economy are unsatisfactory and indeed misleading. To my mind, traditional theoretical inquiry was neither guided nor supported by empirical observations and available data. I tried to show that micro-economic analysis ignored important relationships between the economy (wrongly viewed as a closed system) and the physical and social environment and that these intrinsic relationships gave rise to negative consequences of the economic process. It was and is my contention that the nature and scope of economic theory is too narrow. This restriction has affected economic theory at its foundation: i.e., at the stage of concept formation (e.g., costs and returns), in the choice of criteria of valuation and aggregation (in terms of money and exchange values) and hence in the delimitation of the scope of the inquiry. Not only the dynamic interconnection of the economy with the physical and social environment and the impact which the disruption of the environment has upon the producer (worker) and consumer but also the relationship between human wants and needs and their actual satisfaction have remained outside the scope and preoccupation of economic theory. Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.

          "This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development. In fact, the whole procedure "alienates" economic analysis from what I consider to be one of its most important objectives, namely the appraisal of the substantive rationality (Max Weber) of the use of society's scarce resources. Critics of the traditional approach from Marx and Veblen to Myrdal and more recently H. Albert and W.A. Weisskopf have pointed out that the restriction of the analysis is the result of specific analytical preconceptions as well as hidden value premises. In short, the critics have argued that the restriction of economic analysis reflects a subtle dogmatism on the part of its practitioners."


          GeorgeK -> Sandwichman...

          WSJ
          Updated April 19, 2013 6:27 p.m. ET

          "One of the great policy bubbles of our times has been cap and trade for carbon emissions, and on Tuesday it may have popped for good. The European Parliament refused to save the EU's failing program, which is the true-believer equivalent of the pope renouncing celibacy.

          The Parliament in Strasbourg voted 334-315 (with 63 abstentions) against propping up the price of carbon credits in the EU Emissions Trading System. The failed proposal would have delayed the scheduled sale of 900 million ETS permits over the next seven years, thereby suppressing supply. After carbon traders realized they weren't getting more artificial scarcity, they drove the price of emissions permits down by 40% at one point on Tuesday."....

          Maybe Mr Nordhaus miss this little gem when he was "researching" his article

          anne -> GeorgeK...

          http://www.wsj.com/articles/SB10001424127887324030704578426520736614486

          April 19, 2013

          Cap and Trade Collapses
          Even the European Parliament rejects carbon price-fixing

          ilsm -> Sandwichman...

          The author does not think greed and failed distribution are market distortions.


          Sandwichman -> ilsm...

          No. Nordhaus appears to believe that general equilibrium describes a tendency of economies rather than a feature of abstract mathematical models. After all, didn't Arrow and Debreau "prove" its existence (given certain implausible assumptions)?

          The mathiness fetish began long before Lucas and his bogus "critique." Only a profession that was desperately eager to "pay no attention to the man behind the curtain" could have fallen for such a blatant display of OzWizardry.

          Sandwichman -> Sandwichman...

          I repeat:

          "Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.

          "This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development."

          david -> Sandwichman...

          I always find it very hard to get over this fundamental objection. And wonder why I think I should.

          DrDick -> ilsm...

          Why would he? They are the very heart and soul of capitalist markets.


          anne said...

          https://www.washingtonpost.com/opinions/pope-franciss-fact-free-flamboyance/2015/09/18/7d711750-5d6a-11e5-8e9e-dce8a2a2a679_story.html

          September 18, 2015

          Pope Francis' fact-free flamboyance
          By George F. Will - Washington Post

          Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert's indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak - if his policy prescriptions were not as implausible as his social diagnoses are shrill.

          Supporters of Francis have bought newspaper and broadcast advertisements to disseminate some of his woolly sentiments that have the intellectual tone of fortune cookies. One example: "People occasionally forgive, but nature never does." The Vatican's majesty does not disguise the vacuity of this. Is Francis intimating that environmental damage is irreversible?

          [ A wildly offensive essay from a typically offensive writer, but so much so as to be deserving of reading at least for the idea that environmental damage, damage to life as such, is inevitably and necessarily reversible. ]

          Sandwichman -> anne...

          Yuck. There is a reason I don't read George Will. He is a political pornographer whose intended audience is composed of post-adolescent crypto-fascists.

          Sandwichman -> Sandwichman...

          "[William F.] Buckley is survived by his hip satirical novelist son Christopher, his pale imitation of its former self magazine, and George Will's wardrobe and middle initial."

          http://gawker.com/361402/william-f-buckley-crypto-fascist-is-correcting-usage-in-heaven


          cm -> Sandwichman...

          But in reference to your first comment in this post, there is a market for his writing, so ...

          DrDick -> cm...

          There is a market for underage prostitutes as well. That does not mean that we should encourage it.

          Sandwichman -> Sandwichman...

          Wikipedia: "A shill, also called a plant or a stooge, is a person who publicly helps a person or organization without disclosing that they have a close relationship with the person or organization."

          Ben Groves said...

          Follow the actual policy and reject the dialect. There has been almost no move against what is called "Climate Change". The "deniers" try to mutter dialectical nonsense there has been this great move, but they are lying. Look at the Rockefeller fortune split. While Jay has moved David's fortune to supporting moves to combat climate change, the Rockefeller Foundation has consistently financed denier bullshit globally and they own most of the money. Thus, the climate denier is a globalist. Why? Because global capitalism can't run without oil and specifically, cheap oil in the developed world for them to make profit.

          If you want to enmass a battle against "climate change" (a word the deniers existed), you must use fear and nationalism. This is the weakness in the current response. When you don't use fear and nationalism, it creates a emasculated response and people don't drift to Beta's. Alpha response in politics cannot be underestimated. It is how the neocons suck in the fools and what they learned watching 100 years of anti-capitalism in action (especially the Cuban revolution, with mega alpha males Fidel and Che).

          ilsm said...

          From the start the carbon cabal has created immense externalities which governments have responded with coddling them with subsidies and defending their foreign "assets".

          From wars (US since WW II), to support of corrupt royals and ruthless dictators, to cadmium in the livers of ungulates, to blighted cities and to massive degradation of the public health.

          While the right wing is defending the soccer Mom's SUV!

          The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending the past 70 years.

          The Pope is being Jeremiah!

          [Sep 21, 2015] Peak Oil Review - Sep 21

          "... The EIA released a report pointing out the impact the massive debt service US oil producers have accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000 creditors. ..."
          "... According to Bloomberg, more than half the companies on its list of oil producers have debts totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced by companies in financial trouble is in risk of being shut down. ..."
          "... US natural gas production has started to fall. Some of this is due to the drop in natural gas production that comes along with falling oil production, but some is due to the the extremely low price of natural gas ..."
          "... the Iranians are looking forward to increasing their oil production next year and regaining their former share of the international oil market. ..."
          "... The Saudis still have about $660 billion in foreign assets, enough to get them through five years of low oil prices. ..."
          "... In the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the same as they did before the price slump. ..."
          "... the government is studying an increased oil extraction tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian economy, there is little left to tax other than oil production ..."
          Sep 21, 2015 | www.resilience.org
          The EIA released a report pointing out the impact the massive debt service US oil producers have accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000 creditors. Only four years ago KKR & Co. and a group of other investors spent $7.2 billion in buying Samson. According to Bloomberg, more than half the companies on its list of oil producers have debts totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced by companies in financial trouble is in risk of being shut down.

          Moody's and Goldman's were out last week with pessimistic forecasts about the outlook for the oil industry over the next two years. Moody's says that earnings from the global oil and gas industry will decline by 20 percent this year and only recover modestly in 2016. Goldman's says the the current crude surplus may keep prices low for the next 15 years and reiterated that it could take prices as low as $20 a barrel to clear the oil glut which is threatening to overrun storage capacity.

          The US Secretary of Commerce noted last week that interest in acquiring new drilling rights in the Gulf of Mexico is dropping due to low oil prices. This year the auction of drilling rights in the Western Gulf of Mexico yielded only $22.7 million as compared with $110 million last year. High-cost off shore drilling is in a lot of trouble with participants scrambling to mothball drilling rigs and fleets of support ships and to defer new equipment that was ordered during the boom years.

          ... ... ...

          Lost in all the furor over oil prices and declining production is that US natural gas production has started to fall. Some of this is due to the drop in natural gas production that comes along with falling oil production, but some is due to the the extremely low price of natural gas which fell on Friday to $2.60 per million BTU's in NY. These prices have led to an increase in demand for gas by the power companies and the ongoing construction of several export terminals for LNG.

          ... ... ...

          In the meantime, the Iranians are looking forward to increasing their oil production next year and regaining their former share of the international oil market. Tehran has announced that new types of oil contracts aimed at attracting foreign investment to the country's oil industry will be announced soon. Trade delegations from France and the UK are scheduled to visit Tehran soon.

          ... ... ...

          Down in Iraq, the government is trying to cope with lower oil prices by increasing exports. The latest plan calls for shipments of Basra crude to increase by 26 percent next month. In the meantime, Baghdad has warned the foreign oil companies working in the country that it will not have much money to pay them for their drilling efforts in the coming year so they should cut back on capital expenditures.

          ... ... ...

          There is unlikely to be much change in the oil situation unless there is some type of foreign intervention to contain the Islamic State or stop the refugee flow into the Mediterranean.

          ... ... ...

          The Saudis are starting to feel the impact of lower oil prices as the kingdom faces the biggest financial deficit in decades. Steps to cut spending are underway and the privatization of state-owned companies and elimination of fuel subsidies are likely. The Saudis still have about $660 billion in foreign assets, enough to get them through five years of low oil prices.

          Recent data shows that the Saudis are holding their own in efforts to maintain market share. In the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the same as they did before the price slump.

          ... ... ...

          Russia's economy continues to deteriorate. Moscow's labor minister said that real incomes in Russia are expected to contract by 5 percent this year. Efforts to ramp up domestic substitutes for food and goods previously imported from the West are going slowly and it may be years before they are implemented. To offset growing budget deficits, the government is studying an increased oil extraction tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian economy, there is little left to tax other than oil production which is still doing well thanks to the greatly devalued ruble and large export sales which have combined to leave oil export revenues largely unchanged when measured in rubles.

          Work on the "Turkish Stream" pipeline which Moscow is planning to build to move natural gas to the EU while bypassing Ukraine has not begun. Delays have moved completion of the project into 2017.

          ... ... ...

          China's diesel exports may surge to a record in the coming months as refinery output increases while domestic demand growth for the fuel slows. The nation's diesel shipments might have risen to a record last month, topping the previous high in June of 670,000 tons, and may climb to 1 million tons a month in the fourth quarter. (9/14)

          ... ... ...

          Uganda/Kenya: Low crude prices have thrown the future of East African oil projects into doubt. With oil prices languishing below $50 a barrel, there's little incentive for companies such as Tullow Oil Plc, Africa Oil Corp., China's CNOOC Ltd. and France's Total SA to keep investing. (9/16)

          ... ... ...

          Gasoline consumption: U.S. motor gasoline use has been rising after reaching an 11-year low in 2012. Although lower gasoline prices have been an important factor in the increase in gasoline use so far in 2015, changes in the labor market and in the vehicle sales mix over the past few years also have contributed to the rise in gasoline use. (9/16)

          [Sep 21, 2015] Economic Outlook, Indicators, Forecasts - Your Business

          "... More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel by December. ..."
          Sep 21, 2015 | Kiplinger

          Then the Federal Reserve announced its decision to keep its benchmark interest rate at rock-bottom levels, citing concerns about the health of the global economy. Those worries promptly sent oil prices sliding, with WTI trading near $45 per barrel.

          More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel by December. Any sort of sustained price rally looks unlikely until global supply is dialed back from its current high level. Even though U.S. production is slipping a bit, output remains strong in the Middle East and Russia.

          [Sep 21, 2015] Oil Prices Gain On Higher Investor Confidence In Tightening Markets

          "... hedge funds have cut their gross short position by almost a third in recent weeks to 111 million barrels. This is down from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in mid-June: ..."
          Sep 21, 2015 | OilPrice.com

          The crude complex is ripping higher after Friday's lambasting, encouraged higher by signs of a tightening market and further closing of short positions in the latest CFTC data. As the below chart illustrates, hedge funds have cut their gross short position by almost a third in recent weeks to 111 million barrels. This is down from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in mid-June:

          [Sep 21, 2015] Is This The Bottom For Oil Prices

          "... Around the world, an estimated $1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices, according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment has already been scrapped, and another $20 billion could be cancelled as well. The number of new oil and gas projects to be approved in 2016 could be around one-fifth of the annual average. ..."
          "... The low oil prices are taking their toll, the main shale oil producing regions in particular likely to suffer lasting damage ..."
          Sep 21, 2015 | OilPrice.com
          Global oil demand also continues to rise. The IEA again revised its demand projection for 2015 upwards, with consumption expected to grow by 1.7 mb/d, a five-year high. "The market's not as oversupplied as we think it is," David Pursell, managing director at Tudor Pickering Holt & Co., told Bloomberg in an interview.

          The long-term picture shows even stronger signs of bullishness. For example, it is unlikely that Iraq will be able to reach its ambitious production targets for the future, and because energy forecasters like the IEA are counting on Iraq to make up a large share of global production growth in the coming decades, the failure to reach those targets could leave the world short of supply. The same can be said for Brazil. In June, Petrobras acknowledged it will be unable to meet its production goals as well. The several million barrels per day lost between just these two countries alone mean that the long-term supply picture looks a lot tighter than we once thought.

          But it goes beyond Iraq and Brazil. Around the world, an estimated $1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices, according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment has already been scrapped, and another $20 billion could be cancelled as well. The number of new oil and gas projects to be approved in 2016 could be around one-fifth of the annual average.

          Other market watchers concur. "The low oil prices are taking their toll, the main shale oil producing regions in particular likely to suffer lasting damage," Commerzbank concluded in another report. Lower production over the longer-term could send oil prices up.

          However, it is short-term market conditions that dictate the huge gyrations in crude oil prices. And for now, based on the positions of oil speculators, prices may have bottomed out.

          By Nick Cunningham of Oilprice.com

          Related: Iran Deal May Redefine The Middle East

          [Sep 21, 2015] HUGE part of the problem is we have a energy illiterate general public

          "... markets are less and less supportive of deja vu innovation. ..."
          "... However, a HUGE part of the problem is we have a (mostly) energy illiterate general public, AND a scientific community that often does not speak in a language that the general public can comprehend; there is A HUGE disconnect here. ..."
          "... US electricity consumption per capita is at the levels of the late 1990s to early 2000s. Efficiency, demographics reducing the growth of household formations, and a halving of the growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08 are the primary factors reducing consumption per capita. ..."
          "... It ..."
          "... would be nice if our only problem were with oil. We have a problem with electricity too, and with keeping the roads paved. Electric cars don't solve those problems. ..."
          Sep 21, 2015 | ourfiniteworld.com
          September 15, 2015

          Thomas Simon, September 15, 2015 at 7:19 am

          @CalifornuiaLiving you are right about the California economy booming. Record tourism, agriculture, fossil fuels, high tech, etc. all have been strong. Problem is drought , wild fires, and climate change have significant impact on the future. Also wage stagnation in non-elite worker sector is a deepening problem. And high tech sector is starting to feel the pinch as markets are less and less supportive of deja vu innovation.

          The reality of ocean acidification, coastal marine life die off due to heat caused algae bloom and potential sea rise from Arctic ice melting are no longer deniable. This is is not doom and gloom – this is as you I am sure can recognize required input for planning how to adjust oir at the east manage the risk.

          What I appreciate from Gail is her careful analytical models that provide data points to monitor as part of the risk assessment and adjustments that any pragmatist must consider.

          kimgerly, September 14, 2015 at 5:28 pm

          @CaliforniaLiving. Here you go. RE's only at 20% in California. http://energyalmanac.ca.gov/electricity/total_system_power.html

          Massive EV rollout is only good in tandem with a MASSIVE increase in installed renewable energy systems technologies. It will take decades to do this based on today's generation mix. And based on the escalation of the 'undesirables' and 'indifference' of Mother Nature, I'm predicting there will be A LOT more pain in the near future.

          Better if the leadership trains and educates the populous to conserve, leave these bad habits of hyper-consumption in the past, and to PREPARE. to RESPOND. and ADAPT., because Mother Nature is not going to wait.

          BTW: I'm a renewable energy engineer.

          kimgerly, September 14, 2015 at 7:16 pm

          The way I see it is hyper-consumerism will be the bane of (wo)mans' and other species' existence.

          However, a HUGE part of the problem is we have a (mostly) energy illiterate general public, AND a scientific community that often does not speak in a language that the general public can comprehend; there is A HUGE disconnect here. And so, why would those of us in the scientific/engineering realm expect the lay person to get onboard when we, although I try my best not to, spew in language that goes over most peoples' heads. More storytelling is needed…

          On top of the fact that we have leaders who don't understand thermodynamics, so they make BAD policy. Right, I blame a great deal on leadership who is failing to plan and not the sheeple.

          But it's happened before and it is quite likely happening again. And so it goes…

          CL, September 15, 2015 at 1:14 pm

          @Kimgerly

          I agree with you that "illiterate general public" is a major problem in setting the world on a correct course and Gail with this blog is part of that problem. There is one simple proven way to get the public to learn what is needed to point them in the right direction. It is though the tax code. The government needs to taxes the public on the actions that are damaging our environment and give credits to behavior that improves our environment. The one thing the public understands is money. I'm sure the fools will come after me. When they read this post. Telling me I'm obstructing their freedom that is destroying mother earth.

          I also don't buy your statement that " leaders who don't understand". There is one party that gets it and another that refuses to at knowledge the situation protecting it's special interest ( oil companies for one ). This site lead by Gail is part of that special interest infrastructure. I have yet to see since she fell out of favor at TheOilDrum. A solution to anything. It's always Fear, Collapse, Fear and more Collapse.

          Obama gets it – https://www.youtube.com/watch?v=C23e_-5BdZM

          PleaseExplain, September 15, 2015 at 1:25 pm

          Please Gail, let us know the last time you offered a solution ? You've been calling for collapse for five years and it hasn't happened. When do you admit your wrong ?

          PleaseExplain, September 15, 2015 at 2:56 pm

          I'm sick of reading your negative doomsday scenario and disinformation that this site pushes on the public for special interest. That's who I am.

          BC, September 15, 2015 at 3:25 pm

          US electricity consumption per capita is at the levels of the late 1990s to early 2000s. Efficiency, demographics reducing the growth of household formations, and a halving of the growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08 are the primary factors reducing consumption per capita.

          EV sales are plunging with the crash in the price of gasoline and coincident with a global recession that likely began in late 2014 to earlier this year.

          Growth of wind and solar energy production overall and as a share of total energy production has likely peaked for the cycle and will decelerate to 0% or negative in the years ahead, as occurred in the 1990s.

          Gail Tverberg, September 15, 2015 at 6:54 am

          Yes, we do have a population problem.

          Gail Tverberg, September 15, 2015 at 6:45 am

          It would be nice if our only problem were with oil. We have a problem with electricity too, and with keeping the roads paved. Electric cars don't solve those problems.

          [Sep 21, 2015] Iran Deal May Redefine The Middle East

          "... A Real Politik assessment that only can come from someone who covers the global oil producing nations as a whole industry. ..."
          "... The breakup of the Soviet Union was not just the fall of a single nation, but the fall of one of 2 Post WWII Global Hegemons. ..."
          "... Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed at the bargaining table with Iran. ..."
          "... The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically elected SECULAR government ever in the ME (Mossedegh). ..."
          "... They COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis, instability, death. ..."
          Sep 21, 2015 | naked capitalism
          This has led to a new emerging relationship between the Saudis and Russia, where negotiations between Russia and OPEC emerged over the possibility of coordination of oil production levels. OPEC hinted that it was open to coordinated production cuts with non-OPEC members in its latest bulletin report, saying that "if there is a willingness to face the oil industry's challenges together" then the future would "be a lot better." Russian officials held meetings with their counterparts from OPEC, fueling speculation of some sort of accommodation.

          Despite positive language from the negotiators, the talks so far have not amounted to much. Rosneft's Igor Sechin seemed to rule out such a scenario on September 7 in comments to the press, in which he said that Rosneft can't operate the way OPEC can. It would be difficult for Russia to cut back on its production, even if that meant some chance of higher prices. Russia's economy is hurting, and it needs to sell every barrel that it can.

          Although there won't be a deal on oil output, Saudi Arabia and Russia made more progress on discussions regarding the purchase of Russian nuclear power plants and military equipment, a likely wake-up call to the U.S. and UK, the Saudis' longtime military suppliers. Still to be determined is whether this is a new alliance or merely a show of Saudi independence.

          ... ... ...

          The EIA reports that in the last five years, the U.S. 'shale oil revolution' has enabled the U.S. to more than halve its oil imports, making it far less dependent on imports from OPEC, and significantly changing the terms of the relationship.

          There is a lively ongoing argument in the world press about the possibility of the nuke deal leading to an entente between the U.S. and Iran, or even the possibility of an actual alliance.

          Hardcore opponents of the deal claim that Iran is already in a quasi-alliance with the U.S. in the fight against ISIS in Iraq. And, although both countries hotly deny any intent to form an alliance, there are many in the region who believe that perhaps 'the ladies doth protest too much'.

          ... ... ...

          As reported by Nick Cunningham, on these pages, the recently announced agreement with European oil companies to extend Gazprom's Nordstream gas pipeline into Germany was a clear sign that the EU is willing to do business with Russia again; this despite the Ukraine crisis, which in the face of Middle Eastern conflicts, seems to be fading into the background.

          Selected Skeptical Comments

          Vince in MN, September 21, 2015 at 6:39 am

          39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping.

          EoinW, September 21, 2015 at 8:58 am

          In my lifetime, the Middle East has had two problems: Wahabbism and Zionism. We've been on the wrong side of both. One can count on western leaders to always be on the wrong side.

          If Putin appears the voice of reason, what does that make Obama? He often seems like a housewife reacting to the dramatic conclusion of his favourite soap opera…with a new episode to follow tomorrow. Almost want to write – same Bat time, same Bat channel – it's so cartoonish.

          The refugee crisis has made Merkle seem almost like a compassionate human being. But we know she only cares about keeping the EU going on her watch and she can see what a threat the refugee crisis is to EU unity. How worse will that threat be when Ukrainian refugees start coming? Better make nice with Russia!

          Bill Smith September 21, 2015 at 10:17 am

          "Saudis offer to Israel to allow flyovers of Saudi territory in case an attack on Iran" This has been reported on and off for several years.

          The "sudden military alliance between Israel and Saudi Arabia" seems overblown. There have been very scattered reports of intelligence cooperation in the past but that is it.

          Of course FARS reports stuff like this:

          "20 Israeli officers and 63 Saudi military men and officials were killed"

          likbez September 21, 2015 at 11:22 am

          "39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping."

          I would agree. It is clear for me that the quality of reporting about Russia is on the level of presstitutes from WashPost.

          Also it is unclear that is the USA game plan as for Iran and what this article tries to communicate does not look plausible. It might well be that the USA wants to spread their bets by including Iran into the cycle of vassals (the USA does not need allies, only vassal states) but I think Iran elite still remembers years of crippling sanctions pretty well to jump into Uncle Sam embraces. The deal is needed mainly to put additional pressure on oil prices and if it achieves its goals and Russia crumbles, Iran will be thrown under the bus by US neocons very soon and without any hesitation.

          It also looks like SA leadership wants some kind of rebalancing of relations with Russia as after Egypt to rely on US neocons is simply stupid. They proved to be pretty treacherous folks and promises given are not worth the paper they were printed on.

          But if we assume that neocons dominate the USA foreign policy in foreseeable future, then the key policy in Middle East will be usual "divide and conquer" policy like we saw in Iraq, Libya and Syria. And bloodshed financed from usual sources (is not ISIS the USA and friends creation ?) will continue.

          What is interesting is that SA never managed considerably increase their oil exports as their internal consumption grows more rapidly then extraction. They just refused to drop the volume of their exports. Probably with tacit approval of the USA. So it looks like drastic oil price drop is mainly financial markets play (derivative and futures games) - and that means that one plausible scenario is that this is another attempt to hurt Russia and depose Putin, even by taking a hit for own shale industry and decimating Canadian oil sands. Lifting sanctions from Iran is just the second step of the same plan.

          EoinW -> likbez, September 21, 2015 at 12:32 pm
          If Vietnam can forget over 2 million murdered by Americans and cozy up to Washington then it must be possible to find elites in any society(even Iran) who will sell out for the right price.
          Paul Tioxon September 21, 2015 at 12:34 pm

          A Real Politik assessment that only can come from someone who covers the global oil producing nations as a whole industry. Not completely unsurprising, but unusual in that the only constant in the social order is change and the people making sense out of the change have to look ahead to consequences real and unintended from political decisions that impact global energy production, particularly oil. The breakup of the Soviet Union was not just the fall of a single nation, but the fall of one of 2 Post WWII Global Hegemons.

          The failure of the Project for A New American Century as a bid for a unipolar, unilateral Militaristic American Hegemony has resulted in a shift back to the International as opposed to Global relations. The institutions of the Post WWII world, The United Nations, the IMF and the World Bank, with the emphasis on diplomacy as opposed to nation to nation warfare is being resurrected in the Iranian Nuclear Non-Proliferation Treaty. What has been nearly completely absent is the naming of the UN Security Councils permanent members, the victors of WWII were united in staring down Iran until they produced the desired results, namely, giving up on pushing its way into the nuclear power club. The re-establishment of normal diplomatic relations with Cuba is a corroborating development. Russia has worked with the US in Syria to eliminate the chemical warfare stockpiles of Syria as well as patiently worked to conclude a successful Iran re-approachment.

          Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed at the bargaining table with Iran. And the war party demanded that a better deal could be had, what, they could get it for us WHOLESALE! Nuclear Non Proliferation was what was at stake and the UN Permanent Security Council Members were all present to negotiate the re-integration of Iran into the United Nations.

          Presidents Obama and Putin are more allied than not and the structure of an inclusive international social order are being worked out without the lies of the Bush family´s war party plans. The USA is not falling apart at the seams because other nations are finally enriching themselves, thus putting them beyond the simple command and control of Neo-con warlords. The USA is relatively weaker not due to being hood winked or conquered but because other nations have risen in their own capacity to direct self determination. Iran is welcomed to do so, just not with nuclear weapons. That is a good thing, in the eyes of the Iranians and the rest of world.

          mark September 21, 2015 at 12:59 pm

          Interesting article about the people that worked on this over the years.

          "Who made the Iran deal happen? Here are some of the people behind the scenes.
          PRI's The World"

          http://www.pri.org/stories/2015-07-14/who-made-iran-deal-happen-here-are-some-people-behind-scenes

          Praedor September 21, 2015 at 1:35 pm

          I DO so hope it leads to a completely new alignment in the ME. I am sick to death of "Iran the great evil" bullcrap.

          It has always struck me as purely a childish temper tantrum on the part of the USA because the Iranian people had the GALL to toss out OUR murderous dictator and actually run their own country for their own people. Who do they think they are?

          How DARE they use THEIR oil for THEIR country rather than to serve Western oil company bottom lines and provide the US with oil that, by rights, belongs to it. Because America! That and the fact that the Iranians held some US neocolonials/neoliberals hostage for a year-ish. That's unacceptable! Americans can do anything they want to whomever they want, damnit!

          The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically elected SECULAR government ever in the ME (Mossedegh). Imagine what Iran and even the ME could have been by now if Mossedegh had been allowed to stay in rightful power? Iran would be a true beacon of liberty and freedom and modernity in the heart of the ME. Israel doesn't even come close. They COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis, instability, death.

          [Sep 21, 2015] The Mystery Of The Missing Inflation Solved, And Why The US Housing Crisis Is About To Get Much Worse

          For the last 20 years, realistic US inflation rate was probably higher then official figures considerably. Some estimate it between 4% to 5% a year. Medical expenses rose probably 200%. Cost of higher education skyrocketed. We can say that rent alone from 1995 to 1996 rose probably 60% (assuming 3% a year official figure). Food prices are highly correlated with oil and they rose more (but they do not represent major expense item in most budgets).
          "... Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400. ..."
          Sep 21, 2015 | Zero Hedge
          We hinted at the key features of this unprecedented conversion in June, when we wrote the following:

          ... by now everyone knows that the artificially suppressed, "hedonically-modified" and seasonally-adjusted inflationary readings is what has permitted the Fed to not only grow its balance sheet to $4.5 trillion but to keep rates at 0% for 8 years. Because "how will the economy recover if there is no broad inflation", the Keynesian brains in the ivory tower scream, demanding more, more, more easing just to push inflation higher.

          There is only one problem with this: it is all a lie - just ask any average American whose cost of living has soared in the past decade.

          Still, with reality diverging so massively from the government's official data, reality just had to be wrong somehow.

          Turns out reality was right all along, as revealed by the latest "State of the Nation's Housing" report released by the Center for Housing Studies at Harvard, which showed that while inflation among most products and services may indeed be roughly as the Fed and BLS represent it, when it comes to rent - that most fundamental of staple costs - things have never been worse.

          According to the report, for American renters 2013 marked another year with a record-high number of cost burdened households - those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.

          It gets worse: a whopping 11.2 million, or more than a quarter of all renter households, had "severe cost burdens, paying more than half of income for housing." The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs. Renter housing costs are gross rents, which include contract rents and utilities.

          ... ... ...

          And since there is an unprecedented demand for rental units across the US (as the "owning" alternative has become inaccessible), the median asking rent not only soared at an annual rate of over 6%, it has never been higher, with the Census Department recently reporting that the Median US asking just hit an all time high $803.

          ... ... ...

          What is odd is that according to the BLS, rent inflation is far less: at just 3% in the most recent print. One wonders what seasonal adjustments American renters should use to make their monthly paycheck smaller, the way the BLS perceives it. Still, at 3.6% this is the highest annual rent inflation since 2008.

          And herein lies the rub: because it is not so much what the real, honest inflation growth rate of rent is, it is what the offsetting income growth. Unfortunately, while the BLS can seasonally adjust rent payments to make them as low as a bunch of bureaucrats want, the bigger problem is that US household income is not only not keeping up with rent inflation, it is far below it. In fact, as reported last week, real income is now back at 1989 levels!

          And here is the punchline:

          "in the years following 2000, gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind (Figure 3). As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960."

          ... ... ...

          Furthermore, rent inflation isn't going anywhere - in fact, it will only get worse: "as of 2013, the median rent of a newly constructed unit of $1,290 was equal to about half the median renter's monthly household income, underscoring the urgent need for policy makers to consider enhanced levels of support for rental housing particularly for lowest income households but across a range of income levels."


          Hype Alert

          Housing and healthcare are severely under reported on inflation. How healthcare can triple and not set off flashing red lights on inflation is unreal.

          Never One Roach

          I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% the past several years despite soaring food, health costs, utinilites, etc.

          AGuy

          "I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% "

          Simple: many still work while collecting SS. Some have part-time jobs (aka Wallmart) others maintained their full time jobs. If you look at the employment chart, Employment for those 55 and older has risen considerably. I believe employment for the 70+ group has also increased.

          However, many 65+ have a lower cost of living. (ie no mortgage payments, no college loans, lower healthcare -on Medicare, etc). They can afford to take on one part time job to meet ends since they have SS.

          Consuelo

          "The reason for this is a simple, if dramatic one: the U.S. transformation from a homeownership society, to one of renters."

          All well & good in the context of officialdom's lies and deceit, but there's just a ~tiny~ bit of clarification needed here...

          Home 'ownership' is a misnomer, and just a plain bald-faced Falsehood in reality. You don't 'own' ~anything~ until that last mortgage payment is made - assuming you're not a $cash buyer. And even then, try skipping a property tax payment... And didn't we just find out a few years back, the real meaning of 'home ownership' to the ball & chain tied schlub paying (or not) his mortgage...?

          WTF_247

          Wage growth has lagged most other costs for at least a decade or more. Inflation and other cost increases are compound functions. The correction will take care of itself. Healthcare and rent are taking more and more of peoples $$ You can only stretch it so far - at some point there is no more money.

          Either incomes will rocket up OR housing, including rent, will crash huge. You cannot get renters to pay for something they have no money for. No one is going to rent and choose not to eat or to eat ramen noodles permanently. You cant even get rid of health insurance now or the IRS comes after you - no matter how much it increases each year (estimated 15-20% increase next year). You can get 1 roommate, then 2. But most cities limit the number of renters based upon the number of bedrooms - this only goes so far.

          The solution is to stop working or only work a bare minimum - get benefits. Section 8 housing. EBT. Free healthcare. Welfare benefits.

          Something is wrong in the US when a working mother making 29k has a better standard of living that someone making 69k per year. If anyone thinks this is not lost on the population as a whole, they would be mistaken. As costs keep going up it is more lucrative to NOT fight anymore. Let the govt pay for it.

          novictim

          Tyler! "Missing Inflation" is not a mistake or a misunderstanding or an accounting glitch.

          Inflation really is low. People have insufficient money.

          Do not confuse asset inflation with real inflation. Stock overvaluations and real estate over-evaluations do not create real inflation because prices drop when people sell. Assets are self correcting and non-inflationary.

          adr

          I shouldn't have to worry about affording somewhere to live with the job I have, yet because of where the job is I have to.

          The entire Northeast is fucking insane.

          Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400.

          I posted a three bedroom ranch that was renting for $3200 a month a little while ago. What do millionaires rent shitty 1950s ranch homes in a hick town?

          Then you have property taxes. Up 100% in five years in almost every town even though assessments are actually down. I saw a home listed with a 2009 value of $364k and property taxes of $2800 a year. The current assessed value is $289k but taxes are $5200.

          How are you supposed to live?

          [Sep 20, 2015]Deep State America

          "...Of course I know that the United States of America is not Turkey. But there are lessons to be learned from its example of how a democracy can be subverted by particular interests hiding behind the mask of patriotism."
          The American Conservative,

          It has frequently been alleged that the modern Turkish Republic operates on two levels. It has a parliamentary democracy complete with a constitution and regular elections, but there also exists a secret government that has been referred to as the "deep state," in Turkish "Derin Devlet."

          The concept of "deep state" has recently become fashionable to a certain extent, particularly to explain the persistence of traditional political alignments when confronted by the recent revolutions in parts of the Middle East and Eastern Europe. For those who believe in the existence of the deep state, there are a number of institutional as well as extralegal relationships that might suggest its presence.

          Some believe that this deep state arose out of a secret NATO operation called "Gladio," which created an infrastructure for so-called "stay behind operations" if Western Europe were to be overrun by the Soviet Union and its allies. There is a certain logic to that assumption, as a deep state has to be organized around a center of official and publicly accepted power, which means it normally includes senior officials of the police and intelligence services as well as the military. For the police and intelligence agencies, the propensity to operate in secret is a sine qua non for the deep state, as it provides cover for the maintenance of relationships that under other circumstances would be considered suspect or even illegal.

          In Turkey, the notion that there has to be an outside force restraining dissent from political norms was, until recently, even given a legal fig leaf through the Constitution of 1982, which granted to the military's National Security Council authority to intervene in developing political situations to "protect" the state. There have, in fact, been four military coups in Turkey. But deep state goes far beyond those overt interventions. It has been claimed that deep state activities in Turkey are frequently conducted through connivance with politicians who provide cover for the activity, with corporate interests and with criminal groups who can operate across borders and help in the mundane tasks of political corruption, including drug trafficking and money laundering.

          A number of senior Turkish politicians have spoken openly of the existence of the deep state. Prime Minister Bulent Ecevit tried to learn more about the organization and, for his pains, endured an assassination attempt in 1977. Tansu Ciller eulogized "those who died for the state and those who killed for the state," referring to the assassinations of communists and Kurds. There have been several significant exposures of Turkish deep state activities, most notably an automobile accident in 1996 in Susurluk that killed the Deputy Chief of the Istanbul Police and the leader of the Grey Wolves extreme right wing nationalist group. A member of parliament was also in the car and a fake passport was discovered, tying together a criminal group that had operated death squads with a senior security official and an elected member of the legislature. A subsequent investigation determined that the police had been using the criminals to support their operations against leftist groups and other dissidents. Deep state operatives have also been linked to assassinations of a judge, Kurds, leftists, potential state witnesses, and an Armenian journalist. They have also bombed a Kurdish bookstore and the offices of a leading newspaper.

          As all governments-sometimes for good reasons-engage in concealment of their more questionable activities, or even resort to out and out deception, one must ask how the deep state differs. While an elected government might sometimes engage in activity that is legally questionable, there is normally some plausible pretext employed to cover up or explain the act.

          But for players in the deep state, there is no accountability and no legal limit. Everything is based on self-interest, justified through an assertion of patriotism and the national interest. In Turkey, there is a belief amongst senior officials who consider themselves to be parts of the status in statu that they are guardians of the constitution and the true interests of the nation. In their own minds, they are thereby not bound by the normal rules. Engagement in criminal activity is fine as long as it is done to protect the Turkish people and to covertly address errors made by the citizenry, which can easily be led astray by political fads and charismatic leaders. When things go too far in a certain direction, the deep state steps in to correct course.

          And deep state players are to be rewarded for their patriotism. They benefit materially from the criminal activity that they engage in, including protecting Turkey's role as a conduit for drugs heading to Europe from Central Asia, but more recently involving the movement of weapons and people to and from Syria. This has meant collaborating with groups like ISIS, enabling militants to ignore borders and sell their stolen archeological artifacts while also negotiating deals for the oil from the fields in the areas that they occupy. All the transactions include a large cut for the deep state.

          If all this sounds familiar to an American reader, it should, and given some local idiosyncrasies, it invites the question whether the United States of America has its own deep state.

          First of all, one should note that for the deep state to be effective, it must be intimately associated with the development or pre-existence of a national security state. There must also be a perception that the nation is in peril, justifying extraordinary measures undertaken by brave patriots to preserve life and property of the citizenry. Those measures are generically conservative in nature, intended to protect the status quo with the implication that change is dangerous.

          Those requirements certainly prevail in post 9/11 America, and also feed the other essential component of the deep state: that the intervening should work secretly or at least under the radar. Consider for a moment how Washington operates. There is gridlock in Congress and the legislature opposes nearly everything that the White House supports. Nevertheless, certain things happen seemingly without any discussion: Banks are bailed out and corporate interests are protected by law. Huge multi-year defense contracts are approved. Citizens are assassinated by drones, the public is routinely surveilled, people are imprisoned without be charged, military action against "rogue" regimes is authorized, and whistleblowers are punished with prison. The war crimes committed by U.S. troops and contractors on far-flung battlefields, as well as torture and rendition, are rarely investigated and punishment of any kind is rare. America, the warlike predatory capitalist, might be considered a virtual definition of deep state.

          One critic describes deep state as driven by the "Washington Consensus," a subset of the "American exceptionalism" meme. It is plausible to consider it a post-World War II creation, the end result of the "military industrial complex" that Dwight Eisenhower warned about, but some believe its infrastructure was actually put in place through the passage of the Federal Reserve Act prior to the First World War. Several years after signing the bill, Woodrow Wilson reportedly lamented, "We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

          In truth America's deep state is, not unlike Turkey's, a hybrid creature that operates along a New York to Washington axis. Where the Turks engage in criminal activity to fund themselves, the Washington elite instead turns to banksters, lobbyists, and defense contractors, operating much more in the open and, ostensibly, legally. U.S.-style deep state includes all the obvious parties, both public and private, who benefit from the status quo: including key players in the police and intelligence agencies, the military, the treasury and justice departments, and the judiciary. It is structured to materially reward those who play along with the charade, and the glue to accomplish that ultimately comes from Wall Street. "Financial services" might well be considered the epicenter of the entire process. Even though government is needed to implement desired policies, the banksters comprise the truly essential element, capable of providing genuine rewards for compliance. As corporate interests increasingly own the media, little dissent comes from the Fourth Estate as the process plays out, while many of the proliferating Washington think tanks that provide deep state "intellectual" credibility are similarly funded by defense contractors.

          The cross fertilization that is essential to making the system work takes place through the famous revolving door whereby senior government officials enter the private sector at a high level. In some cases the door revolves a number of times, with officials leaving government before returning to an even more elevated position. Along the way, those select individuals are protected, promoted, and groomed for bigger things. And bigger things do occur that justify the considerable costs, to include bank bailouts, tax breaks, and resistance to legislation that would regulate Wall Street, political donors, and lobbyists. The senior government officials, ex-generals, and high level intelligence operatives who participate find themselves with multi-million dollar homes in which to spend their retirement years, cushioned by a tidy pile of investments.

          America's deep state is completely corrupt: it exists to sell out the public interest, and includes both major political parties as well as government officials. Politicians like the Clintons who leave the White House "broke" and accumulate $100 million in a few years exemplify how it rewards. A bloated Pentagon churns out hundreds of unneeded flag officers who receive munificent pensions and benefits for the rest of their lives. And no one is punished, ever. Disgraced former general and CIA Director David Petraeus is now a partner at the KKR private equity firm, even though he knows nothing about financial services. More recently, former Acting CIA Director Michael Morell has become a Senior Counselor at Beacon Global Strategies. Both are being rewarded for their loyalty to the system and for providing current access to their replacements in government.

          What makes the deep state so successful? It wins no matter who is in power, by creating bipartisan-supported money pits within the system. Monetizing the completely unnecessary and hideously expensive global war on terror benefits the senior government officials, beltway industries, and financial services that feed off it. Because it is essential to keep the money flowing, the deep state persists in promoting policies that make no sense, to include the unwinnable wars currently enjoying marquee status in Iraq/Syria and Afghanistan. The deep state knows that a fearful public will buy its product and does not even have to make much of an effort to sell it.

          Of course I know that the United States of America is not Turkey. But there are lessons to be learned from its example of how a democracy can be subverted by particular interests hiding behind the mask of patriotism. Ordinary Americans frequently ask why politicians and government officials appear to be so obtuse, rarely recognizing what is actually occurring in the country. That is partly due to the fact that the political class lives in a bubble of its own creation, but it might also be because many of America's leaders actually accept that there is an unelected, unappointed, and unaccountable presence within the system that actually manages what is taking place behind the scenes. That would be the American deep state.

          rehypothecator

          "It is difficult to get a man to understand something, when his salary depends on his not understanding it." - Upton Sinclair

          Martian Moon

          https://www.youtube.com/watch?v=n3xgjxJwedA

          Latest on 911 by James Corbett

          Educate yourself

          All Risk No Reward

          This is all you need to know to prove, beyond all doubt, that the official pile driving narrative is false.

          The reality is that anyone can OBSERVE that the top of the building DID NOT DO WHAT A CUE BALL DOES EVERY SINGLE TIME IT HITS ANOTHER BILLIARD BALL - the top of the building did not decelerate.

          It did not decelerate because IT DID NOT HIT THE LOWER SECTION OF THE BUILDING. For if it had hit the lower section of the building, IT WOULD HAVE DECELERATED.

          The official story never addressed this point. They wisely stopped their investigation at the initiation of collapse. That was no accident.

          AitT - Sir Isaac Newton Weighs in on the World Trade Center North Tower Collapse Official Narrative

          http://www.weaponsofmassdebt.com/index.php/blog/aitt-sir-isaac-newton-we...

          Now, some people will attack either me or this factual, observable, and repeatable information based on their programmed "crimestop" response...

          crimestop - Orwell's definition: "The faculty of stopping short, as though by instinct, at the threshold of any dangerous thought. It includes the power of not grasping analogies, of failing to perceive logical errors, of misunderstanding the simplest arguments if they are inimical to Ingsoc, and of being bored or repelled by any train of thought which is capable of leading in a heretical direction. In short....protective stupidity."

          http://www.newspeakdictionary.com/ns-dict.html

          But what nobody will do - because they can't do it - is to explain a physics based scenario where the top of the building hit a structurally solid lower section of the building WITHOUT DECELERATING.

          There are NO CONTRADICTIONS in reality. One leading blogger claimed he had done lots of research that showed the official story was correct.

          But what he didn't do before he stopped the conversation (smart subconsciousness!) was to explain how the top of the building could have hit a structurally sound lower section of the building without experiencing marginal deceleration.

          This is the video that needs to replace all the complex theories that are too easily dismissed by the masses.

          No, make the masses exclaim the physics equivalent of 2+2=5 in order to continue believing in the Debt-Money Monopolist false narratives engineered to damage ordinary people across the globe.

          NeoLuddite

          Elections are just advance auctions of stolen goods.

          junction

          "Deep State" operatives killed Michael Hastings and Philip Marshall. Whether Paul Walker was also killed by the "Murder, Inc." - type agents of the "Deep State," to make flaming car crashes look normal, is an open question. When Tennessee Department of Motor Vehicles (DMV)employee Katherine Smith died in a flaming car crash in 2002, her death was called a murder (still unsolved) because a Tennessee state trooper driving behind her saw her car explode into flames before going off the road.

          Smith was the DMV employee who sold driver's licenses to Arabs, licenses they used to identify themselves when they did work on the sprinkler systems at the World Trade Center before 9/11.

          Sprinkler systems which all did not work on 9/11, even though they were ruggedized after the 1993 WTC truck bombing.

          And who can forget the California policeman, on a 100% disability pension, who turned up in Orlando, Florida as the FBI agent who murdered a martial arts associate of Boston Bomber Tamerlan Tsarnaev. The guy murdered had just undergone knee surgery and could only walk with a cane, yet he supposedly lunged at this crooked FBI agent, illegally collecting a disabilty pension tax free of some $60,000 a year.

          The initial report from the agent said this guy had a sword cane but that report was false.

          doctor10

          Politics is merely the entertainment wing of the MIC/Anglo-American Central Banking junta.

          Has been since November 23rd 1963. Reagan required a 22 cal message to that effect after he thought he'd been elected President.

          kliguy38

          Of course I know that the United States of America is not Turkey. But there are lessons to be learned from its example of how a democracy can be subverted by particular interests hiding behind the mask of patriotism.

          no of course its not Turkey......its a hundred times worse

          Ms No

          Turkey's deep state is our deep state with some local players. This is going global, I thought everybody knew that. Turkey has been a vassal for the Ziocons as long as anyone can remember and they are one of many. Most of our presidents seem to prefer the term The New World Order. It's funny how people snicker about that term but I didn't catch a grin off of any of our presidents going back to Bush I snickering about it when they mention it in their State of the Union addresses and this current clown is not an exception.

          It's quite real and not at all funny. People need to take a look around they have even spelled it out for you. What do these guys have to do send us our own eulogies? Lets just hope that while everybody else is trying to figure this out that we don't end up getting too familiar with our torture state.

          Majestic12

          "America is in deep shit as are all governments run by central banks neo-Keynesian fascist economic policy."

          I got you on the "deep shit" and "run by central banks", but lost you on "Keynesian Fascist economic policy".

          ZH is full of half truths and obfuscation.

          I do not agree with much of Keynes, but most here support Von Mises (the Rockefeller Foundation product) and the London School of Economics.

          These "institutions" are profoundly contradictory, corrupt and were born of the 00001%.

          At least Keynes decried relying soley on monetary policy and "supply side" economics.

          Most here have only known "supply side" (Reagan and after), so they have nothing to compare it to.

          Listen to boomers talk of the 60s and 70s...there were always jobs, it didn't take 2 earners, it didn't take a degree, everyone took vacation, and the "information" deluge ended at 11:00pm until the next morning.

          And, you really didn't have to lock your doors, unless you lived in urban Chicago, NY, LA any other huge metropolis.

          So, it was all "Keynes"'s fault?

          Keynes, who promoted "demand-side" and "fiscal policy"...really? Fascist?

          Remember, there are 94 Million people out of the work force...but the poulation is 100 million more than in 1977, and the dollar was worth 70% more.

          Salah

          Seminal piece on the US 'deep state': http://billmoyers.com/2014/02/21/anatomy-of-the-deep-state/

          Why the Clintons & Obama are both CIA No-doubt-about-it.

          2nd Big Question: why was the CIA rushed into existence (bill signed in an airplane at end of National Airport by Truman) 45 days after the crash at Roswell?

          Freddie

          David Rockefeller as a young man was an OSS officer in WW2. Mi6 is the Red Shield.

          They are just instruments of terror used by the elites,

          Majestic12

          "2nd Big Question: why was the CIA rushed into existence 45 days after the crash at Roswell?"

          I am glad you asked.....the CIA's involvement was temporary.

          The NSA (who now administers the black space program) began as the Armed Forces Security Agency, just 2 years later in 1949.

          ... ... ...

          unitwar

          Bill Moyers? I wonder why he doesn't report on those Bilderberg meetings he attends? He reports what he is told to report. Everything he does is a limited hangout.

          Usurious

          the french called the guillotine the national razor.........just sayin...

          monica jewinsky was a honey pot.....

          JustObserving

          The Deep State runs everything in America since at least Nov 22, 1963. Kennedy promised to shatter the CIA into a thousand pieces and scatter it to the winds. Instead, the CIA shattered his brains into a thousand pieces.

          The NSA spies on the Supreme Court, Congress and the White House and you.

          The most extraordinary passage in the memo requires that the Israeli spooks "destroy upon recognition" any communication provided by the NSA "that is either to or from an official of the US government." It goes on to spell out that this includes "officials of the Executive Branch (including the White House, Cabinet Departments, and independent agencies); the US House of Representatives and Senate (members and staff); and the US Federal Court System (including, but not limited to, the Supreme Court)."

          The stunning implication of this passage is that NSA spying targets not only ordinary American citizens, but also Supreme Court justices, members of Congress and the White House itself. One could hardly ask for a more naked exposure of a police state.

          https://www.wsws.org/en/articles/2013/09/13/surv-s13.html

          Essay: Anatomy of the Deep State

          There is the visible government situated around the Mall in Washington, and then there is another, more shadowy, more indefinable government that is not explained in Civics 101 or observable to tourists at the White House or the Capitol. The former is traditional Washington partisan politics: the tip of the iceberg that a public watching C-SPAN sees daily and which is theoretically controllable via elections. The subsurface part of the iceberg I shall call the Deep State, which operates according to its own compass heading regardless of who is formally in power.

          http://billmoyers.com/2014/02/21/anatomy-of-the-deep-state/

          Who rules America?

          The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess.

          Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.

          https://www.wsws.org/en/articles/2013/06/10/pers-j10.html

          Ignatius

          It's a big club, and we ain't in it.

          jmcoombs

          Institutions, left unchecked, eventually come to worship themselves. The Catholic Church during the Spanish Inquisition is a sterling example.

          Majestic12

          "What happened to all those bags of money that were in Iraq that disappeared?"

          That was only $8 BBBBBillion in cash....chump change.

          Remember last year the DoD stated that they cannot account for $8.5 TTTTTTTTrillion.....

          1 Billion = One Thousand Millions.

          1 Trillion = One Thousand Billions.

          If your head has stopped spinning, then please, tel me....what could they spend $8.5 TTTTrillion on?

          Remember, all the wars to date are paid for in the "open" and "public" military budget...so this is "extra"....

          Now maybe you can see why some of us here take whistle blowers seriously about a secret space program.

          Engineers, secret construction hangars and bases ain't cheap....the shoe fits.

          So, there are a shit load of "Amercians" taking a big paycheck to help the elite and off-world assholes plan our demise.

          I don't know how you feel about "sell-outs", but they make me think of guillotines.

          jcdenton

          Some believe that this deep state arose out of a secret NATO operation called "Gladio,"

          Well it's more than logical, more than plausible ..

          This Deep State arose out of ........................ you figure it out for your own sake, and convince yourself. I'll just assist ..

          Directive 166

          http://www.veteranstoday.com/2013/09/22/fraud-on-the-u-s-supreme-court-b...

          The Deutsche Verteidigungs Dienst (DVD)

          http://www.veteranstoday.com/2015/05/04/neo-so-much-more-than-nukes/

          http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-...

          Tesla's Assistant

          http://www.proliberty.com/observer/20070405.htm

          (do a quick search for "Jesuit" and see how many hits you get. Notice who the DVD answer to.)

          Go here: https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp

          Go to Rulers of Evil, pg. 170. Start reading from Adam Weishaupt. Now you know the purpose of the creation of the United States of America ..

          Ms No

          I think Hitler was right about one thing, most people cannot see the big lie, it just seems to complex to them and thus ludicrous. Just look at a small portion of a military you have cores, divisions, brigades, betallions, generals, colonals, companies, Air Force, Navy, Special Forces, intelligence, espionage, propaganda depts, indoctrination depts, etc, all under one umbrella of centralized control.

          Is it really that hard to believe that a organized self serving entity who has had plenty of time and very little opposition can grow to a gargantuan empire that nearly global in scale?

          Two good reads among at least a hunderd that prove otherwise Sibel Edmonds and Tales of an Economic Hit Man.

          tumblemore

          "most people cannot see the big lie, it just seems to complex to them"

          I think it's more to do with not being sociopaths.

          People tend to think other people are like them so say the average person can only tell level 6/10 lies before they feel ashamed then they have a hard time believing other people can tell level 10/10 lies. They couldn't do it themselves so it's hard for them to imagine other people being that shameless - hence the bigger and more shameless the lie the more likely it is to be believed.

          Only part-sociopaths can see it.

          Ms No

          There maybe an element of that occuring because a psychopath can identify another path immediately which would lead one to believe they may be able to identify their activities as well but over all there is something else going on.

          There most certainly is something different about people who can go against the grain and challenge common propaganda but it isn't a lack of empathy. Some people are more resistant to indoctrination and we really don't know why. We do know that there has been a large amount of research on and use of subliminal technology and trauma disassociation. I would hazard a guess that there has been a ton of research on this subject that we will probably never see.

          tumblemore

          The thing about the deep state idea is generally they exist to keep the members in power *and* keep the state in question strong in the long-term so that power is worth something.

          What's odd about the US deep state is it doesn't seem to care about the long term at all and seems only really interested in selling America piece by piece.

          For example from their behavior it's pretty blatant now that lobbyists have bought the GOP's foreign policy position but the dark side of that is it probably means every other aspect of policy is for sale also.

          It's like the US deep state is living off the capital rather than the interest.

          JR

          "On 9/11/2001, America received its new Pearl Harbor"…to strike fear into the hearts of Americans and pave the way for the perpetrators' profitable and soul-destroying global "war on terror"... Enough is enough! "There are at least 8.5 trillion reasons to investigate the money trail of 9/11" and to end the perversion of law that has bolstered the power of those who hold the reins in Washington, DC, and use the law, perverted, as a weapon for every kind of global control and personal greed!

          NEW VIDEO: 9/11 Trillions: Follow The Money

          Maori Warrior 1 week ago

          One of the best documentaries on 9/11... "The first suspects of a big crime should be those who benefit from it."

          Published on Sep 11, 2015

          TRANSCRIPT, SOURCES AND MP3: https://www.corbettreport.com/?p=16167

          "Forget for one moment everything you've been told about September 11, 2001. 9/11 was a crime. And as with any crime, there is one overriding imperative that detectives must follow to identify the perpetrators: follow the money. This is an investigation of the 9/11 money trail."

          https://www.youtube.com/watch?v=n3xgjxJwedA&feature=youtu.be

          RichardParker

          Engagement in criminal activity is fine as long as it is done to protect the Turkish people...

          I call bullshit on this one. More like engagement in criminal activity is fine as long as it is done to preserve/enhance the Turkish government's power.

          ddsoffice

          Ja, diese ist eine gutte fragge. Aber, es ist wie die 'Jetzt Neue Deutschland' uber alles vielleicht seit WWI! (Yes, this is a good topic. But, it is like the 'New Germany Now' perhaps since WWI!)

          (laughing now that I still remember some of my high school German lessons over 25 years ago.)

          Eine Gutte Fragge. (A good topic)

          Sehr Gut. (Very good)

          Jetz Deuschtland ober alles. (Now Germany over all)

          krage_man

          There are various terms for this - deep state, elite, etc.

          But ultimately, current political system so-called democracy is far from original definition of democracy. And I dont mean that original "greek" democracy is the better one.

          This is a feature of modern democracy to pretend to be old-fashioned peoples democracy. This is to make sure people do feel their power to elect (ans they have it to a degree)

          This is a feature of modern democracy to have 2-3 alternative parties. Each is more attractive to a certain human personality category. This way each can find something to associate with and be associated against. This means satisfaction of citizens with having a choice even though the choice is created for them based on 2-3 major types of their personalities.

          All 2-3 parties are really backed by this deep state or elite institution which manages all things behand the curtain. For instance, foreign policy basixally ghe same no matter which party has power.

          Political elected officcials do not really manage the affairs, they commmunicate but the final decisions are not theirs but come deep from the state departments which are receiving instructions from deep state.

          Elected president is supervised by a vise president with direct access to deep state. He would take state affairs in his hands if the president is not cooperaring or incapacited ( could be related)

          Deep state controls 95% of mass media via proxy corporations. A special mass-media department of the deep state issues directives to the editors of mainstream TV/news media. This department coordinates with other depaetments like one managing foreign affairs linked or even located in official state department. One may notice a delay when a certain major events take place and mass media delays reporting by 24-48 hours while waiting for the right spin of the reporting to the nation.

          Latitude25

          Interesting that Turkey is mentioned. When I was in college my room mate was a Turkish guy who was definitely from the .001%, second richest family in Turkey. He said that turkey has 100s of years of experience keeping the masses occupied with one war or another and that the economy could not run without it. He also liked chasing the most beautiful blondes he could find and with his money he sure found them.

          Burticus

          "The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." - Rothschild Brothers of London

          withglee

          Ordinary Americans frequently ask why politicians and government officials appear to be so obtuse, rarely recognizing what is actually occurring in the country.

          Ordinary Americans are clueless ... witness less than 8% know anything about WTC7.

          That notwithstanding, government officials "appear" to be obtuse to what is going on in the country because they "are" obtuse. At the Federal level, at best, a representative speaks for 500,000 people. He can't know those people and they can't know him.

          Our system is a "fake" representative democracy. What we get is what we should expect from such a charade.

          ISEEIT

          "Deep State America"?

          FRAUD is the singular truth. Deception, corruption.

          "Rational actor" absent philosophically (and with increasing clarity, empirically via what little remains of classical scientific method)..a once socially respected 'norm' of ethics.

          Morality has become hostage to maniacal narcissism. World "leaders" are simply apparatchiks of the now fully globalized machinations of failing souls.

          History is repeating itself.

          All indications are that death is just fine. Inevitable...

          It's just the dying part that causes pain.

          NuYawkFrankie

          re In truth America's deep state (...) operates along a New York to Washington axis.

          In an even bigger truth America's deep state (...) operates along a New York to Washington to TEL AVIV axis

          - FIXED

          Atomizer

          Time to go to bed Zero Hedge family. Mrs. Atomizer is getting cranky for me to shut off the computer. I wanted to leave you with a Friday night boost of laughter. turn up the volume. See you bitchez in the morning!

          Mortgage Thrift Shop (Macklemore WALL STREET parody ...

          Usurious

          good nite

          John Coltrane

          https://www.youtube.com/watch?v=TmD16eSy-Mg

          [Sep 20, 2015] Fed To Main Street Screw You - Wall Street Matters More

          "... A troika of the military, Wall Street and spooks run the land of the free. ..."
          "... The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess. ..."
          "... Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika. ..."
          "... it has always been about saving the banks at the expense of the people. the people are the real lenders of last resort only the money is usually taken and not to be paid back ..."
          "... So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus. ..."
          "... "The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008) ..."
          Sep 20, 2015 | Zero Hedge
          JustObserving
          Fed To Main Street: Screw You

          That is nothing new. That has been the official policy for a few decades.

          A troika of the military, Wall Street and spooks run the land of the free.

          Who cares about Main Street except pandering politicians before elections?

          Who rules America?

          The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess.

          Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.

          https://www.wsws.org/en/articles/2013/06/10/pers-j10.html

          The Fed Won: America's 0.1% Are Now Wealthier Than The Bottom 90%

          http://www.zerohedge.com/news/2014-11-11/fed-won-americas-01-are-now-wea...

          Usurious

          USURY redistributes wealth from the bottom to the top......

          BoNeSxxx

          ' I wonder how the Bank of International Settlements feels about this latest move?'

          I am pretty sure they are aboard... The tail does not wag the dog

          Atomizer

          Jeb Bush And Mr. Slim connection:

          Election 2016: Jeb Bush Got $1.3M Job At Lehman After Florida ...

          numbers

          This guy is fucking clueless. Anybody who thinks higher rates will help main street is delusional. I'm sure that higher rates will help the Fed meet its 2% inflation target. Right. I think there was a Fed Chairman who proved what higher rates do to inflation and economic activity. Yes, I believe his name was Paul Volcker.

          As for the 5.1% UE rate. Anybody who believes that is the real UE is clueless and has never even heard of the LFPR. We have an LFPR that was last seen in the 1970s but we are supposed to believe clowns like St. Cyr when he says the UE is really 5.1%

          Yup, higher rates will have the average consumer stampeding through bank doors to borrow money to buy homes, cars, appliances, everythng they couldn't afford to buy with rates at zero. Yeah, right.

          besnook

          it has always been about saving the banks at the expense of the people. the people are the real lenders of last resort only the money is usually taken and not to be paid back.

          austerity economics is a great euphemism for depression.

          polo007

          http://news.goldseek.com/GoldSeek/1442494200.php

          Try making up for a past mistake and make another? That's playing from behind, if you will, and it's not out of the question if you know the Fed's history:

          1. Not a single post-war recession has been predicted by the Fed a year in advance, according to former U.S. Treasury Secretary Lawrence Summers; and
          2. Neither of the last three recessions were recognized until they were already under way.

          Incompetent or ulterior motives for policy?

          Regardless, here we are with expectations ramped up for a rate hike, as the rest of the world is easing.

          What's notable for investors is that since the 2008 crash, we have not been able to achieve new market highs without central bank stimulus. Full stop.

          But it's only a quarter point…

          According to a study released by McKinsey Global Institute in February of this year, global debt has increased by $57 trillion USD since 2008. With such an enormous amount liquidity in the system (M1 money supply near lifetime highs) financial markets are increasingly becoming nothing more than a currency game; and the currency game is a relative one. I print, you print, they print, but who's printing more and where is capital flowing in and out of? Within this context, a quarter-point rate hike would be much more than simply symbolic.

          As we have seen since late 2012, the rise in the U.S. dollar has had major implications on global markets, whether it be currencies, commodities or interest rates. A rate hike would equate to further USD strength and will accelerate the deflationary spiral we have witnessed over the past few years. Raising rates into a slowdown could also place the U.S. firmly on a path to recession in 2016.

          Conversely, no rate increase does not meet the expectations set by the Fed and will re-inflate commodities in the immediate term. Arguably, it pulls forward the possibility of QE4 as well.

          So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus.

          As always, government remains the No. 1 risk to financial markets, and I will change my views as the facts change.

          "The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008)

          [Sep 19, 2015] A Knee-Jerk Free Trader Response is Faith-Based

          "...Many of the conditions under which free trade between nations is guaranteed to be desirable are unlikely to hold in practice."
          .
          "...All conservative economics is faith based (along with everything else they believe). Delusional is another good descriptor."
          .
          "...Fair trade might actually be a good thing, but that is not what "Free trade" generally means. Mostly it means freedom for capital, chains for labor, and devastation for the environment."
          Dani Rodrik:
          Trade within versus between nations: ...economics does not offer unconditional policy prescriptions. Every graduate student learns that depending on the background specifications, any policy x can be good or bad. A minimum wage can lower or raise employment (depending on whether employers have monopsony power); a natural resource discovery can raise or lower growth (depending on the likelihood of the Dutch disease); fiscal consolidation can expand or contract output (depending on the respective strengths of expectational versus Keynesian effects). And yes, the dictum that free trade benefits a nation depends on a long list of qualifying conditions.
          So the proper response to the question "is free trade good?" is, as always, "it depends." When an economist says "I support free trade" s/he must mean that s/he judges the circumstances under which free trade would not be desirable to be very rare or unlikely to obtain in the context at hand.
          Many of the conditions under which free trade between nations is guaranteed to be desirable are unlikely to hold in practice. Market imperfections, returns to scale, macro imbalances, absence of first-best policy instruments are ubiquitous in the real world, particularly in the developing world on which I spend most of my time. This does not guarantee that import restrictions will be necessarily desirable. There are many ways in which governments can screw up, even when they mean well. But it does mean that a knee-jerk free trader response is faith-based rather than science-based. ...

          [He goes on to answer a question about differential support for trade within nations versus trade between nations.]

          Posted by Mark Thoma on Friday, September 18, 2015 at 10:50 AM in Economics, International Trade, Market Failure | Permalink Comments (16)


          pgl

          "economics does not offer unconditional policy prescriptions. Every graduate student learns that depending on the background specifications, any policy x can be good or bad."

          Thank you Dani! This statement holds in general but in particular on the issue of free trade. I've loved his old post where he admitted he had to endure a class taught by William Kristol and Kristol gave this brilliant man only a C.

          DrDick

          All conservative economics is faith based (along with everything else they believe). Delusional is another good descriptor.

          DrDick -> Paine ...

          Fair trade might actually be a good thing, but that is not what "Free trade" generally means. Mostly it means freedom for capital, chains for labor, and devastation for the environment.

          Stubborn1:

          About the fact that economists do not offer unconditional policy prescriptions, especially when it comes to free trade and "the dictum that free trade benefits a nation depends on a long list of qualifying conditions". One thing I have to strenuously say about that: BULLSHALONEY!

          All I heard in my econ classes were the benefits of free trade. EVERYONE drank the kool aid! I even had a prof who had worked in the Council of Economic Advisors and his role was to review trade policies. He told us flat out he would ALWAYS ALWAYS ALWAYS support any and all free trade agreements that came up, without ANY regard to damage done to domestic firms and/or workers. Paul Krugman wrote one of our text books which, like many econ textbooks at the time, had WHOLE chapters dedicated to debunking free trade myths! Now you are going to tell me that economists never take a stand on a policy position as being good or bad?! ARE YOU KIDDING?

          Pgl I have seen you post and have agreed with you many times, but not on this one, hell no!


          MacAuley -> Stubborn1...

          You are so right, Stubborn1. I have taken at least six international econ courses, and in every case the prof was strongly in favor of "free trade", usually the more the merrier. Last year, as a refresher I took an internet Int'l Econ course at "Marginal Revolution University", which was surprisingly good except for the relentless free-trade propaganda.

          Kenneth said...

          Friday, May 15th, 2015, "Details of President Barack Obama's proposed trade deal, the Trans Pacific Partnership, have been kept secret, and the deal itself is kept in a locked room guarded by men with guns, with members of Congress having to schedule an appointment and jump through hoops just to actually read the massive proposed treaty.
          Let me tell you what you have to do to read this agreement. Follow this: You can only take a few of your staffers who happen to have a security clearance, because - God knows why - this is secure. This is classified. It's nothing to do with defense," said Boxer.

          Boxer then described how she was forced to turn over her cell phone and was prevented from even taking notes while looking over the 800-plus page trade treaty.

          "So I go down with my staff that I could get to go with me, and as soon as I get there, the guard says to me, 'Hand over your electronics. Okay. I give over my electronics. Then the guard says, 'You can't take notes.' I said, 'I cannot take notes?'" said Boxer.

          Some have taken to calling the TPP treaty "Obamatrade," in reference to the secretive nature in which Obamacare was written and how then-House Majority Leader Nancy Pelosi infamously claimed, "We have to pass it to find out what's in it."
          At the heart of the TPP is something referred to as a "living agreement provision," which means the treaty can be amended or changed at any time after it is ratified, without congressional approval, essentially handing over U.S. sovereignty and subjugating U.S. businesses and workers to international laws, according to CNS News.

          While this treaty is being promoted as being about FREE TRADE, it is really just a massive corporatist agreement that gives increased authority to major international corporations, which will hurt both American labor unions and small businesses.

          Conservatives need to look past the pleasant sounding platitudes put forward by the Establishment Republicans who are supporting this massive secret deal that only benefits major international corporations, and (gulp) team up with socialists like Sen. Elizabeth Warren to kill this deal, which will only hurt America in the long run.

          It's sole purpose is to "level the playing field" - which means taking America down to the same level as everyone else."
          http://conservativetribune.com/senator-reveals-obama-deal/

          Second Best -> Kenneth...

          'At the heart of the TPP is something referred to as a "living agreement provision," which means the treaty can be amended or changed at any time after it is ratified, without congressional approval, essentially handing over U.S. sovereignty and subjugating U.S. businesses and workers to international laws, according to CNS News.'

          ---

          what's new, this is SOP in the U.S., don't bother to read the fine print, it's out of date before the ink is dry, like hospitals that don't accept same day payment on site, then submit individual bills showing up months later from every damn person within 50 ft of the patient and refuse to confirm if there's more

          and Scott Walker is busting up unions with right to work laws so labor can have the same power under a 'living agreement' as hospitals to charge for services provided.

          MacAuley -> Kenneth...

          Kenneth,
          It's not accurate to call TPP "Obamatrade" since the concept was developed and fleshed out in 2007 and 2008 under the Bush Administration. Most of the work was managed at the SES level, since the Bush Administration was pretty lame-duck by then and most of the political appointees were looking for jobs. But the Bush Administration at the cabinet level gave approval for the exploratory discussions and conceptual analysis of a TPP.

          By the time Obama arrived in 2009 there was a coherent TPP initiative ready for the Obama Administration to consider. I doubt that Obama had heard of TPP before he came to Washington, but it wasn't long before the Obama Administration decided to go forward with it.

          Paine said...

          Dani is a source of wisdom and shrewdness
          A combo rarely combined in one head

          ... ... ...

          Axel Merk Warns Investors Are In For A Rude Awakening Zero Hedge


          LawsofPhysics

          LOL! Almost. You really think that growth can continue forever and ever in a biosphere with finite resources?

          Tell us another fairytale and good luck with that!

          But yes, let the truly insolvent fucks and worthless fucks go to the guillotine already!

          Bro of the Sorrowful

          using metrics in economics and applying mathamatical formulas to quantify all aspects of the economy has been a major and far reaching disaster. none worse, perhaps with the exception of unemployment and inflation, than the totally fraudulent metric "GDP". youll notice in von mises' magnum opus human action that there is not a single formula.

          were it not for the measurement of the ambiguous "GDP", we would not be so concerned with growth.

          pods

          We sure as hell would be concerned with growth.

          Expansion is what is required by our monetary system.

          That is why inflation of 2% is "stable prices" and everyone and their mother talks about growth.

          Fraction reserve currency requires expansion (exponential) to function.

          No growth=no currency system.

          That is why sustainability is a no go right out of the gate.

          pods

          Bro of the Sorrowful Figure's picture

          i was speaking more of an ideal world in which we would be operating under a sound monetary system. my problem with using economic metrics for everything is that it takes the focus off of real problems and gives huge power to the international banking cartel by allowing them to manipulate the numbers without end. we start from a false monetary system, then apply a metric system based on false logic to justify that monetary system, while also making those metrics esoteric enough that the average person simply stops paying attention or freezes up when such metrics are mentioned. that way the economy can be absolute shit, with obvious signs to anyone with eyes, and yet your average person will still say, well GDP is up and unemployment is down so things must be good.

          Harry Balzak

          Are you implying that reality exists without accounting?

          Blasphemy! Burn him!

          [Sep 18, 2015] I would summarize the Keynesian view in terms of four points

          I would summarize the Keynesian view in terms of four points:
          1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn't enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
          2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
          3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by "printing money", using the central bank's power of currency creation to push interest rates down.
          4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
          Is this a complicated, convoluted doctrine? ...
          But strange things happen in the minds of critics. Again and again we see the following bogus claims about what Keynesians believe:
          B1: Any economic recovery, no matter how slow and how delayed, proves Keynesian economics wrong. See [2] above for why that's illiterate.
          B2: Keynesians believe that printing money solves all problems. See [3]: printing money can solve one specific problem, an economy operating far below capacity. Nobody said that it can conjure up higher productivity, or cure the common cold.
          B3: Keynesians always favor deficit spending, under all conditions. See [4]: The case for fiscal stimulus is quite restrictive, requiring both a depressed economy and severe limits to monetary policy. That just happens to be the world we've been living in lately.
          I have no illusions that saying this obvious stuff will stop the usual suspects from engaging in the usual bogosity. But maybe this will help others respond when they do.

          I would add:

          5. Keynesian are not opposed to supply-side, growth enhancing policy. They types of taxes that are imposed matters, entrepreneurial activity should be encouraged, and so on. But these arguments should not be used as cover for redistribution of income to the wealthy through tax cuts and other means, or as a means of arguing for cuts to important social service programs. Not should they be used only to support tax cuts. Infrastructure spending is important for growth, an educated, healthy workforce is more productive, etc., etc. Economic growth is about much more than tax cuts for wealthy political donors.

          On the other side, I would have added a point to B3:

          B3a: Keynesians do not favor large government. They believe that deficits should be used to stimulate the economy in severe recessions (when monetary policy alone is not enough), but they also believe that the deficits should be paid for during good times (shave the peaks to fill the troughs and stabilize the path of GDP and employment). We haven't been very good at the pay for it during good times part, but Democrats can hardly be blamed for that (see tax cuts for the wealthy for openers).

          Anything else, e.g. perhaps something like "Keynesians do not believe that helping people in need undermines their desire to work"?

          China Liquidated A Record $83 Billion In Treasurys In July

          According to TIC, China, between its mainland and Euroclear holdings, sold a record $83 billion in Treasurys in the month of July. It also means that China has liquidated a whopping $184 billion notional in US Treasurys in 2015. Finally, and here it the punchline: the sale of ~$83 billion took place in July. This is before China announced its devaluation on August 11 and before, as we also first reported, it sold another $100 billion in Treasurys in August.

          [Sep 16, 2015] Bankers Will Be Jailed In The Next Financial Crisis

          "...For the first time, I found routine agreement among delegates that the banking industry had become synonymous with organized crime. "
          Sep 16, 2015 | Zero Hedge

          Submitted by Mike Krieger via Liberty Blitzkrieg blog,

          Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.

          What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.

          I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.

          Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.

          – From the excellent article: The Banking Criminals Exposed

          My prediction is that bankers will be jailed in the next economic/financial crisis. Lots and lots of bankers.

          It may seem to many that those working within this profession will remain above the law indefinitely in light of the lack of any accountability whatsoever since the collapse of 2008. It may seem that way, but extrapolating this trend into the future is to ignore a monumentally changed political environment around the world. From the ascendancy of Donald Trump and Bernie Sanders here in the U.S., to Jeremy Corbyn becoming Labour leader in the UK, big changes are certainly afoot.

          I have become convinced of this change for a little while now, but we won't really see evidence of it until the next collapse. However, something I read earlier today really brought the point home for me. Rowan Bosworth-Davies recently attended the 33rd Cambridge International Symposium on Economic Crime and provided us with some notes in an excellent piece titled, The Banking Criminals Exposed. Here are a few excerpts:

          Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.

          This Symposium has indeed become an icon among other international gatherings of its knd and over the years, it has proved to be highly influential in the driving and development of international policy aimed at combating international financial and economic crime.

          What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.

          I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.

          Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.

          Speaker after speaker addressed the implications of the scandalous level of PPI fraud, whose repayment and compensation schedules now run into billions of pounds.

          Some speakers struggled with the definition of such activity as 'Mis-selling' and needed to be advised that what they were describing was an institutionalized level of organised financial crimes involving fraud, false accounting, forgery and other offenses involving acts of misrepresentation and deceit.

          One of the side issues which came out of this and other debates, was the general and genuine sense of bewilderment that management in these institutions concerned, (and very few banks and financial houses have escaped censure for this dishonest practice) have walked away from this orgy of criminal antics, completely unscathed. The protestations from management that these dishonest acts were carried out by a few rogue elements, holds no water and cannot be justified.

          In the end, I sat there, open-mouthed while evidence against the same old usual scum-bag financial institutions, was unrolled, and a lengthy list of agencies, all apparently dedicated to dealing with fraud and financial crime, lamely sought to explain why they were powerless to help these victims.

          This was followed by a lengthy list of names of major law firms, and Big 5 accounting firms who were willing to join with these pariah banks to bring complex and expensive legal actions against these victims, bankrupting them, forcing them from their homes, repossessing properties they had worked for years to create, while all the time, the regulators and the other agencies, including to my shame and regret, certain spineless police forces, stood by and sought to justify their inaction.

          At one stage, we were shown how banks ritually and deliberately take transcripts of telephone calls made between complainants and the bank, and deliberately and systematically go through these conversations, re-editing them and reproducing them in a format which is much more favourable to the bank.

          For the first time, I found routine agreement among delegates that the banking industry had become synonymous with organised crime. Many otherwise more conservative attendees expressed their grave concern and their repugnance at the way in which so many of our most famous banking names were now behaving. It is becoming very much harder to believe that the banks will be able to rely on the routine support they have traditionally enjoyed from most ordinary members of the public.

          The election of Jeremy Corbyn to the leadership of the labour Party means that banking crime and financial fraud will now become an electoral issue.

          But now, the new Labour leadership will focus the attention of the electorate on the relationship between the Tory party and their very crooked friends in the City, and the degree of protection that the Square Mile gangsters and their Consiglieri, their Capos, and their Godfathers will become much more identifiable. Bank crime will now become much more identifiable as a City practice and their friends in the Tories will be seen as being primary beneficiaries.

          Things are moving in the direction of justice. At a glacial place for sure, but moving they are.

          pot_and_kettle

          When they're swinging from lamp posts lining Broadway and Water St,
          *then * I'd call it progress.

          Til then, same old same old...

          11b40

          There were over 1,000 felony prosecutions that came out of the Savings & Loan fiasco in the 80's, with a 90% conviction rate.

          But, to your point, these were not the big Wall Street Bankers. Mostly just your local common banker thief and his cronies, with a few politicians thrown in for good measure. No big fish were prosecuted during the Depression era, either.

          vincent

          A reminder of how JPM saved its own ass in 2008. Worth bookmarking....

          The Secret Bailout of JP Morgan

          http://www.webofdebt.com/articles/banking-bailout.php

          Ulludapattha

          Dream on, Mike. Just who will jail the banksters? They own the governments of USA, Canada, and Western Europe. Not a chance in my lifetime.

          GCT

          Politicians and the judicial branch are in the banks pockets. I will believe it when I see it to be honest. I have yet to see real bankers or for that matter politicians go to jail. As long as the big fines are paid nothing will change. Must be nice to create money from nothing to pay these fines and fucking your customers over at the same time.

          Fahque Imuhnutjahb

          Wishful thinking. If any justice is to be meted out then the "little people" will have to take it upon themselves.

          And by little people I mean the plebes, not dwarves; but the dwarves are welcome to help, unless of course

          some of them are little bankers, then they're not welcome, but the rest are. Glad we got that cleared up.

          [Sep 14, 2015] Conceptual pitfalls and monetary policy errors VOX, CEPR's Policy Portal by Andrew Levin

          September 11, 2015 | voxeu.org

          The conventional unemployment rate (U3) is now close to assessments of its longer-run normal level, but other dimensions of labour market slack remain elevated:

          • U3 does not reflect the incidence of hidden unemployment, namely, about 2˝ million Americans who are not actively searching for work but are likely to rejoin the labour force as the economy strengthens; and
          • U3 does not incorporate the extent of underemployment (individuals working part-time who are unable to find a full-time job), which remains significantly higher than its pre-recession level.

          Thus, the 'true' unemployment rate – including hidden unemployment and underemployment –currently stands at around 7Ľ%, and the total magnitude of the US employment gap is equivalent to around 3˝ million full-time jobs.

          • Non-farm payrolls have been expanding at a solid pace, but that pace will need to be maintained for about two more years in order to close the employment gap.

          In particular, recent analysis indicates that the potential labour force is expanding by about 50,000 individuals per month due to demographic factors. Thus, if non-farm payrolls continue rising steadily by about 200,000 jobs per month (the average pace over the past six months), then the employment gap will diminish next year and be eliminated in mid-2017. By contrast, a tightening of monetary conditions would cause the economic recovery to decelerate and the pace of payroll growth might well drop below 100,000 jobs per month, in which case the employment gap would barely shrink at all.

          The contours of the inflation outlook

          The FOMC has established an inflation goal of 2%, as measured by the personal consumption expenditures (PCE) price index. Its recent communications have stated that the tightening process will commence once the FOMC is "reasonably confident" that inflation will move back to the 2% objective over the medium term.

          • It seems unwise for such a crucial policy decision to place so much weight on the FOMC's inflation outlook and little or no weight on the observed path of wages and prices.
          • FOMC participants' inflation forecasts over the past few years have proven to be persistently overoptimistic (see Figure 1).

          Figure 1. The recent evolution of core PCE inflation

          Note: In this figure, the core PCE inflation rate is given by the four-quarter average change in the PCE price index excluding food and energy, and the FOMC's outlook is given by the midpoint of the central tendency of core PCE inflation projections, as published in the FOMC Summary of Economic Projections (SEP) at each specified date.

          For example, in early 2013, when core PCE inflation was running at about 1˝%, FOMC participants generally anticipated that it would rise to nearly 2% over the course of 2014 and 2015, whereas in fact it has declined to around 1.2%. Indeed, its underlying trend has been drifting steadily downward since the onset of the last recession.

          • Despite some recent suggestions to the contrary, there is a strong empirical linkage between the growth of nominal wages and the level of the employment gap.

          Moreover, as shown in my recent joint work with Danny Blanchflower, the wage curve exhibits some flattening at high levels of labour market slack, which explains why nominal wage growth has remained subdued over the past few years even as the employment gap has declined from its post-recession peak (see Figure 2). This empirical pattern also implies that the pace of nominal wage growth is likely to pick up somewhat over coming quarters as the employment gap declines further.

          Figure 2. The wage curve

          Note: In this figure, each dot denotes the pace of nominal wage growth (as measured by the 12-month change in the average hourly earnings of production and non-supervisory workers) and the average level of the employment gap (including hidden unemployment and underemployment) for each calendar year from 1985 to 2014 and for August 2015 (the latest BLS employment report).

          Gauging the stance of monetary policy

          Fed officials have recently characterised the current stance of monetary policy as "extremely accommodative." Such characterisations may be helpful in motivating the onset of "policy normalisation" but seem inconsistent with professional forecasters' assessments of the equilibrium real interest rate and with the implications of simple benchmark rules.

          The distance between the current federal funds rate and its longer-run normal level depends crucially on the magnitude of the equilibrium real interest rate.

          • Most FOMC participants have projected the longer-run normal rate to be about 3ľ%, consistent with an equilibrium real rate only slightly lower than its historical average of about 2%.

          Over the past few years professional forecasters have made substantial downward revisions to their assessments of the 'new normal' level of interest rates.

          • Surveys conducted by the Philadelphia Fed indicate that professional forecasters expect short-term nominal interest rates to be around 2ľ% in 2018 and to remain at that level on average over the next ten years, corresponding to an equilibrium real interest rate of only ľ%.

          Such revisions presumably reflect the downgrading of the outlook for potential output growth as well as prospects for headwinds to aggregate demand persisting well into the future.

          • If professional forecasters' assessments are roughly correct, then the current funds rate is by no means extremely accommodative.

          In June 2012, then-Vice Chair Yellen noted that "simple rules provide a useful starting point for determining appropriate policy" while emphasising that such rules cannot be followed mechanically. That speech considered the Taylor (1993) rule along with an alternative rule analysed by Taylor (1999) that Yellen described as "more consistent with the FOMC's commitment to follow a balanced approach." Thus, it is instructive to evaluate each of these simple rules using the current core PCE inflation rate (which is 1.2%), the CBO's current assessment of the output gap (3.1%), and professional forecasters' consensus estimate of the equilibrium real interest rate (r* = 0.75).

          • Using these values, the Taylor rule prescribes a funds rate of 0.1%, exactly in line with the FOMC's current target range of 0 to 0.25%; and
          • The Taylor (1999) rule prescribes a funds rate well below zero (-1.4%).

          Neither of these two benchmarks calls for a tighter stance of policy. Indeed, the 'balanced approach' rule preferred by Yellen (2012) indicates that macroeconomic conditions will not warrant the initiation of monetary policy tightening until sometime next year.

          Assessing the balance of risks

          Over the past 18 months, FOMC statements have regularly characterised the balance of risks to the economic outlook as "nearly balanced." Of course, that assessment has recently come into question due to a bout of financial market volatility in conjunction with shifting prospects for major foreign economies (most notably China).

          Regardless of how financial markets may evolve in the near term, however, it seems clear that the balance of risks remains far from symmetric. If the US economy were to encounter a severe adverse shock within the next few years (whether economic, financial, or geopolitical in nature), would the FOMC have sufficient capacity to mitigate the negative consequences for economic activity and stem a downward drift of inflation?

          For example, if safe-haven flows caused a steep drop in Treasury yields along with a sharp widening of risk spreads, would a new round of QE still be feasible or effective? Alternatively, would the Federal Reserve implement measures to push short-term nominal rates below zero, as some other central banks have done recently?

          In the absence of satisfactory answers to such questions, it is essential for the FOMC to maintain a highly accommodative stance of monetary policy as long as needed to ensure that labour market slack is fully eliminated and that inflation moves back upward to its 2% goal. Such a strategy will help strengthen the resilience of the US economy in facing any adverse shocks that may lie ahead.

          Concluding remarks

          The FOMC's near-term strategy has become so opaque that even the most seasoned analysts can only guess what policy decisions may be forthcoming at its upcoming meetings. Moreover, the FOMC has provided no information at all (apart from the phrase "likely to be gradual") about how its policy stance will be adjusted over time in response to evolving macroeconomic conditions.

          Unfortunately, such opacity is likely to exacerbate economic and financial uncertainty and hinder the effectiveness of monetary policy in fostering the goals of maximum employment and price stability. Therefore, it is imperative for the FOMC to formulate a systematic monetary policy strategy and to explain that strategy clearly in its public communications.

          References

          • Blanchflower, D G and A T Levin (2015), "Labor Market Slack and Monetary Policy," NBER Working Paper No. 21094.
          • Federal Reserve (2015), "Minutes of the Federal Open Market Committee", 28-29 July 28-29.
          • Taylor, J B (1993), "Discretion Versus Policy Rules in Practice", Carnegie-Rochester Series on Public Policy 39, pp. 195-214 (also released as SIEPR Publication No. 327, November 1992).
          • Taylor, J B (1999), "An Historical Analysis of Monetary Policy Rules", in J. B. Taylor (ed.), Monetary Policy Rules, Chicago, IL: University of Chicago Press
          • Yellen, J L (2012), "Perspectives on Monetary Policy", speech at the Boston Economic Club Dinner, Boston, MA, 6 June.

          [Sep 09, 2015] The Fed Must Banish the 1970's Inflation Devil

          "...It is Republican industrial policy to make workers into slaves working themselves to death like in slave labor camps. But if you must go into debt to get a job, why bother getting a job when you can not get a job is rack up less debt or figure out how to subsistence survive. Not even cutting welfare spending will make going into debt to work for less than it costs to work make sense. "
          "...That is correct. You are too busy discussing whether the gini coefficient is 0.49 or 0.48. The financial markets will blow up under your nose and you idiots will be arguing irrelevant nonsense. Then the economy will blow up and you will blame everybody but the Fed. "
          Sep 08, 2015 | Economist's View

          I have a new column:

          The Fed Must Banish the 1970's Inflation Devil: Will the Fed raise rates when it meets later this month? Inflation remains below the Fed's two percent target, and that argues against a rate increase. But labor markets appear to be tightening and that is raising worries that higher inflation is just ahead. Should the Fed launch a preemptive strike against the possibility of wage-fueled inflationary pressure?

          Hopefully there's at least one argument against raising rates that you have not heard before.

          Posted by Mark Thoma on Tuesday, September 8, 2015 at 08:28 AM in Economics, Fiscal Times, Inflation, Monetary Policy, Unemployment | Permalink Comments (83)

          pgl:

          Incredibly well said! And the title was excellent:

          "Why the Fed Must Banish the 1970's Inflation Devil Before Raising Rates".

          Stop fretting over inflation and let's get the economy back to full employment before raising interest rates!

          Reply Tuesday, September 08, 2015 at 08:32 AM
          mulp -> pgl:

          Yep, the Fed printing money to inflate stock prices is really creating like 500,000 new jobs per month because higher stock prices drives CEOs to boost profits to maintain P/E by hiring new workers to increase labor costs.

          Seriously, economists do not want to defy the conservative free lunch economic orthodoxy that higher prices from higher labor costs and lower profits is the key to growth and that this can be done without increasing money supply because velocity will magically increase, instead of decreasing steadily as it certainly has during the 21st century because money is stuck sloshing around not being paid to labor.

          Velocity of money is the lowest across the board in a decade and Mark Thoma is calling for even lower velocity to the point that money is just standing still.

          https://research.stlouisfed.org/fred2/graph/?g=1INq

          M2 and MZM are the lowest estimated by the Fed in the entire half century of the statistic, and M1 is the lowest since 1975 during a steady rise over decades of stable bank regulation and rising interest rates that ended in the early 80s when banking got radically deregulated. From that point, M2 was on a roller coaster up and down, always higher than 1976 until it reached an all time peak in 2007 when it began a constant decline as the Fed keeps increasing M2 without driving any matching increase in economic activity.

          I'm beginning to reject my belief [that] inflation is related to fiscal, banking, and industrial policy, not money supply. I had been convinced by Monetary History of US by Schwarz-Friedman, but the past decade has provided a counterexample that I believe rejects the core of monetary theory. Look at the following graph and justify any theory that money supply increases drives inflation, not US industrial policy which has been devoted to restricting consumer spending capacity while creating excessive supply of consumer goods and restricting investment in capital goods.

          https://research.stlouisfed.org/fred2/graph/?g=1MOQ

          sanjait -> mulp:

          The problem with Friedman's theory of money and prices is that it under-values the importance of expectations in price setting. The problem with your theory of money and prices is that it involves a lot of hand-waiving and ignores things like interest rates.

          Eric Blair:

          Why is the labor force participation rate so low? I know that the part of it that is not demographics is due to "long term trends", but what trends are those, exactly? I don't know how you could estimate how much slack there is in the labor market without first getting a handle on this. If the labor force dropouts really are gone for good, then there's probably not a lot of slack. If they're going to come back, then there is.

          anne -> Eric Blair:

          http://data.bls.gov/pdq/querytool.jsp?survey=ln

          January 4, 2015

          Civilian Labor Force Participation Rate, 2000-2015

          2000 ( 84.0) *
          2001 ( 83.7) Bush
          2002 ( 83.3)
          2003 ( 83.0)
          2004 ( 82.8)

          2005 ( 82.8)
          2006 ( 82.9)
          2007 ( 83.0)
          2008 ( 83.1)
          2009 ( 82.6) Obama

          2010 ( 82.2)
          2011 ( 81.6)
          2012 ( 81.4)
          2013 ( 81.0)
          2014 ( 80.9)

          August

          2015 ( 80.7)

          * Employment age 25-54

          Reply Tuesday, September 08, 2015 at 09:14 AM
          sanjait -> Eric Blair:

          Some of it is due to demographics. Most of it is due to discouraged workers dropping out of the labor force. Employment hysteresis and all that.

          But, as depressing as that fact is when you think about it

          the one bright side is that tight labor markets could plausibly draw many of those discourage workers back into the labor force.
          pgl -> sanjait:

          Thanks Eric and Sanjait - comments that contribute to the conversation. In 2005 I was arguing for an employment to population (EP) ratio near 64% and we did get back to 63.5% without inflation. OK, the demographic argument updated 10 year later puts my EP ratio goal at 62%. But the current EP is 59.4%. That's way too low.

          sanjait -> pgl:

          If I was going to do a deep analysis of EMPOPs, I'd track each age/sex tier reported by the BLS separately and look at the disaggregated trends, which could reveal a lot.

          For example, in the period immediately after the crash, I recall reading how most working ages had big declines in LFP, with the exception of people near and just in retirement age, which actually went UP (likely due to them desperately seeking to repair their finances after seeing their 401k's collapse).

          What's happening now? I don't know precisely, but I do know that technology and demographics haven't change THAT MUCH since 2009, and the decline in the ratio was coincident with the cycle.

          I also know that if labor markets actually were tight, workers would be seeing bigger raises, and that after being beaten down both by a huge recent economic downturn and a long term secular trend, it's probably not a bad thing if wages were to rise a little bit faster than output for some period of time.

          anne -> sanjait:

          http://data.bls.gov/pdq/querytool.jsp?survey=ln

          January 4, 2015

          Employment-Population Ratio, 2000-2015

          2000 ( 31.5) *
          2001 ( 32.2) Bush
          2002 ( 33.2)
          2003 ( 34.2)
          2004 ( 34.9)

          2005 ( 35.9)
          2006 ( 36.9)
          2007 ( 37.4)
          2008 ( 37.9)
          2009 ( 37.3) Obama

          2010 ( 37.4)
          2011 ( 37.6)
          2012 ( 38.0)
          2013 ( 38.2)
          2014 ( 38.2)

          August

          2015 ( 38.3)

          * Employment age 55 and over

          sanjait -> anne:

          Interesting. That's not the trend my lying eyes remembered from post-crisis, and I had no idea there was such a shift in the middle 2000s.

          Though, now that I think about it, it was probably the above *65* group that saw a spike in LFP post crisis, which would get washed out in a data set taht includes 55-64 year olds.

          I'd parse that out myself, but my browsers don't appear to support the Java applet for this link.

          anne -> sanjait:

          http://data.bls.gov/pdq/querytool.jsp?survey=ln

          January 4, 2015

          Employment-Population Ratio, 2000-2015

          2000 ( 57.8) *
          2001 ( 58.6) Bush
          2002 ( 59.5)
          2003 ( 59.9)
          2004 ( 59.9)

          2005 ( 60.8)
          2006 ( 61.8)
          2007 ( 61.8)
          2008 ( 62.1)
          2009 ( 60.6) Obama

          2010 ( 60.3)
          2011 ( 60.0)
          2012 ( 60.6)
          2013 ( 60.9)
          2014 ( 61.4)

          August

          2015 ( 60.8)

          * Employment age 55-64, not seasonally adjusted.

          anne -> sanjait:

          Between 2000 and 2013, the only age group in which median household or family real income increased was that over 65. The reason for the increase was Social Security benefits which are indexed to inflation:

          http://www.census.gov/hhes/www/income/data/historical/household/

          September 16, 2014

          Household Median Income by Age of Householder: 2000 and 2013

          Combined ( 56,800) ( 51,939) *

          25 to 34 ( 60,079) ( 52,702)
          35 to 44 ( 72,724) ( 64,973)
          45 to 54 ( 77,973) ( 67,141)
          55 to 64 ( 60,673) ( 57,538)

          65 and older ( 31,225) ( 35,611)

          * Income in 2013 dollars.

          Brad -> anne:

          I love reading Anne's posts and scan the responses for her data! Thanks Anne.

          anne -> Brad

          That was awfully nice of you.

          am -> sanjait

          http://www.advisorperspectives.com/dshort/updates/Stuctural-Changes-in-Employment.php

          D Short touches on these issues in the link above and also other links embedded at the foot of the link. I mean the 65+ issue.

          Fred Fnord -> sanjait

          But, as depressing as that fact is when you think about it

          the one bright side is that tight labor markets could plausibly draw many of those discourage workers back into the labor force.

          If we don't put the brakes on the economy and therefore stop any such thing from happening, that is

          mulp -> Eric Blair

          It is Republican industrial policy to make workers into slaves working themselves to death like in slave labor camps.

          But if you must go into debt to get a job, why bother getting a job when you can not get a job is rack up less debt or figure out how to subsistence survive.

          Not even cutting welfare spending will make going into debt to work for less than it costs to work make sense.

          Until Republicans start rounding up the non-working men and put them in slave labor camps, men are going to keep dropping out of the labor force and just get by on subsistence. But Republicans won't put men to work even if they do round them up, and they have rounded up millions in prisons, because putting slaves to work means you are engaged in government building government owned capital assets, or you are competing with for profit industries you depend on for money.

          Democrats would happily put millions of workers to work at solid middle class wages building productive capital assets that corporations will contribute millions in political support to get done for their benefits. In fact, businesses have started calling for taxes they pay to be hiked to get such productive assets built for them.

          But all the focus is placed on electing a good dictator to hike taxes and put millions of men to work earning middle class wages while electing a board of directors that is determined to liquidate the enterprise.

          Trump is saying "as CEO I was the dictator who got things done, so elect me dictator and I will run over Congress and get things done." Bernie Sanders is promising to lead millions of people to trample the Congress the same people elected - the populist dictator.

          The myth of FDR is that he ruled like a dictator.

          The truth is FDR channelled the populism that elected legislatures stampeding to do something anything.

          Populism today is electing legislatures to do something anything to get government out of the way of individuals wanting to take anything they want from those who have it because they have been indoctrinated by right and left that government is what prevents you from getting what you want.

          In particular, its Obama that has prevented everyone from getting free energy, free healthcare, free SUVs, free houses, free money, free global dictatorship,

          Trump and Sanders are making the biggest free lunch promises of all the potential dictator wannabes.

          bakho said

          Good Column
          Without help from Congress and fiscal policy, there will be no inflation. We don't have 2016 budget yet. Shutdown could happen.

          We live in a time when inflation and unemployment are strongly affected by fiscal policy and economic shocks, but only weakly affected by monetary policy.

          Biggest impact on recovery was the ARRA. Monetary policy drained the battery and needs a fiscal policy recharge. Monetary policy is weak.

          Any change in monetary policy will be swamped by fiscal policy effects.

          pgl -> bakho

          Which is why we need stimulus not austerity.

          mulp -> pgl

          Which Republicans have you been working to defeat in Congress?

          Double Capitulation said

          "raising worries that higher inflation is just ahead. Should the Fed "
          ~~Mark Thoma~

          Déjŕ vu sensation from 43rd administration decision to spend the budget surplus that wasn't? Hey! If inflation is what you want, raise the public spendthrift coefficient. Personally I do not fear the prospect that our wealthy cousins will see their portfolios shrink in nominal value as deflation sets in as in August 015. Hey! My meagre net worth did plummet last month, but I now have more buying power as stocks drop, commodities stay below the clouds and all those playthings I buy at Toys-R-We have become gobs cheaper.

          One thing for sure, home prices and improved real estate may slide lower, but unimproved land prices will rise as population expands exponentially.

          Did Mark Twain once quip, "When they stop making the thing the price on the thing will go up. Buy land, they just stopped making it!"?

          Imprecisely, yet gave his insider information to Will Rogers.

          Notice how electronic toys usually get cheaper! Knowing this the vendor keeps the inventory drained at whatever the falling price will bear. As vendor drops price, M2V accelerates. Same thing happened with auto sales this summer. Dis-inflationary and deflationary expectations rev up the M2V, gets people hired as inventory accelerates. Vote for more employment, for lot

          and lot more
          deflation
          !

          mulp -> Double Capitulation

          Since the Republicans took over Congress, M2V has fallen from 1.75 to 1.60 and shows zero since of failing to continue its fall to 1.5 something before the next election.

          Clinton was able to keep M2V above 2 when Republicans took over and halted its rise, but one Republicans won the Congress and White House it was downhill except for the times Republicans rolled out the pork barrels. Then conservatives reacted badly leading to demands for no more pork.

          See for yourself
          https://research.stlouisfed.org/fred2/series/M2V/

          Anonymous said

          This is what drives me crazy. It has not been about inflation since the mid-90s. Why is the Fed still predicating their decisions on inflation? And why are any economists discussing inflation as the critical factor - one way or the other. The markets are telling us what the critical issue is - boom bust boom bust. The volatility in multi year time frame in commodity, fx and risk markets has gone through the roof in the last 15 years. The central issue for central banks is to tame these NOT bicker about whether 5.1% unemployment or 1.7% inflation is too much or too little.

          This is why we are in the trouble that we are in.

          pgl -> Anonymous

          Most of us "liberal economists" are not worried about INFLATION even as JohnH lectures us ad nausam that we should be.

          mulp -> pgl

          You want more money stuffed in mattresses?

          If interest rates are really low, then stuffing money in a mattress has no opportunity cost.

          Anonymous -> pgl

          That is correct. You are too busy discussing whether the gini coefficient is 0.49 or 0.48. The financial markets will blow up under your nose and you idiots will be arguing irrelevant nonsense. Then the economy will blow up and you will blame everybody but the Fed.

          pgl said

          Doug Henwood says we are in a "Unicorn" bubble with the low interest rates fueling it:

          http://www.thenation.com/article/age-of-the-unicorn-how-the-fed-tried-to-fix-the-recession-and-created-the-tech-bubble/

          Oh boy! Time for more FED bashing. Maybe I should start writing - fix NY/NJ infrastructure and transportation issues NOW! Fiscal stimulus that would make my commute easier!

          Reply Tuesday, September 08, 2015 at 09:55 AM

          Jim Harrison said

          For a great many of these folks, talking about fear of inflation is just a polite way of talking about fear of higher wages.

          Reply Tuesday, September 08, 2015 at 10:16 AM

          pgl -> Jim Harrison

          Exactly! Whenever I hear someone scream INFLATION, I dismiss that person as being some alleged champion of workers.

          Reply Tuesday, September 08, 2015 at 10:32 AM
          Paul Mathis said

          "The inflation problems of the 1970s, the loss of Fed credibility that came with it, and the need to impose the Volcker recession in the early 1980s to bring inflation down to tolerable levels made an indelible impression on policymakers who lived through that time period."

          Apparently what made NO impression on those policymakers was the more than 10 fold increase in U.S. oil prices from 1973 to 1980 ($3.60/barrel to $39.50/barrel) and the massive oil and gasoline shortages of that era. The collective amnesia among economists and politicians about the actual cause of the hyper-inflation back then is truly astonishing.

          How could the Fed have anticipated that oil crisis and prevented the hyper-inflation? Would raising interest rates before the Yom Kippur war have prevented the Arab Oil Embargo? How?

          Reply Tuesday, September 08, 2015 at 10:27 AM
          Ben Groves -> Paul Mathis

          Inflation was already rising before the oil crises.

          Reply Tuesday, September 08, 2015 at 12:06 PM
          Paul Mathis -> Ben Groves

          Not true Ben.

          In late 1970, the inflation rate was 7.1% and steadily declined to 3% in 1973. Then in October 1973, the Arab Oil Embargo hit and inflation quadrupled to nearly 12% in early 1975 as world market oil prices had quadrupled by the end of 1974.
          https://research.stlouisfed.org/fred2/series/STICKCPIM157SFRBATL

          Reply Tuesday, September 08, 2015 at 12:23 PM
          anne -> Paul Mathis

          https://research.stlouisfed.org/fred2/graph/?g=1MRZ

          January 15, 2015

          Inflation Rate, 1960-1979

          (Percent change)

          [ The inflation rate in 1969-1970 never went above 6.18%, and only reached that level in 2 months. ]

          Reply Tuesday, September 08, 2015 at 12:32 PM
          Paul Mathis -> anne

          Inflation DECREASED from 1970 to 1973.

          According to your CPI data, in January, 1970, inflation was 6.2% and it fell steadily to 3.4% in December, 1972.

          Ben said inflation was rising in that period.

          Reply Tuesday, September 08, 2015 at 01:10 PM
          anne -> Paul Mathis

          Understood.

          Reply Tuesday, September 08, 2015 at 01:14 PM
          Dan Kervick -> pgl

          No, Ben is a polite contributor whose views often differ from both yours and mine. You don't get to decide who the trolls are.

          Ben Groves -> Paul Mathis

          Recheck those numbers. Inflation was at 6.2% in 1973. The oil shock really didn't impact to 74. Sure, it boosted the numbers, but not the total cause. It was the same by the late 60's when inflation surged and disinflation took it down to 3% on a blip. The US was bumping into cold war generated issues it had never seen before.

          Reply Tuesday, September 08, 2015 at 12:40 PM
          pgl -> Ben Groves

          We may have had a little excess demand in 1973 but the spikes in inflation were in large part due to the OPEC actions.

          "The US was bumping into cold war generated issues". Eh dude, defense spending went up in the 1980's.

          Reply Tuesday, September 08, 2015 at 12:46 PM
          pgl -> pgl

          Let's see. Defense spending/GDP fell from 9.3% in 1970 to 6.3% by 1980. Reagan and the Republicans complained Carter let our guard down with these defense spending cuts. And Ben Groves blames inflation on "cold war generated issues". That is a troll for you.

          Reply Tuesday, September 08, 2015 at 12:54 PM
          Paul Mathis -> Ben Groves

          I think we all agree that inflation fell from 1970 through 1972 and then the oil shocks caused massive inflation starting in 1973 through 1980.

          So what could the Fed have possibly done in 1972 to head off inflation starting in 1973 when the cause of that inflation was completely unknown in 1972?

          Those who blame the Fed for the stagflation of the 70s and early 80s are just being disingenuous.

          Reply Tuesday, September 08, 2015 at 01:22 PM
          mulp -> Paul Mathis

          You can't impose price controls on imported oil, but you can impose price controls on wages, US production, including US oil production.

          Reply Tuesday, September 08, 2015 at 12:58 PM
          pgl -> mulp

          "You can't impose price controls on imported oil".

          Actually we did lower oil prices with price controls in the 1970's. The US was the big dog on the block so our policies had global effects.

          Reply Tuesday, September 08, 2015 at 01:25 PM
          pgl -> mulp

          A little history mulp does not seem to know:

          "The Emergency Petroleum Allocation Act of 1973 (EPAA) was a U.S. law that required the President to promulgate regulations to allocate and control price of petroleum products in response to the 1973 oil crisis. It was extended by the Energy Policy and Conservation Act of 1975. The regulations were withdrawn by President Reagan in Executive Order 12287 of January 28, 1981."

          Not saying these price controls were a good idea but they did exist.

          Lafayette said

          Isn't it important to also consider historically the employment-to-population ratio?

          At present it is 59.4. Ten years ago it was at 62.9? Twenty-years ago it was at 62.8.

          It was back in 1985 that we were at about the same as today.

          Perhaps it's wishful thinking, but if the historic high in this ratio is 64.5 (in 2000) does not that indicate that the economy has a way to go before it starts bumping up against it's historical maximum?

          Which does not mean it cannot go even higher. The major hurdle being that we a progressing into a major "age change". That is, from the Industrial to the Information Age, which means different and more advanced skill-sets are increasingly more necessary.

          Which places an even greater emphasis on education to give workers the aptitude/skills necessary to find decent wages at decent jobs.

          Tinkering with the interest rate is perhaps an amusing mental riddle presently, but is it really the most important?

          Methinks not

          sanjait -> Lafayette

          Tight labor markets are the one reliable way to pull that number up.

          And the Fed is talking about raising rates now to prevent labor markets from getting overly tight, while some of us are arguing (as loudly as we can) that it's crazy to think labor markets are overly tight right now, with EM-POP growth and wage growth both being tepid and inflation expectations way below target. We're talking about this interest rate tinkering because it threatens to derail what weak recovery that we have.

          Ben Groves -> sanjait

          This is wrong. Labor markets had periods of tightness in the 1948-64,yet that number would not rise much past 50%. It wasn't until the Boomers, who were the first generation to really feature full scale female employment, that it rocketed along with its demographic population surge.

          Accepting history is not easy. You can't use the employment to population ratio as labor market "tightness". It simply does not work. The main surge in this index was the late 70's to the late 80's. Even in the 90's its growth was fading.

          sanjait -> Ben Groves

          What on Earth?

          Do you think that we're going back (or have already gone back?!) to the days when women didn't work?

          I do not, and therefore I don't think an EMPOP ratio from those days is highly relevant to the question of LFP today.

          I really do not understand what you are even trying to argue here.

          Ben Groves -> sanjait

          Because it shows the causation with the factors. It is still much higher than before women went to work, which is little surprise considering women's employment to population is still historically very high.

          Dan Kervick -> sanjait

          Well, I think the point is that it is very hard to formulate a clear and uncontroversial economic standard for what the "correct" employment to population is, since historically this level has varied with non-economic social factors during both good times and bad times.

          Possibly one way to make some progress is to establish some national targets for growth and economic development, and then we ask whether the active labor force is large enough to accomplish those national goals. If it is, then at that point we have a distribution issue, not an employment issue. After all, if at some point in the future labor has grown so productive that we manage to have 5% annual growth with only 30% of the population employed, and are also meeting all of our longer-term strategic objectives with respect to education, energy, health and infrastructure, then I doubt people will be complaining that the employment to population ratio is too low.

          I personally think we do need a significantly higher rate of population employment because we are stagnating economically, and have peculiarly pressing and unmet national and global challenges that are going to require a high level of participation. We are going to need a lot of people working to rebuild our broken and failing society.

          Dan Kervick -> sanjait

          "Was it also the effect of discouraged workers turning temporarily and reversibly into labor force dropouts?"

          Yes, I agree this is by far the most important factor.

          With the perspective of a few years behind us now, we can see that US capitalism responded to the 2007/8 crisis by jettisoning a significant portion of the previous workforce, and reconsolidating the economy around a smaller core group of economic participants. Even from the ruthless standpoint of the plutocracy, this is a foolish path, because the wreckage it has created is only planting the seeds of social problems that are going to come back to bite the plutocrats. But failing and succumbing to short-termism is what neoliberal capitalism has been all about since its inception in the 80's.

          mulp -> Lafayette

          "Which does not mean it cannot go even higher. The major hurdle being that we a progressing into a major "age change". That is, from the Industrial to the Information Age, which means different and more advanced skill-sets are increasingly more necessary."

          You must be referring to the need to raise horses and mules, make wagons and buggies, and drive horses and mule teams.

          After all, the Republican policy is to let the highways decay toward being impassible to motor vehicles, water and sewer systems fail, dams fail, etc, because the last thing Republicans want is any American getting a decent middle class job because their spending would drive economic growth, and Republicans want America to go back to lower GDP per capita.

          sanjait said

          There were some new (to me) arguments in there, so that's a good contribution to the discussion from Thoma IMO.

          I've heard before the "long lags" argument, for why supposedly rates need to go up now when inflation and expectations thereof are below target, because they don't want it to overshoot the mark.

          Thoma points out rightly that a balance of risks view strongly suggests we wait anyway.

          And I've long believed that central bank policy doesn't just act through long lags, but rather through a spectrum of channels that includes key ones that are quite forward looking. Even hinting at maybe raising rates has tightened policy this year.

          But in any case, it's interesting to note that even the somewhat well-established (long ago) long laggy channels might not be so laggy. Perhaps this is implicitly conceding too much to the inflationistas, even having that conversation, but it's interesting nonetheless.

          anne said

          http://data.bls.gov/pdq/querytool.jsp?survey=ln

          January 4, 2015

          Employment-Population Ratio, Asian, 2000-2015

          2000 ( 78.8) *
          2001 ( 78.1) Bush
          2002 ( 76.4)
          2003 ( 75.6)
          2004 ( 76.9)

          2005 ( 76.8)
          2006 ( 78.2)
          2007 ( 78.5)
          2008 ( 79.0)
          2009 ( 76.0) Obama

          2010 ( 74.7)
          2011 ( 75.1)
          2012 ( 75.5)
          2013 ( 76.3)
          2014 ( 75.2)

          August

          2015 ( 74.1)

          * Employment age 25-54, not seasonally adjusted.

          Dan Kervick -> pgl

          My dumb rant is based on polling data. What is your hypothesis based on.

          In fact, Americans have all sorts of divergent and wild opinions about prices that are very distant from statistical measures of price levels as produced by economists. In fact, as I think you know, if you asked the average American, they would probably say that inflation is already far too high, and would have said the same thing at any point over the past 5 or 6 years. That's because they base their inflation estimates on things like food and fuel.

          I'm not saying we should listed to these popular opinions. But the fact that they are so different from both actual core rates and Fed statements about expected core rates is enough to show that the idea that inflation expectations in the US economy are mainly a function the Fed's pronouncements is extremely implausible.

          sanjait -> Dan Kervick

          Didn't we just have this conversation?

          Markets aren't a democracy. Everyday consumers have inflation expectations, which matter to the extent that inflation expectations might change their consumption behavior.

          But the inflation expectations that do move are those of market participants, and as I carefully explained to you before, the market participants that have the most influence on price are the ones that control the most money.

          And you can sure as hell bet that those money managers pay attention to Fed pronouncements.

          You seem to be on a kick of trying to convince yourself and others that the Fed's forward guidance doesn't really do anything in the economy

          but you are utterly wrong about this. The people whose financial decisions set bond rates listen to the Fed, and those rates affect the cost of capital of every consumer and business borrower and the rates of return of every investor in the economy. So yeah, the Fed's pronouncements matter.
          Lafayette said

          {After all, the Republican policy is to let the highways decay toward being impassible to motor vehicles, water and sewer systems fail, dams fail, etc, because the last thing Republicans want is any American getting a decent middle class job because their spending would drive economic growth, and Republicans want America to go back to lower GDP per capita.}

          You are ranting.

          The Replicants this, and the Replicants that

          likbez -> Lafayette

          Are not they just two branches of the same party in best USSR traditions, as Gore Vidal suggested

          Gore Vidal: "Our Only Political Party Has Two Right Wings, One Called Republican, The Other Democrat"

          likbez said

          I think that Fed strategy is dictated by International concerns as much, if not more, as domestic concerns.

          == start of quote ===

          The source of the term is a quotation in an October 17, 2004, The New York Times Magazine article by writer Ron Suskind, "Faith, Certainty and the Presidency of George W. Bush," quoting an unnamed aide to George W. Bush (later attributed to Karl Rove[1]):


          The aide said that guys like me were "in what we call the reality-based community," which he defined as people who "believe that solutions emerge from your judicious study of discernible reality."

          "That's not the way the world really works anymore," he continued. "We're an empire now, and when we act, we create our own reality. And while you're studying that reality-judiciously, as you will-we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors…and you, all of you, will be left to just study what we do."[2]
          == end of quote ===

          And that's probably the key to understand their action or inaction as for interest rate.

          IMHO, in no way domestic concerns are of primary importance.

          [Sep 09, 2015] Neoclassical economic reforms were colossal failures

          "...The reason the Friedmanian era turned out to be vastly different from the Keynesian era was because the neoclassical economic reforms were colossal failures."
          "...Nothing in the history of the universe has failed more than neoclassical ideology. If one is to call that failure, one would have to redefined the word failure to include all other failures that pale by comparison. But according to the Medieval Barbers, their policies were a resounding success. Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters at the stake like their forebears. "
          "..."Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis) than Keynesian. More neoliberal than liberal.""
          "...Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and the employment rate (now expect a decade before the economy can recover from a recession.) "
          "...China is in hot water because neoclassical reforms have killed demand in the Western economy. Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG emissions. "

          EMichael said in reply to Ron Waller, September 07, 2015 at 09:52 AM

          I see no purpose in comparing the present with a period of time so vastly different from the present.

          Ron Waller said in reply to EMichael, September 07, 2015 at 10:27 AM

          Yes the laws of physics change every 35 years too.

          The reason the Friedmanian era turned out to be vastly different from the Keynesian era was because the neoclassical economic reforms were colossal failures.

          Tax cuts did not pay for themselves or create prosperity, they created skyrocketing government debt. Deregulation didn't create prosperity, but produced numerous disasters including financial meltdowns. Free-trade exported wealth and jobs and killed real income growth. Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and the employment rate (now expect a decade before the economy can recover from a recession.)

          Nothing in the history of the universe has failed more than neoclassical ideology. If one is to call that failure, one would have to redefined the word failure to include all other failures that pale by comparison.

          But according to the Medieval Barbers, their policies were a resounding success. Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters at the stake like their forebears.

          EMichael said in reply to Ron Waller, September 07, 2015 at 10:35 AM

          No, the Laws of Physics do not change.

          Economic facts do. Are you trying to state there has not been a sea change in the world economy since the post WWII era?

          Sorry, but Japan, China and Europe are an awful lot different than they were in 1950. And that is not saying that I disagree with everything you say. Actually, I agree with a lot of it.

          But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s.

          Bruce Webb said in reply to EMichael, September 07, 2015 at 11:02 AM

          "But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s."

          EMichael there is a logical hole here. I am not sure I disagree with you on the substance but there is a coherent argument that the problems that exist NOW are precisely BECAUSE of changes away from the polices of the 50s and 60s. And that the reason we didn't have the same problems then is that the policies prevented them. And that a change back to those policies would serve to ameliorate them.

          What you would need to do to rescue your argument is to prove that current problems could NOT have existed in the 50's and 60's, that there is something unique to today's problems that make them resistant to yesterday's solutions.

          I am not saying you couldn't do that. Merely that you haven't attempted it. Instead you present a circular argument. What EXACTLY about today's problems make them incurable by yesterday's solutions?

          EMichael said in reply to Bruce Webb, September 07, 2015 at 01:33 PM

          The main thing that did not exist in the US was competition for labor. Free trade is a marvelous thing when you are the only one selling.

          Take a look at trade balances from that period and the last couple of decades.

          You can almost trace the trade balance changes to the changes(or lack of changes) to the income of the vast majority of Americans.

          People in here(and myself) talk about the need for a tighter labor market. And we applaud the actions that create one. But I am almost totally committed to the idea that the only way to create a tight labor market is protectionism. We have to protect our workers.

          Of course there is a price to be paid, but I think the increased costs of some goods will be overwhelmed by the benefits to be gained by a tight labor market.

          Then again, we would be harming other countries trying to move into a industrialized state. But the last time I looked, none of them were helping me pay for SS; or Medicare; or education; or the keep the street lights working.

          I know it is not politically correct, but charity begins at home. Especially in a home which has seen such decline in only three or four decades.

          cm said in reply to Bruce Webb, September 08, 2015 at 09:51 AM

          Economic policy doesn't happen in a vacuum. Before the 90's there was no internet. There were its precursors of a sort, e.g. fax and data transmission over the phone, and computer networks/links based on that (90's comms technology existed but only in the lab or at the high end). In the post-WW2 decades, there weren't built out telephone networks at the national and international level, only few high end players could arrange to make instant international calls. Even electrification wasn't completed.

          This meant obviously more bottlenecks and more intermediation and control, barriers to globally distributed operations, and in addition everything happened at a slower speed.

          In addition most of the world, including large parts of Europe and the US, was agricultural or sparsely populated and un"developed".

          In the decades after, the "second" and "third" world invested big time in education and technological development. It really took off when international business logistics and global IT/telecom became ubiquitous, and "first world" companies eagerly "helped" build the offshore know-how.

          Ron Waller said in reply to EMichael, September 07, 2015 at 11:14 AM

          Generalizations don't identify any problems, provide any solutions, justify failed policies or rule out successful policies. Japan and Europe are in hot water because of bad economic policy. (Not demand-side Keynesian economic policy.)

          China is in hot water because neoclassical reforms have killed demand in the Western economy. Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG emissions.

          It's only a matter of time before the entire house of cards collapses. Then people will be looking to the 1930s for policy solutions

          Peter K. said in reply to EMichael, September 07, 2015 at 01:27 PM

          I agree with the others. To say that the economy was different back then is to minimize the manner in which policy has changed for the worse.

          I don't think fundamentally the laws of economics have changed that much because of technology or globalization or vague "productivity changes."

          This is like being like Martin Feldstein who says we should be happy with what we got. No policy has changed much to the worse since the 1950s and 1960s. For one thing unions have been politically destroyed.

          EMichael said in reply to Peter K

          Not the laws of economics, the facts. Y'know the old Keynes thing(supposedly):

          "When the facts change, I change my mind. What do you do, sir?"

          I'll give you one change.

          In the 70's China had almost no foreign exchange reserves. Now they have around $4 Trillion.

          That is a real fact. And the reasons behind it are obvious.

          Reply September 07, 2015 at 01:40 PM
          likbez said in reply to Ron Waller

          "Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis) than Keynesian. More neoliberal than liberal."

          Very true. Thank you

          [Sep 09, 2015] The Fed Must Act Soon Why

          "...You're an econ prof, no? In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation."
          "...The Fed does absolutely nothing to require that the money it creates pays workers to build anything. Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow."
          Sep 08, 2015 | Economist's View

          JohnH -> to pgl...

          pgl still hasn't demonstrated the iron economic law that says that inflation increases must necessarily be passed along to labor, not stolen by capital.

          The precedent of productivity increases stolen by capital over the past 40 years is not encouraging, but there are economists like Janet Yellen who still disingenuously are that productivity increases get passed along! And despite the evidence, pgl chooses to believe her!

          mulp said...

          But printing more money just forces the exiting money to be spent paying workers slower and slower.

          The national economic policy selected by We the People is clearly:

          DO NOT PAY WORKERS TO BUILD ANYTHING.

          The Fed does absolutely nothing to require that the money it creates pays workers to build anything.

          Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow.

          We the People understand that paying labor to build new assets will crater the prices of all the inflated asset prices, eg, creating the kind of excess supply we see in fossil fuels which will cause cratering prices, profits turning to losses, and the asset price bubble popping in a big way.

          The 21st century has proved to me that I was totally wrong to believe in monetary theory based on the arguments and data of Milton Friedman, and that led me to reexamine the policies of FDR in the face of a populist Congress.

          Insight one: deep crisis is required to motivate We the People.
          Insight two: the only way to create a better economy is to pay more workers to work more
          Insight three: the only way to pay more workers more to work more is for taxes taking money from those who have money which is basically everyone in the upper half who will then demand benefits NOW for all their taxes

          Doing the liberal thing to prevent massive poverty in 2008 was the wrong thing. Democrats should have made demands that Bush and Republicans would totally refuse to agree to, so all the money market funds experienced runs and 50% of the depository banks got taken over by the FDIC, and half the businesses in the US stopped paying workers because they could get their cash in their banks because the banks were taken over by the FDIC. And in 2009, Democrats should have kept increasing demands and demanding ever higher tax hikes every time Republicans fought to block Democratic budget bills keeping the economy sinking deeper and deeper making more and more people poor.

          The ideal outcome of 2009 would have been corporate tax rates of 50% on business profits of 5% ROIC or lower and 90% on all profits in excess of 5% ROIC, but with 100% deduction for all capital investment excluding buying existing corporations or partnerships. And 90% income tax rates in excess of twice the median income, excluding buying tax exempt infrastructure construction bonds or investing in energy efficiency capital assets.

          Or a carbon tax that was set to rise every year until tax revenue was zero with all the tax revenue used to repay Federal debt.

          Tax dodging is the biggest incentive to pay workers to build stuff that lasts and that is productive.

          The Fed can't do anything but prevent the required crisis to force the required political change.

          Or cause the crisis that will create change.

          The Fed needs to jack up interest rates to, if nothing else, increase the Federal deficit rapidly by increasing the interest costs.

          One of two things would happen: Republicans would win in 2016 and crash the economy by massive spending cuts driving tens of millions into poverty, homelessness, etc.

          Or taxes rates would be greatly increased to reduce the deficit but the high tax rates would make hiring workers the cheapest way to cut taxes due and get some benefit.

          If I were in the Fed I'd be calling for a 1% hike every year (.25% a quarter) for the next three years.

          likbez said...

          The USA now reminds me the USSR in a sense that government figures are not using open verifiable methodology. Some thing that those metrics became yet another "number racket". Some measures like inflation and GDP are definitely politicized.

          That gives an impetus for sites like http://www.shadowstats.com

          Those people who operate using pure government statistical figures without questioning their error range are just another brand of highly paid charlatans. And their papers and articles should be viewed as exercise in "tail wags the dog"

          Actually that can be viewed as another dimension of mathiness.

          For example government announced that GDP is 3.7%. And everybody jumps in admiration. And nobody asks what was GDI released for this period. Suckers...

          Peter K. said in reply to likbez...

          "The USA now reminds me the USSR in a sense that...

          Republicans are dynamic scoring in order to massage the numbers to that their favored policies look better?

          likbez said in reply to Peter K....

          My point is the USA now reminds the USSR with its tendency to "beautify" economic data.

          Think about all those birth-death adjustments, substitution of U6 with U3 (concepts of "discouraged workers" and "marginally attached workers"), redefining full employment metric (which no longer means 40 hours a week employment), hedonic adjustments/substitutes, "managing" inflation by changing the way it is calculated, price anomalies that bump GDP up, like tremendously overpriced military hardware, etc.

          Please don't throw the baby out with the bathwater

          Dan Kervick

          "Finally, why the huge fear over a little bit of inflation rather than huge fear over higher than necessary unemployment?"

          It is a good question, and frankly I have trouble believing that people like Fisher actually *are* worried about a little bit of inflation. Fisher set out his fuller position over a year ago, and I doubt it has changed much:

          http://www.dallasfed.org/news/speeches/fisher/2014/fs140716.cfm

          He's mainly afraid that the Fed might blow a bubble, and he's afraid that the independence of the political Fed is being compromised by it's being dragged into service to compensate for the lack of fiscal and regulatory action by Congress.

          I would suggest that, on the second point at least, everyone should get used to the fact that central bank policy is inevitably a response to politics. That's because central bank policy is always based on general economic conditions, and general economic conditions are always to a substantial extent a function of government policy. So central bank policy has to be responsive to government policy. Tough cookies for all of those believers in an "independent" central bank. There is no such thing as an autonomous "economy" that is independent of political choices.

          Other not fully acknowledged factors driving the recent debate are equally political. The Fed is worried that if normalization is delayed, then some time next year the Fed will *have to* reverse course, one way or another. If that takes place after the parties have chosen their nominees and the political race is in full gallop, the Fed will be accused of intervening (in some way, on behalf of someone) in the campaign, and will become a political football. (As far as I'm concerned that would be great, because the US central banking system needs radical reform - but the Fed guys wouldn't like it.)

          The other thing they are obviously worried about is a recession. If the US experiences a recession for any reason over the next 18 months, and the Fed is still stuck down close to the zero bound, then it will not be able to exert a substantial stimulative impact - at least not without radical new measures like helicopter money. Again, that's something that wouldn't both me personally, but Independent Fed establishmentarians would freak.

          John said...

          You're an econ prof, no?

          In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation.


          [Sep 08, 2015] Mystery Buyer Of US Treasurys Revealed

          Zero Hedge

          This makes one wonder if the wiz kid is a proxy for the Fed... Where is does one come up with billions of $$$ for this purchase program?

          TSA Thug

          http://www.aipac.org/~/media/Event%20Forms/2012/Northeast%20Region/NY%20...

          Search for Mara & Jeffrey Talpins.

          Also check for Sachs.

          mtl4

          His hiring of Richard Tang is a pretty good clue and it seems his strategy changed around the same time.......spidey sense is tingling on this one for sure.......he's a proxy but not sure for who exactly at this point.

          ZD1

          "This makes one wonder if the wiz kid is a proxy for the Fed..."

          He is a donor to both political parties... but the links as to a proxy for the Fed will be harder to find

          http://individual-contributors.insidegov.com/d/c/Jeffrey-Talpins

          pods

          Not that tough:

          http://lmgtfy.com/?q=Jeffrey+Talpins+AIPAC

          pods

          TSA Thug

          https://en.wikipedia.org/wiki/Hain_Celestial_Group

          McCormick No. 9

          Yale, Goldman, Bernanke (How well do you have to know someone to "test their patience"? A: pretty fucking well.)

          This is a set-up. He's not buying billions of Treasuries with his own money. This fucker is a front/cut-out. He is doing the dirty, er "God's" work. Someone has to buy this Chinese paper, or else yield contagion screws the pooch. Where is he getting the money? Bernanke knows.

          ... ... ...

          Freddie

          Just like Citadel and Ken Griffin and a few other HFT trading front companies. They all are run by Fed, Goldman et al.

          AGuy

          How the hell does a fund make money by accumulating low yield bonds? Where is the source of capital to purchase all this? I can't imagine hes managed to get that much OPM (Other People's Money).

          RopeADope

          By using multiple lenders and not letting them find out that collateral has already been overpledged by 700%. It is the LTCM model after all.

          Argenta

          A glaring example of what counts as math these days, and who's a whiz at it, lol. If a math genius loves US Debt, so should you!

          -Argenta

          Irishcyclist

          Amen.

          maths whizz my arse.

          VinceFostersGhost

          Compared to all our youth learning Common Core math.....everyone is a math whiz.

          [Sep 07, 2015] Central banks can do nothing more to insulate us from an Asian winter

          "...Central banks are independent. Independent of their nations best interests."
          .
          "...Bernanke is on the record as saying that there is no theory to justify QE. And therefore there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the economy. Just a con trick."
          .
          "...Growth under free market capitalism largely functions through bubbles - following the explosion of tech consumerism and ill-advised financial speculation on property assets, North America has recently benefitted from the fracking explosion as well as the fall in the oil price; the UK always has its property market. "
          Sep 07, 2015 | The Guardian

          okisthislongenough 7 Sep 2015 06:39

          Nothing more -- they have collectively destroyed the diligent savers, pensioners and even the value of small taxed gifts to children.

          To many central bankers are interested in their own existence, hang the rest who rely on a perceived value that they under right in Fiat currencies.


          kimdriver -> miceonparade 6 Sep 2015 16:07

          Agreed. It's all a con trick.

          Sometimes con tricks can be justified, but this one is so piss poor, and has such adverse consequences (the inflation of the price of financial assets, not through the injection of money but through the lowering of long term interest rates and the desire for yield).

          Bernanke is on the record as saying that there is no theory to justify QE. And therefore there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the economy.

          Just a con trick.


          soundofthesuburbs 6 Sep 2015 15:54

          Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.

          After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.

          When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring.

          The end result 2008.

          With this total failure of monetary policy to control an economy and a clear demonstration of the broad brush effect behind us, everyone decided to use the same idea after 2008.

          Interest rates are at rock bottom around the globe, with trillions of QE pumped into the global economy.

          The broad brush effect has blown bubbles everywhere.


          miceonparade 6 Sep 2015 15:14

          Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt overhang from the boom years, chronic underinvestment, weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is unlikely to lie with the central banks.

          That is correct. All central banks can do is swap assets with banks. That is not economically stimulative. Changing the composition of bank portfolios does nothing to get money to people to spend. They still have to borrow it, and who wants to borrow right now in order to invest in an economy in which nobody is spending? The answer lies in fiscal policy. The treasury must increase net spending to get money directly in the hands of people so they can spend it and turn it into somebody else's income (and so on).

          And the market gyrations of recent weeks have been a reminder of a lesson the world learned in the crisis of 2008 and beyond: central banks are not the omniscient puppet masters of the global economy they seemed before the crash. Instead, in resorting to trillions of dollars' worth of quantitative easing, they may have conjured up forces they can barely control.

          Central banks have little effect on economies. But that also means that quantitative easing won't have conjured up any forces beyond their control. It's just a fruitless exercise in changing the composition of bank holdings. Unsurprisingly, no reasons are given for this assertion in the article.


          soundofthesuburbs soundofthesuburbs 6 Sep 2015 12:07

          The BIS directors:

          Mark Carney, London
          Agustín Carstens, Mexico City
          Jon Cunliffe, London
          Andreas Dombret, Frankfurt am Main
          Mario Draghi, Frankfurt am Main
          William C Dudley, New York
          Stefan Ingves, Stockholm
          Thomas Jordan, Zurich
          Klaas Knot, Amsterdam
          Haruhiko Kuroda, Tokyo
          Anne Le Lorier, Paris
          Fabio Panetta, Rome
          Stephen S Poloz, Ottawa
          Raghuram Rajan, Mumbai
          Jan Smets, Brussels
          Alexandre A Tombini, Brasília
          Ignazio Visco, Rome
          Jens Weidmann, Frankfurt am Main
          Janet L Yellen, Washington
          Zhou Xiaochuan, Beijing

          The banking cartel that runs the world.

          soundofthesuburbs 6 Sep 2015 12:03

          Central banks are independent. Independent of their nations best interests.

          But the heads of all major Central Banks are directors of the Bank of International Settlements in Switzerland (including China). Our policy makers are the same the world over and they reside in the BIS in Switzerland. The policy is to prop up the global banking system and stock markets.

          Dunbar1999 6 Sep 2015 10:16

          The common-sense relationship between lending and borrowing seems to have been lost since computer programs started working out profit-and-loss equations to ten decimal places in micro-seconds for the benefit purely of agents -- middlemen, or facilitators Ordinary people with even a little cash to spare used to be able to lend it, probably to a bank; and then the bank would lend it to someone else who would pay the bank enough for the use of the money to enable the bank to pay the lenders. About 3 per cent over the general rate of inflation was generally agreed to be fair, I believe, for years and years. But now that the act of lending money (to a bank, lets say, i.e. saving) gets a lot less back than what inflation actually costs the saver, it makes more sense for millions of people with a bit of spare cash to put it where they think they'll get a bit more back -- like a posher house, maybe. Or stock in a snazzy new tech company. And then economists start worrying about asset bubbles, and things get out of whack and start going to hell in a handbasket. I have never understood why professional economists, especially those labeled in America "freshwater" economists, never seem to have studied psychology along with all those charts and equations. There are actually real people living their daily lives in every part of every economy, after all.

          burgermeister 6 Sep 2015 09:43

          I suspect, for many normal people, the 2008 crash was a wake-up call. Too much private debt and not having any spare money lying around for an emergency is no way to live when the economy can change on a whim.

          We've certainly been tightening our belts here since the Tories got in, stockpiling spare cash in an easy-access savings account (on top of existing investments) and making over-payments on the mortgage. I have no faith at all in this recovery or in the government to provide a decent safety-net if it all goes tits-up so this consumer's spending will not be doing what the economy wants it to.

          NWObserver -> MattyTwo 6 Sep 2015 08:56

          Gold is merely another token of wealth, although not something that can be created out of thin air. The true source of wealth is the ability and willingness to create it out of the resources available in nature and those who possess it are the best positioned to ride out the storm. Of course, also holding time-tested tokens of wealth like gold can't hurt either.

          But those who think creating tokens of wealth in endless supply can make them skim the wealth produced/owned by the others and do so forever will get a harsh dose of reality.

          candidliberal 6 Sep 2015 08:46

          Growth under free market capitalism largely functions through bubbles - following the explosion of tech consumerism and ill-advised financial speculation on property assets, North America has recently benefitted from the fracking explosion as well as the fall in the oil price; the UK always has its property market.

          Social market Europe will have to liberalise substantially to return to anything approaching old patterns of growth - only Germany has managed this if under now dusty Schroeder reforms from the late 90s.

          Shakerman 6 Sep 2015 08:46

          According to legend, the location of Wall Street, the New York financial district, was chosen because of the presence of a chestnut tree enormous enough to supply tally sticks for the emerging American stock (stick) market.

          There was a time when the English government created money debt free using wooden (Tally) sticks.

          As Ellen Brown points out in her book "The Public Bank Solution" when debt based money was forbidden in Medieval England, despite the Black Death and other scourges that had to be contended with, the economy itself seems to have provided quite easy living conditions.

          Introduced by King Henry I (son of William the Conqueror) to thwart the debt creating money changers, wooden tallies were wooden sticks with notches cut in them and then split length-ways.

          One half of such a stick, which was given to the party advancing funds, had a handle and was called the "stock", while the other half was called the "foil".

          The "foil" was the origin of the term "the short end of the stick."

          The term "stock" has evolved to describe shares in publicly listed corporations today.

          Thorold, Rogers, a nineteenth century Oxford historian, wrote that during this time (Middle Ages) when money was not created bearing debt, "a labourer could provide all the necessities for his family for a year by working 14 weeks."

          Fourteen weeks is only a quarter of a year and so for the rest of the time some men worked for themselves, some chose to study and some fished or engaged in other leisure activities.

          Indeed some helped to build the cathedrals and churches that appeared all over England during that time – massive works of art that were built mainly with VOLUNTARY labour.

          Over one hundred thousand pilgrims had the wealth and leisure to visit Canterbury and other shrines yearly.

          William Cobbett, author of the definitive "History of the Reformation," wrote that Winchester Cathedral "was made when there were no poor rates; when every labouring man in England was clothed in good woollen cloth and when all had plenty of meat and bread."

          Money was available for inventions and art, supporting the Michelangelo's, Rembrandt's, Shakespeare's and Newton's of the period.

          windwheel 6 Sep 2015 07:42

          'weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease' Wow! Has the author not heard of the Permanent Income Hypothesis? Is he not aware that Technology is changing unpredictably - we don't know what sort of education and training is worth investing in, let alone which Companies have a robust business model - as is Demographics - with the result that Uncertainty has increased and, assuming the Ellsburg effect holds, expected Permanent Income must have declined more than proportionately?

          What is this guff about Central Bankers having been considered omniscient gods prior to 2007? Greenspan mania had nothing to do with Monetarism but was about American exceptionalism and Randian animal spirits.

          Britain is differently placed and may well see some tightening even if the Market continues to misunderstand what Hu is up to.

          NicholasB 6 Sep 2015 06:58

          The Shanghai Stock Market is still up on the year. Don't get carried away by the hype. There was a stock market bubble and it burst. This is not a sudden collapse of the Chinese economy.

          JaneThomas 6 Sep 2015 05:42

          That tree is such a metaphor- like a version of the story of King Midas who received his wish and turned everything into gold, including his child.

          '"A piece of bread," answered Midas, "is worth all the gold on earth -- Oh my child, my dear child I" cried poor Midas, .wringing his hands.'

          A real forest is worth all the gold on earth.

          Perhaps a better sculpture would be this one- http://www.sculptor.com.au/#!/zoom/cay5/imagebv0

          andydav 6 Sep 2015 05:23

          the problem is in europe and america people are not buying therefore in asia the maker's of the product have to downsize .The problem is not in Asia but the lack of buyer's in america and europe .So why do people not buy.Simple they don't have a jobs no saving's

          johnbig 6 Sep 2015 04:32

          Central banks can do nothing more to insulate us from an Asian winter

          I did hear of an intelligent proposal from a Labour politician, which was supported by several respected economists. It was called People's Quantitative Easing to be used for investment in infrastructure. Perhaps though we should not spend a much as the Ł200bn already channeled through the banks

          someoneionceknew 6 Sep 2015 04:18

          The way out of depression is fiscal policy. All this rubbish about central banks is a distraction. They don't have the tools to lift aggregate demand.

          The European Central Bank proudly announced on Friday that it is erecting a 17-metre-high bronze and granite tree outside its Frankfurt headquarters – an artwork intended to "convey a sense of stability and growth"

          A cruel joke. The Stability and Growth Pact is a suicide cult. Macroeconomic madness.

          [Sep 07, 2015] The Thirty-Year Boom

          September 06, 2015 | Economist's View

          Part of an essay by David Warsh:

          ... For the old lions, Paul Samuelson and Milton Friedman, the '80s meant a bittersweet departure from the center stage of economics after forty years of dominating the scene. The two had entered their sixties; neither was out of steam. But the leaders of the next generation had become apparent: Lucas, in macroeconomics; Kenneth Arrow in nearly everything else.

          The election of Ronald Reagan was a triumph for Friedman; they had known each other since Friedman spent a quarter at the University of California at Los Angeles, shortly after Reagan had been elected Governor of California.He was invited to lecture in China. And the international success of Free to Choose kept Friedman in the public eye.

          But Paul Volcker took a different approach to monetary policy from the one Friedman advocated, and Friedman's forecasts became markedly worse. The editorial page of The Wall Street Journal adopted as its champion Friedman's long-time rival in currency matters, Robert Mundell, now teaching at Columbia University, and went all in for Mundell's young associate, consultant Arthur Laffer. A research appointment at the Federal Reserve Bank of San Francisco was not the same platform as the University of Chicago. Friedman still had his membership on the President's Economic Policy Board, but after he "savaged" Volcker to his face before the president in a meeting in 1983, both men lost influence. Pointing a finger at Volcker, Friedman said (according to Newsweek's account), "because of the policies of the Fed under that man we have had an inflationary surge in the money supply that is going to have to be corrected." Volcker was not reappointed. Edward Nelson, of the Federal Reserve Bank of St. Louis is writing a scientific biography of Friedman. It will make interesting reading when it is done.

          In March 1981, Friedman wrote his Newsweek column in the form of a letter to Philip Handler, president of the National Academy of Sciences, advocating major cuts in the budget of the National Science Foundation, as a step towards the abolition of the NSF. The Reagan administration had proposed sharp cuts in the economics program. Friedman argued the government shouldn't pay for any scientific research. True, the NSF had funded much good science; but it had paid for much bad science, too, including, he wrote, overmuch mathematical economics. The great scientists of the past had done without NSF funding. Einstein did his work in a government patent office; general relativity might never have made it past a peer-review panel. "The innovative ideas that have stirred controversy in economics since NSF funding of economics began two decades ago owe little or nothing to NSF funding," he wrote.

          Thus did Friedman dismiss the agency that Paul Samuelson had brought to life in 1945. Perhaps more important, by extension he dismissed the program of government fellowships, awarded by competitive exam, that had sent Samuelson to graduate school in 1935, all expenses paid – and countless others since, many of them as impecunious as Friedman had been in 1932. The NSF ran similar programs in mathematics and many ciences, and the principle had been extended, by Sen. Jacob Javits (R-NY) to humanities. NSF research grants funding had helped build the Massachusetts Institute of Technology into a powerhouse to rival Harvard, and played a similar role at many other public and private universities.

          No Samuelson column followed Friedman's. Samuelson never wrote again for Newsweek . He resigned the column he written for fifteen years. When, many years later, I asked him about his timing, he firmly denied that it had anything to do with Friedman's column, and wrote me a letter for the file the next day repeating what he had said. I have always wondered if he sought to defuse the matter out of habit. That he and Friedman had remained on civil terms for seventy-five years was clearly a source of pride, though privately he grew less tolerant of his rival after 1980.

          Samuelson, too, was in mild recession in the '80s. Keynesian economics hadn't yet rebounded from the biting criticism of the New Classicals in the '70s. Tensions were growing within the MIT department over appointments and the direction of future research. Samuelson formally retired in 1985, at 70, to make room for others. He had plenty to engage his professional attention. Commodities Corp., which had discovered such natural traders as Paul Tudor Jones and Bruce Kovner, was winding down, but Samuelson's interest in Warren Buffet's Berkshire Hathaway was gearing up. The Vanguard Group, whose godfather he had been ever since founder John Bogle introduced the first index fund, was thriving. Samuelson's friends and colleagues James Tobin, Franco Modigliani, and Robert Solow received Nobel Prizes.

          Young Lions at Large

          To the young lions of Keynesian economics in the '80s, rational- expectations macroeconomics and real business cycle theory posed a considerable bar. To work in the new traditions required a considerable investment in new tools and mathematical techniques, and, even fully teched-up, didn't seem to speak very directly to policy. A strong corps of economists went to work to fashion a "new Keynesian" version of the latest general equilibrium economics. But gradually one rising star of saltwater economics after another left academia for a policy job.

          Martin Feldstein, of Harvard University, was the first. As something of an acolyte of Milton Friedman, Feldstein was never very high in salinity, but he demonstrated plenty of professional backbone as Chairman of the Council of Economic Advisers under Ronald Reagan for two years in the early days of the controversies over deficits before returning in 1984 to Harvard and his position as president of the National Bureau of Economic Research. Stanley Fischer, of MIT, was next, wrapping up a highly successful research career in order to serve as chief economist of the World Bank (a path that led to leadership positions in the International Monetary Fund, governor of the Bank of Israel and, currently, vice chairman of the Fed). Lawrence Summers, Feldstein's student, served as campaign economist to Democratic candidate Michael Dukakis in the 1988 presidential campaign and succeeded Fischer at the World Bank before joining the Clinton administration, where he advanced to Secretary of the Treasury.

          Soon the flood was on: Jeffrey Sachs, Joseph Stiglitz, Olivier Blanchard, Kenneth Rogoff, Gregory Mankiw, Glen Hubbard, and Christina Romer were among those MIT- or Harvard-trained economists who served in government jobs or NGO positions. Paul Krugman retooled as a journalist. Lists of MIT and Harvard graduates in high positions in European, South American, and Asian governments were even longer. Did this differ in kind, and not degree, from the trajectory of academic economists dating back to to the New Frontier, if not the New Deal? I think so.

          In 2006, Harvard's Mankiw, in an article for the Journal of Economic Perspectives argued, as I did in a book, that the differences in interests among economists were best understood as being similar to those between scientists and engineers. The early macroeconomists, led by Samuelson and Friedman, had resembled engineers seeking to solve practical problems, Mankiw wrote; macroeconomists of the past several decades, led by Tjalling Koopmans, Jacob Marschak, Kenneth Arrow, and others had been more interested in developing analytic tools and establishing theoretical principles. Their students the '80s had joined teams along similar lines. "Recently Paul Romer, of New York University, introduced a different distinction to elucidate some of the controversies in present-day macro – between bench science and clinical medicine. Both analogies will get plenty of elaboration in future years, for this is what changed in kind in the '80s: economics developed a clinical/engineering wing.

          ... ... ...

          likbez said...

          Due to his role in neoliberal transformation of Chile after Pinochet coup of 1973, Friedman can be viewed as a one of the first economic hitman for multinationals, member of organized crime disguised as an economist. According to the 1975 report of a United States Senate Intelligence Committee investigation, the Chilean economic plan was prepared in collaboration with the CIA. In 1987 45% of Chile's population was below poverty line. From Wikipedia:

          ==Start of quote ===
          Milton Friedman gave some lectures advocating free market economic policies in Universidad Católica de Chile. In 1975, two years after the coup, he met with Pinochet for 45 minutes, where the general "indicated very little indeed about his own or the government's feeling" and the president asked Friedman to write him a letter laying out what he thought Chile's economic policies should be, which he also did.[26] To stop inflation, Friedman proposed reduction of government deficits that had increased in the past years and a flat commitment by government that after six months it will no longer finance government spending by creating money. He proposed relief of cases of real hardship among poorest classes.[2] In October 1975 the New York Times columnist Anthony Lewis declared that "the Chilean junta's economic policy is based on the ideas of Milton Friedman…and his Chicago School".[26]
          === End of quote ===

          In her book The Shock Doctrine, Naomi Klein criticized Friedman's recipe for neoliberal scheme of the economic rape of the countries under disguise of transformation toward "free" market economics -- the neoliberal restructuring that followed the military coups in several countries using suspiciously similar schemes. She suggested that the primary role of neoliberalism was to be an ideological cover for capital accumulation by multinationals. Chilean economist Orlando Letelier considered that the main driving force behind Pinochet's dictatorship violence toward opponents was the level of opposition to Chicago School policies in Chile.

          And Friedman himself was a coward who never personally acknowledged his role in the events. After a 1991 speech on drug legalization, Friedman answered a question on his involvement with the Pinochet regime, saying that he was never an advisor to Pinochet (also mentioned in his 1984 Iceland interview), but that only his students (Chicago boys) were involved.

          He was followed by Harvard mafia with their economic rape of Russia in early 90th. Probably also prepared in collaboration with the CIA...

          It is interesting that the paper does not mention Galbraith who was important opponent of Friedman (see "Friedman on Galbraith, and on curing the British disease", 1977) . In those two lectures Friedman disagrees with Galbraith's four most popular works: "Countervailing Power," "The Great Crash of 1929," "The Affluent Society," and "The New Industrial State". Friedman consistently repeats the neoliberal dogma that it is unfettered free market, with minimal rules and regulations, is the best economic system.

          So it might be useful to distinguish between two instances of Friedman: the first is Friedman before "Capitalism and Freedom" and the second is after. Friedman after Capitalism and Freedom is a pitiful figure of a prostitute to power that be.

          chris herbert said...

          The best observation was the one by Wojnilower that the animals in the zoo were let out of their cages.. They are still roaming around, not yet put back in their regulatory cages. The list of financial crises beginning in the 1980s looks as bad and as frequent as those of the 1800s. Technology gives a sheen to the past 35 years or so, but underneath there's been immense intellectual damage. A degradation of morals and honesty. Today, greed is good. I'll be gone, you'll be gone (IBGUBG), rules politics and finance today. The animals are still lose, more trouble will visit the Kingdom.

          bakho said...

          Interesting history lesson.
          Needs more links.
          Friedman's spat with Volcker:

          In Friedman's view, Volcker was too vulnerable to political pressures from Congress and the White House, Condemned by liberals and conservatives for plunging the country into recession and worried that continued high interest rates would cause massive default by Third World debtors, Volcker in mid-1982 shifted his sights away from the monetarist approach, loosening the Fed's targets for money growth and restoring interest-rate manipulation as a policy tool. In the five months before the November 1984 elections, the Fed increased the money supply to bring down interest rates and thus fuel the recovery to better Reagan's chances at re-election. After Reagan's reelection victor in November, the Fed again tightened the money supply, "This is not monetarist policy," Friedman says, "The key element of monetarism is to define what you are going to do and then stick with it."

          For any Fed chairman, Friedman thinks, the temptation to linker with money-supply targets is probably irresistible. According to the monetarist doctrine, the Fed chairman's job is purely technical, "a matter of every month looking at the money base and making sure it increases by about a quarter of one percent," Friedman explains, "If the Fed chairman were to do a good job, he would become an unknown, a faceless bureaucrat."

          Cooper, M. H. (1987). Economics after Reaganomics. Editorial research reports 1987 (Vol. II). Washington, DC: CQ Press. Retrieved from http://library.cqpress.com/cqresearcher/cqresrre1987082100

          I wonder if so many of the young economist went into policy because the people involved: Volcker, Friedman, Laffer etc were pretty clueless and made bad predictions.

          bakho said...

          Just how wrong was Friedman?
          DARPA turned the internet over to NSF and NSF spun it off into a large commercial engine.

          NSF funds high risk investment, the kind that most corporations cannot. High risk research means many projects that don'r pan out, a small pool of winners and a handful that hit jackpot. It takes a large organization with very deep pockets to fund enough high risk research over long periods to have a good likelihood of getting a large hit. Industry cannot fund at that level, government can.

          Another example: NSF funded obscure biochemistry into esoteric research on enzymes that could degrade DNA. That research became the foundation of genetic engineering. Who could have known?

          pgl said in reply to Paine ...

          Warsh did write an incredible amount of BS in this silly essay. I didn't think Mundell ever endorsed Laffer's stupid cocktail napkin.

          Lafayette said...

          REAGANOMICS

          From WikiP: {According to Keynesian economists, a combination of deficit spending and the lowering of interest rates slowly led to economic recovery. However, conservatives insist that the significantly lower tax rates caused the recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.}

          Even Reagan, a good friend of Friedman, when push-came-to-shove, indulged is stimulus spending to get his presidency out of the deep-doodoo.
          Which the Replicants stonewalled in 2010 when a Great Recession was in full sway, but the PotUS was a Democrat ...

          pgl said in reply to Lafayette...

          Wikipedia gets another wrong. It was Reagan's 1981 tax cut (deficit spending) that led Volcker to do round 2 of his tight money. Volcker kept trying to make a deal withe White House - reverse the fiscal stimulus in exchange for lower interest rates. The White House did not even know what was going on. And Wikipedia does not either.

          [Sep 06, 2015] The Margin Debt Time-Bomb

          "... "At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion."
          • How much debt is on the books of corporations that was used for share buybacks?
          • Is the Fed's balance sheet considered off balance sheet commercial banking system debt that is merely being rolled at the Fed's discretion?
          • How much leverage is in the Interbank Repo Market?
          • How much leverage is in the Derivatives Market?
          Yeah, yeah, yeah, I know. Ok: net it out and tell me how much. "
          Sep 05, 2015 | Zero Hedge
          The final important observation germane to our current circumstances is that when market prices turn down, margin debt levels drop like a rock. Think about leverage. It works so well when the price of assets purchased using leverage rise. Yet leveraged equity can be eaten alive in a declining price environment. Forced liquidations are simply price insensitive selling. Of course, this will only occur after prices have already dropped meaningfully enough to either force margin calls, or cause margined investors to liquidate simply in order to remain solvent or limit loss. We have certainly seen a bit of this in recent weeks.

          Why is all of this talk about margin debt important?

          In Part 2: The Criticality Of Monitoring Margin Debt Closely From Here we explore how ever higher levels of margin debt represent tomorrow's heightened price volatility in some type of a stressed market environment, whether that be a meaningful correction or outright bear market.

          Both are an eventuality, the only question is When?

          Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

          AlaricBalth

          nmewn, that is what the pit boss says at a casino.

          When the odds are in the houses favor or it's a rigged game, why not loan money to the suckers at the table.

          Casino markers can be issued to just about anyone who requests one. It is a zero-interest line of credit that is intended to make gambling easy and accessible to everyone. A gambler fills out an application for the line of credit, and pursuant to NRS 205.130, a gambler is given 30 days to pay back the debt.

          nmewn

          "nmewn, that is what the pit boss says at a casino."

          Exactly my friend, its all in how one interprets the question being posed.

          "What have you got to lose? ;-)"

          BullyBearish

          CREDIT==invented by Banksters to enslave the weak

          Insurrexion

          Fuck you Brian.

          This article is more bullshit marketing to sell more bullshit.

          The fucking fear of raising interest rates is an acknowledgment that the Fed has supported a phoney recovery that no one believed in anyway.

          The taper tantrum was the first wheel removed. The interest rate rise will be the second wheel removed. Ending the Fed will be the last wheel removed.

          Love, Alexa

          ThroxxOfVron

          "At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion."

          • How much debt is on the books of corporations that was used for share buybacks?
          • Is the Fed's balance sheet considered off balance sheet commercial banking system debt that is merely being rolled at the Fed's discretion?
          • How much leverage is in the Interbank Repo Market?
          • How much leverage is in the Derivatives Market?

          Yeah, yeah, yeah, I know. Ok: net it out and tell me how much.

          [Sep 06, 2015] The Unemployment rate is misleading given the numbers of people who want to be employed but have given up looking for a job.

          im1dc said...

          Another below forecast Employment report, not good but not bad either.

          The Unemployment rate is misleading given the numbers of people who want to be employed but have given up looking for a job.

          http://www.usatoday.com/story/money/business/2015/09/04/august-jobs-report-unemployment-rate-economy-labor/71662044/

          "Employers added 173,000 jobs in Aug., jobless rates falls to 5.1%" by Paul Davidson, USA TODAY...9:33 a.m. EDT...September 4, 2015

          "Payroll growth slowed in August as employers added 173,000 jobs in a key report that could help the Federal Reserve decide whether to raise interest rates later this month.

          The unemployment rate fell from 5.3% to 5.1%, lowest since March 2008.

          Economists surveyed by Bloomberg expected employment gains of 218,000, according to their median forecast.

          Businesses added 140,000 jobs last month, fueled by strong advances in health care, professional and business services, and leisure and hospitality. Federal, state and local governments added 33,000.

          Partly offsetting the disappointing report is that job gains for June and July were revised up by a total 44,000.

          Wage growth picked up moderately as average hourly earnings rose 8 cents to $25.09 after dipping in June, and are up 2.2% the past year, slightly faster than the tepid 2% pace so far in the recovery. The Fed is seeking signs of faster wage that would indicate stronger inflation as it considers increasing its benchmark interest rate.

          The report is the most significant the Fed will review before its September 16-17 meeting. Until recent financial market turmoil..."

          [Sep 05, 2015] Tribes

          "...Personally, I think he senses that RE/New Classicalism is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow, tribal behaviour, mathiness) and is essentially mourning its demise."
          "...read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that "Competition between segments of the scientific community [tribes?] is the only historical process that ever actually results in the rejection of one previously accepted theory or in the adoption of another," though at the same time, most progress comes from working within an established paradigm. My own intuition is that economics if very much like physics in both those respects. "
          Sep 04, 2015 | Stephen Williamson New Monetarist Economics

          So, within economics, is macro unusual? Of course not. Indeed, the whole emphasis of post-1970 macroeconomics is to do it like everyone else. Before 1970, no one would have been discussing macro and Dixit-Stiglitz in the same sentence. Should economics work like physics? Of course not. We're studying very different problems requiring very different methods. Why would you expect economists to behave like physicists?

          What's my bottom line? Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything.

          Anonymous, September 4, 2015 at 4:42 PM

          "Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything."

          It's almost as if Romer is wandering around testing the waters seeing how far he can push things before he actually says what he wants to say coherently.

          Anonymous September 4, 2015 at 5:38 PM

          Personally, I think he senses that RE/New Classicalism is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow, tribal behaviour, mathiness) and is essentially mourning its demise.

          Henry.

          Constantine Alexandrakis, September 4, 2015 at 6:16 PM
          Steve, Solow agrees with you on Romer's contribution.

          https://www.minneapolisfed.org/publications/the-region/interview-with-robert-solow

          Norman, September 5, 2015 at 4:45 AM

          Actually, Romer doesn't argue that physicists are not tribalists – he just asserts it, on the basis of a thought experiment based on two particular statements. It may well be true that there is a lot of consensus on the particular physics statements in his post, but no doubt you could also find a couple of statements in economics that most economists agree about. For evidence of tribalism in physics, google "superstring controversy," or at a more personal level, Newton and Hooke, Einstein and Lenard.

          Or read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that "Competition between segments of the scientific community [tribes?] is the only historical process that ever actually results in the rejection of one previously accepted theory or in the adoption of another," though at the same time, most progress comes from working within an established paradigm. My own intuition is that economics if very much like physics in both those respects.

          As to how tribalism has arisen in economics, the answer is easy: economists are people, and people are tribal. Search the psychology of "ingroup bias".

          [Sep 05, 2015] Range of reactions to realism about the social world by Daniel Little

          My recent post on realism in the social realm generated quite a bit of commentary, which I'd like to address here.

          Brad Delong offered an incredulous response -- he seems to think that any form of scientific realism is ridiculous (link). He refers to the predictive success of Ptolemy's epicycles, and then says, "But just because your theory is good does not mean that the entities in your theory are "really there", whatever that might mean...." I responded on Twitter: "Delong doesn't like scientific realism -- really? Electrons, photons, curvature of space - all convenient fictions?" The position of instrumentalism is intellectually untenable, in my opinion -- the idea that scientific theories are just convenient computational devices for summarizing a range of observations. It is hard to see why we would have confidence in any complex technology depending on electricity, light, gravity, the properties of metals and semiconductors, if we didn't think that our scientific theories of these things were approximately true of real things in the world. So general rejection of scientific realism seems irrational to me. But the whole point of the post was that this reasoning doesn't extend over to the social sciences very easily; if we are to be realists about social entities, it needs to be on a different basis than the overall success of theories like Keynsianism, Marxism, or Parsonian sociology. They just aren't that successful!

          There were quite a few comments (71) when Mark Thoma reposted this piece on economistsview. A number of the commentators were particularly interested in the question of the realism of economic knowledge. Daniel Hausman addresses the question of realism in economics in his article on the philosophy of economics in the Stanford Encyclopedia of Philosophy (link):

          Economic methodologists have paid little attention to debates within philosophy of science between realists and anti-realists (van Fraassen 1980, Boyd 1984), because economic theories rarely postulate the existence of unobservable entities or properties, apart from variants of "everyday unobservables," such as beliefs and desires. Methodologists have, on the other hand, vigorously debated the goals of economics, but those who argue that the ultimate goals are predictive (such as Milton Friedman) do so because of their interest in policy, not because they seek to avoid or resolve epistemological and semantic puzzles concerning references to unobservables.

          Examples of economic concepts that commentators seemed to think could be interpreted realistically include concepts such as "economic disparity". But this isn't a particularly arcane or unobservable theoretical concept. There is a lot of back-and-forth on the meaning of investment in Keynes's theory -- is it a well-defined concept? Is it a concept that can be understood realistically? The question of whether economics consists of a body of theory that might be interpreted realistically is a complicated one. Many technical economic concepts seem not to be referential; instead, they seem to be abstract concepts summarizing the results of large numbers of interactions by economic agents.

          The most famous discussion of realism in economics is that offered by Milton Friedman in relation to the idea of economic rationality (Essays in Positive Economics); he doubts that economists need to assume that real economic actors do so on the basis of economic rationality. Rather, according to Friedman this is just a simplifying assumption to allow us to summarize a vast range of behavior. This is a hard position to accept, though; if agents are not making calculating choices about costs and benefits, then why should we expect a market to work in the ways our theories say it should? (Here is a good critique by Bruce Caldwell of Friedman's instrumentalism; link.)

          And what about the concept of a market itself? Can we understand this concept realistically? Do markets really exist? Maybe the most we can say is something like this: there are many social settings where stuff is produced and exchanged. When exchange is solely or primarily governed by the individual self-interest of the buyers and sellers, we can say that a market exists. But we must also be careful to add that there are many different institutional and social settings where this condition is satisfied, so there is great variation across the particular "market settings" of different societies and communities. As a result, we need to be careful not to reify the concept of a market across all settings.

          [Sep 05, 2015] Deflation and Money

          "...Friedman and Schwartz were wrong about the cause and the cure of the Great Depression. Those who learned monetarism as the "new truth" are having a difficult time unlearning it. We need re-education courses for older economists and a new curriculum for younger ones."
          .
          "...I don't have the neo-classical faith in the "natural" healing powers of the economy as some people do. Seems more likely that the economy would settle in to a lower equilibrium given enough fiscal austerity."
          .
          "...But what if the FED is a rational captain of corporate capitalism. Better then the opportunistic demagogues in the congress. But still dedicated to wage stag "
          .
          "..."if wage increases for the business sector as a whole lag behind productivity increases deflation occurs"..."
          Sep 05, 2015 | Economist's View
          The summary "Deflation and money" by Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, and Hiroshi Iyetomiof says:
          Deflation and money, Vox EU: Deflation is a threat to the macroeconomy. Japan had suffered from deflation for more than a decade, and now, Europe is facing it. To combat deflation under the zero interest bound, the Bank of Japan and the European Central Bank have resorted to quantitative easing, or increasing the money supply. This column explores its effectiveness, through the application of novel methods to distinguish signals from noises.

          The conclusion:

          ...all in all, the results we obtained have confirmed that aggregate prices significantly change, either upward or downward, as the level of real output changes. The correlation between aggregate prices and money, on the other hand, is not significant. The major factors affecting aggregate prices other than the level of real economic activity are the exchange rate and the prices of raw materials represented by the price of oil. Japan suffered from deflation for more than a decade beginning at the end of the last century. More recently, Europe faces a threat of deflation. Our analysis suggests that it is difficult to combat deflation only by expanding the money supply

          bakho said in reply to pgl...

          Monetary policy weak is at the ZLB. Fiscal and regulatory can have much stronger effects and complete swamp monetary like a tidal wave to a ripple.
          Exchange rates and other economic shocks have more effect than monetary policy at the ZLB.

          Friedman and Schwartz were wrong about the cause and the cure of the Great Depression. Those who learned monetarism as the "new truth" are having a difficult time unlearning it. We need re-education courses for older economists and a new curriculum for younger ones.

          bakho said in reply to pgl...

          Efficiency standards backed by a carbon tax would be much more effective that a carbon tax alone.
          Efficiency standards work for electric appliances and prevent a races to the bottom.

          pgl said in reply to bakho...

          True. It seems Carly and Jeb! do not want to regulate but rather to encourage innovation by giving subsidies to rich people. Not only is this Republican reverse Robin Hoodism on steroids - it will not has as much effect as a tax combined with regulations.

          Simply put - conservatives should not be listened to as their agenda is not economic efficiency but rather making the Koch Brothers ever richer.

          Peter K. said...

          As a thought experiment I would wonder what bakho's re-education course would look like.

          There is this paper, but could it be it says the same thing as those graphs which show the large increases in the monetary base would just sit there with at the Zero Lower Bound because of the liquidity trap?

          The inflationistas were wrong that all of that monetary policy would cause runaway inflation.

          But considering what needed to be done to move long-term interest rates, was it really large enough?

          David Beckworth's blogpost in today's links suggests the Fed did what they wanted to do.

          http://macromarketmusings.blogspot.com/2015/09/revealed-preferences-fed-inflation.html

          And maybe part of that was to offset the unprecedented fiscal austerity we say after Obama's stimulus ran out. (And that stimulus was pretty much canceled out by 50 little Hoovers.)

          If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe.

          Maybe fiscal policy works better and more directly but if it is blocked or even reversed with austerity, monetary policy shouldn't be ruled because it is supposedly ineffective.

          Maybe Friedman and Schwartz's maximalist claims aren't true, but that doesn't mean one should flip to the opposite extreme.

          Bernanke says in a speech that Tobin suggested that the Fed could have mitigated the Great Depression by lowering long-term rates.

          Peter K. said in reply to Peter K....

          "What is the total number of months during the Ford, Carter, Reagan and Bush I administrations, plus the first term of Clinton, when the unemployment rate was lower than today?"

          http://www.themoneyillusion.com/?p=30495

          https://twitter.com/ObsoleteDogma/status/639877889979228160

          Peter K. said in reply to Peter K....

          "The inflationistas were wrong that all of that monetary policy would cause runaway inflation."

          When confronted they always say that once the economy normalized, all of those reserves will go rushing out into the economy causing inflation.

          But the Fed says it will use Interest on Excess Reserves to manage that outflow.

          Peter K. said in reply to Peter K....

          "If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe."

          I don't have the neo-classical faith in the "natural" healing powers of the economy as some people do. Seems more likely that the economy would settle in to a lower equilibrium given enough fiscal austerity.

          Paine said in reply to Peter K....

          Very agreeably presented

          But what if the FED is a rational captain of corporate capitalism. Better then the opportunistic demagogues in the congress. But still dedicated to wage stag

          Egmont Kakarot-Handtke said...

          Deflation? Uupps, price theory, too, is wrong
          Comment on 'Deflation and Money'

          The current economic situation is a clear refutation of both commonplace employment and quantity theory. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.

          The correct formula for the market clearing price in the simplified consumption good industry is given here
          https://commons.wikimedia.org/wiki/File:AXEC41.png

          Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumption goods industry. The formula follows from (2014, Sec. 5).

          The more differentiated and therefore better testable formula is given here
          https://commons.wikimedia.org/wiki/File:AXEC39.png

          The crucial message is that the wage rate is the numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.

          The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases deflation occurs (the rest of the formula kept constant).

          For the rectification of the naive quantity theory see (2011) (I)/(II).

          Egmont Kakarot-Handtke

          References
          Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL http://ssrn.com/abstract=1895268.
          Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
          http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792.

          Patrick said in reply to Egmont Kakarot-Handtke...

          "if wage increases for the business sector as a whole lag behind productivity increases deflation occurs"

          That certainly has the ring of truth to it.

          The paradox of productivity?

          Jason Smith said...

          The relationship between money and prices is more complicated than a simple linear relationship can capture:

          http://informationtransfereconomics.blogspot.com/2015/03/japan-inflation-update.html

          spencer said...

          Despite deflation in Japan, over the last five years real per capita GDP growth has been greater than in the US.

          Of course you have to be careful of these types of comparisons when the Japanese population is actually falling.

          anne said in reply to spencer...

          https://research.stlouisfed.org/fred2/graph/?g=1LK4

          August 4, 2014

          Real per capita Gross Domestic Product for United States and Japan, 2010-2014

          (Indexed to 2010)

          [ These last 5 years real per capita GDP has increased by 5.6% in the United States and 3.6% in Japan. ]

          Peter K. said in reply to spencer...

          Good point. This is why I am skeptical when I read people claim that Japan's extraordinary monetary policy has had no effect.

          And even if Japan has done more than before courtesy of Abe and Yoda Kuroda, they also mitigate it with contractionary policy like by raising consumption taxes.

          [Sep 05, 2015] RE: Inflation, the Fed, and the Big Picture (Links for 09-04-15)

          "...Much of Macro is still operating under the Friedman myth of Monetary policy domination. Monetary policy can have strong effects, but at other time Fiscal and Regulatory Policy are much stronger and needed for the best economic outcomes.
          .
          A problem with the US Fed is limited powers to set monetary and regulatory policy and it can be totally uncoordinated from fiscal and regulatory policy that are under control of Congress and the Executive. In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. Do the Fed an Executive even try to coordinate policy now? This Congress is the anti-Fed and operates on a playbook from the gamma quadrant. Total lack of policy coordination "
          .
          "...1) Real asset prices have gone up a lot as a result of QE. Now they are headed down as QE is done with no real hope of another round.
          2) Nominal and Real GDP are on the way up.
          3) Inflation will be the last to respond. Waiting for inflation to show up is a mistake.
          4) That still does not tell us the timing of getting off the zero bound. As I have said before, the Fed has let asset prices go up too much (much has been said including Shiller's recent analysis).
          The stock prices are now coming down. The fact that Netflix (which has zero exposure to China) is down 25% should give pause to anyone who believes parts of the market are not in a bubble. Add to that crashing commodity prices and growth overseas in important economies. I think the Fed needs to wait and see how it shakes out. It = asset prices, commodity prices, EM growth and finally, how all this impacts US growth."
          September 04, 2015 | Economist's View

          RC AKA Darryl, Ron said...

          RE: Inflation, the Fed, and the Big Picture

          [Actually Carmen Reinhart deserves a better pitchman here than the little comment pgl posted above. Carmen presents a expressly well written and concise picture. Since it is international then the same focus on core CPI that we get for domestic inflation is not referenced nor implied. She includes commodities in the inflation. The full text following the short excerpt given by pgl is below:]


          https://www.project-syndicate.org/commentary/jackson-hole-banking-conference-inflation-by-carmen-reinhart-2015-09

          ...
          Most of the other half are not doing badly, either. In the period following the oil shocks of the 1970s until the early 1980s, almost two-thirds of the countries recorded inflation rates above 10%. According to the latest data, which runs through July or August for most countries, there are "only" 14 cases of high inflation (the red line in the figure). Venezuela (which has not published official inflation statistics this year) and Argentina (which has not released reliable inflation data for several years) figure prominently in this group. Iran, Russia, Syria, Ukraine, and a handful of African countries comprise the rest.

          The share of countries recording outright deflation in consumer prices (the green line) is higher in 2015 than that of countries experiencing double-digit inflation (7% of the total). Whatever nasty surprises may lurk in the future, the global inflation environment is the tamest since the early 1960s.

          Indeed, the risk for the world economy is actually tilted toward deflation for the 23 advanced economies in the sample, even eight years after the onset of the global financial crisis. For this group, the median inflation rate is 0.2% – the lowest since 1933. The only advanced economy with an inflation rate above 2% is Iceland (where the latest 12-month reading is 2.2%).

          While we do not know what might have happened were policies different, one can easily imagine that, absent quantitative easing in the United States, Europe, and Japan, those economies would have been mired in a deflationary post-crisis landscape akin to that of the 1930s. Early in that terrible decade, deflation became a reality for nearly all countries and for all of the advanced economies. In the last two years, at least six of the advanced economies – and as many as eight – have been coping with deflation.

          Falling prices mean a rise in the real value of existing debts and an increase in the debt-service burden, owing to higher real interest rates. As a result, defaults, bankruptcies, and economic decline become more likely, putting further downward pressures on prices.

          Irving Fisher's prescient warning in 1933 about such a debt-deflation spiral resonates strongly today, given that public and private debt levels are at or near historic highs in many countries. Especially instructive is the 2.2% price decline in Greece for the 12 months ending in July – the most severe example of ongoing deflation in the advanced countries and counterproductive to an orderly solution to the country's problems.

          Median inflation rates for emerging-market and developing economies, which were in double digits through the mid-1990s, are now around 2.5% and falling. The sharp declines in oil and commodity prices during the latest supercycle have helped mitigate inflationary pressures, while the generalized slowdown in economic activity in the emerging world may have contributed as well.

          But it is too early to conclude that inflation is a problem of the past, because other external factors are working in the opposite direction. As Rodrigo Vergara, Governor of the Central Bank of Chile, observed in his prepared remarks at Jackson Hole, large currency depreciations in many emerging markets (most notably some oil and commodity producers) since the spring of 2013 have been associated with a rise in inflationary pressures in the face of wider output gaps.

          The analysis presented by Gita Gopinath, which establishes a connection between the price pass-through to prices from exchange-rate changes and the currency in which trade is invoiced, speaks plainly to this issue. Given that most emerging-market countries' trade is conducted in dollars, currency depreciation should push up import prices almost one for one.

          At the end of the day, the US Federal Reserve will base its interest-rate decisions primarily on domestic considerations. While there is more than the usual degree of uncertainty regarding the magnitude of America's output gap since the financial crisis, there is comparatively less ambiguity now that domestic inflation is subdued. The rest of the world shares that benign inflation environment.

          As the Fed prepares for its September meeting, its policymakers would do well not to ignore what was overlooked in Jackson Hole: the need to place domestic trends in global and historical context. For now, such a perspective favors policy gradualism.
          Friday, September 04, 2015 at 02:44 AM

          bakho said in reply to RC AKA Darryl, Ron...
          Here conclusion was weak with a vague take home message.

          Much of Macro is still operating under the Friedman myth of Monetary policy domination.

          Monetary policy can have strong effects, but at other time Fiscal and Regulatory Policy are much stronger and needed for the best economic outcomes.
          A problem with the US Fed is limited powers to set monetary and regulatory policy and it can be totally uncoordinated from fiscal and regulatory policy that are under control of Congress and the Executive. In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. Do the Fed an Executive even try to coordinate policy now? This Congress is the anti-Fed and operates on a playbook from the gamma quadrant. Total lack of policy coordination

          pgl said in reply to bakho...
          My take was that she was advocating more aggressive aggregate demand stimulus in general. And you are right - we need the fiscal side to step up to the plate.

          Story in NYC as how bad just the subway stops are. The rails suck as well and we need to expand the system. But at the rate this is going this decaying stops which are very dangerous will not be fixed until 2065. Why? Lack of funding is the stated reason. No one in this stupid nation can say - well provide more funding? We are ruled by idiots.

          RC AKA Darryl, Ron said in reply to bakho...
          [Well, yeah but that would have diverged a long way from her topic:]

          "Inflation – its causes and its connection to monetary policy and financial crises – was the theme of this year's international conference of central bankers and academics in Jackson Hole, Wyoming. But, while policymakers' desire to be prepared for potential future risks to price stability is understandable, they did not place these concerns in the context of recent inflation developments at the global level – or within historical perspective..."

          [She stuck with just inflation and monetary policy because that is what she chose to write about at this time. However, Carmen is the other intellectual half of Rogoff of the debt limit for economic growth flameout. So, we should not depend upon her for fiscal policy recommendations. That even someone this popular with the establishment Republican elite can understand monetary policy is notable in contrast to the inflationistas.

          Peter K. said in reply to RC AKA Darryl, Ron...
          Yes she did the 90 percent government debt cutoff with Rogoff that Krugman attacked.

          Also the vaguely righwing blogger from the St. Louis Fed, Andolfatto or something, recently had link where they said inflation wasn't a problem and the Fed shouldn't raise rates until inflation is apparent.

          Peter K. said in reply to bakho...
          "In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. "

          I thought Clinton cut the deficit and the tech stock bubble helped balance the budget so they had surpluses. Some people say those surpluses were a problem because of a lack of safe assets. That drove money to seek safe returns in mortgage backed securities for instance.

          Peter K. said in reply to Peter K....
          Maybe he didn't cut the deficit - I think Dean Baker argues that - but at the beginning of his Presidency, Clinton dropped his middle class spending bill in a deal with Greenspan who said he'd keep interest rates low in return.
          Peter K. said in reply to bakho...
          "This Congress is the anti-Fed and operates on a playbook from the gamma quadrant."

          haha yes. The Fed regularly complained about fiscal "headwinds."

          Anonymous said in reply to RC AKA Darryl, Ron...
          http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb110301.pdf

          Chart 1 is key to understanding the rough timing. In the US and UK, we are a little past the dashed vertical line (impact phase). UK has had a little more success importing inflation.

          1) Real asset prices have gone up a lot as a result of QE. Now they are headed down as QE is done with no real hope of another round.
          2) Nominal and Real GDP are on the way up.
          3) Inflation will be the last to respond. Waiting for inflation to show up is a mistake.
          4) That still does not tell us the timing of getting off the zero bound. As I have said before, the Fed has let asset prices go up too much (much has been said including Shiller's recent analysis).
          The stock prices are now coming down. The fact that Netflix (which has zero exposure to China) is down 25% should give pause to anyone who believes parts of the market are not in a bubble. Add to that crashing commodity prices and growth overseas in important economies. I think the Fed needs to wait and see how it shakes out. It = asset prices, commodity prices, EM growth and finally, how all this impacts US growth.

          [Sep 05, 2015] Fed Watch: If You Ever Wondered Whose Side The Federal Reserve Is On...

          "...Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed's top priority is making sure the cards remain stacked against wage and salary earners."
          .
          ".When you recruit from the banksters, as the Fed does, you have to expect that their interests align with the kleptocratic rentiers."
          .
          "...Notice that the labor share of business income has declined by 10.6% since 2000, while real after-tax corporate profits have increased by 143.5%."
          Sep 05, 2015 | Economist's View
          Sep 05, 2015 | economistsview.typepad.com
          Tim Duy:
          If You Ever Wondered Whose Side The Federal Reserve Is On..., by Tim Duy: Catching up with Richmond Federal Reserve Jeffrey Lacker's speech. His dismissal of low wage growth numbers:
          Some argue there must be excessive slack in labor markets if wage rates are not accelerating. But real wages are tied to productivity growth, and productivity growth has been slow for several years now. Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated.

          Real wage growth is consistent with productivity, thus there is no excess slack in the labor market. If you think this is some crazy hawk-talk, think again. Fed Chair Janet Yellen in July:

          The growth rate of output per hour worked in the business sector has averaged about 1‑1/4 percent per year since the recession began in late 2007 and has been essentially flat over the past year. In contrast, annual productivity gains averaged 2-3/4 percent over the decade preceding the Great Recession. I mentioned earlier the sluggish pace of wage gains in recent years, and while I do think that this is evidence of some persisting labor market slack, it also may reflect, at least in part, fairly weak productivity growth.

          For more than three decades, the pace of productivity growth has exceed that of real compensation:

          Another view from real median weekly earnings:

          Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed's top priority is making sure the cards remain stacked against wage and salary earners.

          Posted by Mark Thoma on Saturday, September 5, 2015 at 09:48 AM in Economics, Fed Watch, Monetary Policy | Permalink Comments (52)

          pgl :

          Let's unpack this spin:

          "But real wages are tied to productivity growth, and productivity growth has been slow for several years now."

          Productivity by definition is output per worker. So when a recession lowers output, it lowers measured productivity. So much for this garbage circular "reasoning".

          Oh and the canard that JohnH does a lot - look at only what has happened of late:

          "Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated."

          Tim Duy has already exposed this fallacy by looking at this over a longer period of time.

          pgl -> Paine ...

          Dude - this is a whole literature on this. Recessions do lower output by more than it lowers employment but this is not exactly because firms are nice. Recessions are bad news for everyone. Wages do not keep up with what is even limited inflation - again firms are not exactly nice. So recessions sort of screw firms but unbelievably screw workers. Eventually the economy gets back to full employment but workers never fully recovery.

          This is why recessions are bad for everyone in the short fun but especially bad for workers short-run and long-run.

          Which brings me to why I did not go after Yellen. It seems she and hubbie Akerlof have written some of the best papers on this topic.

          Paine - stop being an arrogant lazy ass and actually check up on this literature.

          Now if your point is that the FED borg (I coined this term) is about to take over Yellen's mind, I fear this too. It seems to have taken over Stan Fischer's mind and he used to be brilliant.

          ilsm -> Paine ...

          The fed hawks are like pentagon version hawks since 1946.....

          we cannot have any more pearl harbors

          or inflation......

          DrDick :

          DrDick :

          When you recruit from the banksters, as the Fed does, you have to expect that their interests align with the kleptocratic rentiers.

          mrrunangun :

          Domestic US wage rates have been flat. In the graph, the lines cross between 1975 and 1985. During those years, international competition increased in the tradable goods sector, IMO due to the recovery of Japanese and European industrial economies from the destruction suffered in WWII. The divergence between the curves expands more rapidly as more free trade agreements come on line in the 90s (e.g. NAFTA in 1992 and PNTR for China in 1999).

          It may be that intensifying competition in the tradable goods sector has slowed wage gains in the US by a supply and demand imbalance for labor. The increasing wage premium to education over the past 40 years and the capture of the domestic political system, and thus capture of the government, by the very rich, has made it impossible for the political system to make adjustments to the change in international competition that would benefit the unskilled or semiskilled worker.

          Mike Sparrow -> mrrunangun...

          The trade agreements are vastly overrated in terms of competition and instead, they are what help surge productivity. The US began to have offshoring in the 1950's, especially after the Korean war era boom. Companies began to bail as the US had developed a consumer base. This is very typical of capitalism. It happened in Europe in the 19th century because of the same reason.

          Keeping a strong consumer base and industrial base would liquidate capitalist positions and turn the economy into laborism.

          Mike Sparrow :

          I would argue productivity is too high, still. Real productivity really zoomed from the mid-90's and really never came back down. The late 00's recession made it worse.

          Persistently high productivity causes real wages to struggle to keep up. I think many hobbyists have it backwards with wages including myself. Yes, real wages rose rapidly between 1997-2000, but that was only because productivity surged. The long run problem of that was wage stagnation due to the previous high productivity, which has been there since the 80's. Real wage acceleration coupled with correcting productivity is a good sign and the Fed doesn't like it because they want high productivity all the time.

          The Rage -> Peter K....

          I think what he is trying to say, reading through his posts: technology is driving down the need for labor investment and the information/computer/plastic/whatever you want to call it revolution really drove that point home to the end.

          So productivity is high, creating profits from reduced pace of hiring and keeping pipelines of credit open for future output. However, productivity is slowing lately and real wages have accelerated implicating that near term output will be higher than while future output will be lower. Yeah, that part is a bit confusing, but the drift is that productivity/real wages need to track together closer or you get problems. When they come unglued, the offender, this case productivity, needs to come down for wages to catch up. Real wages were to high before 1980 and productivity should run a bit higher than wages. So by 1995, the problems that helped spur the great inflation had ebbed, but a new problem started: rapid productivity growth.

          I read this in 2009 believe it or not in a article. Their belief was if productivity stayed high and growing, the economy would be in permanent recession. They believed to maintain stability, productivity had to decline for the next decade. Mercy, I wish I could remember where I read that from. 6+ years leaves a large gap. I do think the chart shows the "panic" over slowed productivity is pure noise. Between 95-00 it when "boom boom". Notice the pre-95 trend and the post-95 trend. To the productivity must decline squad, a decline in productivity will help real wages rise boosting real incomes and reducing nominal debt, creating a more stable economy.

          Dickeylee :

          We are still in a slave labor economy. The whole world is looking for the next labor market to enslave. Nike in Vietnam, Apple in China, and China looks poised to take over Africa.

          If you can't get your slaves shipped to you, go to your slaves!

          pgl -> Dickeylee...

          China looks poised to take over Africa? I guess the Chinese capitalists hate paying $3 an hour and so will pay Africans less. If you check - multinationals are in Africa and they are mainly US and European based companies. It seems we beat the Chinese to this.

          ilsm -> pgl...

          Pentagon deploying to keep the peace in Africa for the job creators........

          Lafayette -> pgl...

          PITY AFRICA

          The plight of Africa is that it has been plundered by both Europe and America over the past two centuries. By America principally for cheap labor brought over on slave-ships.

          Do not overlook the fact that damn few African countries can seem to develop a leadership that does not plunder its country's assets for their own personal profit.

          This plague of profiteering has existed since time immemorial and China is just the newest entrant to the game ...

          DrDick -> pgl...

          China has been making significant inroads there for over a decade and are currently the largest single player there.

          http://www.businessinsider.com/why-china-has-become-so-big-in-africa-2015-1

          pgl -> Dickeylee...

          Your comment actually has some merit in two senses. China has recognized that its habit of investing in government bonds of other nations (e.g. US) is giving them a lower return than what foreign direct investment offers. And Africa is attracting a lot of foreign direct investment. I went searching for who the big players are and this gave an interesting list:

          http://theafricachannel.com/5-multinational-corporations-making-significant-investments-in-africa/

          But it shows the BRIC nations (C for China) has been doing FDI in Africa for a while.

          If multinationals are going global, maybe the labor movement should do the same. Workers of the world unite!

          Julio :

          Rasputin explained why the Fed must raise rates before the next recession, so it can lower them later:

          "Certainly our Savior and Holy Fathers have denounced sin, since it is the work of the Evil One.
          But how can you drive out evil except by sincere repentance?
          And how can you sincerely repent if you have not sinned?"

          anne :

          https://research.stlouisfed.org/fred2/graph/?g=1Jpv

          January 30, 2015

          Labor Share of Nonfarm Business Income and Real After-Tax Corporate
          Profits Per Employee, 2000-2015

          (Respectively indexed to 2000 and 2014)


          Decline in labor share index:

          100 - 89.4 = 10.6%


          Increase in real dollar profits per employee:

          15,139 - 6,218 = 8,921

          8,921 / 6,218 = 143.5%

          anne -> anne...

          Notice that the labor share of business income has declined by 10.6% since 2000, while real after-tax corporate profits have increased by 143.5%.

          [Sep 04, 2015] An Indicator of Tribalism in Macroeconomics by Paul Romer

          Paul Romer just want personal recognition and posts junk. It's not tribalism, it is complete subservience to financial oligarchy.
          "...Peer review matters when peers matter. Peers matter when neither government nor markets can guide progress. When peers don't matter tribalism takes over to redefine 'progress' into a conundrum of redundant repetitive Orwellian loops that allow anything to mean anything."
          Sep 03, 2015 Paul Romer

          Second Best said...


          An Indicator of Tribalism in Macroeconomics - Paul Romer

          'If we replace statements 1 and 2 with statements 3 and 4, we could construct a comparable measure of tribalism in physics. If we did, I suspect that we would find little tribalism there. I suspect that in comparison, this indicator would reveal that macroeconomists are very tribal.

          The positive question that this assessment prompts is how this tribalism emerged in macroeconomics. To me, this is what makes the recent intellectual history of the field so interesting.'

          ---

          The normative question is should anyone be allowed to don the credentials of an 'economist' and reduce the entire discipline to a sophmoric smattering of random thoughts that just happen to fill a particular tribal 'objectivist' standard?

          Peer review matters when peers matter. Peers matter when neither government nor markets can guide progress. When peers don't matter tribalism takes over to redefine 'progress' into a conundrum of redundant repetitive Orewellian loops that allow anything to mean anything.

          [Sep 04, 2015] The political reasons for the opposition to the policy of creating employment

          We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome -- as it may well be under the pressure of the masses -- the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated

          RGC said...

          Krugman explains why he is a Keynesian and proceeds to prove that he is not a Keynesian:
          Krugman:

          So, am I a Keynesian because I want bigger government? If I were, shouldn't I be advocating permanent expansion rather than temporary measures? Shouldn't I be for stimulus all the time, not only when we're at the zero lower bound? When I do call for bigger government - universal health care, higher Social Security benefits - shouldn't I be pushing these things as job-creation measures? (I don't think I ever have). I think if you look at the record, I've always argued for temporary fiscal expansion, and only when monetary policy is constrained. Meanwhile, my advocacy of an expanded welfare state has always been made on its own grounds, not in terms of alleged business cycle benefits.
          In other words, I've been making policy arguments the way one would if one sincerely believed that fiscal policy helps fight unemployment under certain conditions, and not at all in the way one would if trying to use the slump as an excuse for permanently bigger government.

          http://krugman.blogs.nytimes.com/2015/06/06/why-am-i-a-keynesian?

          Keynes:

          In some other respects the foregoing theory is moderately conservative in its implications. For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary. Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society.

          Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

          https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm

          Kalecki:

          We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome -- as it may well be under the pressure of the masses -- the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated

          http://mrzine.monthlyreview.org/2010/kalecki220510.html

          Friday, September 04, 2015 at 06:59 AM

          anne said in reply to RGC... Friday, September 04, 2015 at 08:08 AM

          Krugman explains why he is a Keynesian and proceeds to prove that he is not a Keynesian....

          [ Interesting argument. ]

          Peter K. said in reply to RGC...

          "We have considered the political reasons for the opposition to the policy of creating employment by government spending.

          ...

          Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure."

          There's no reason full employment can't be done via monetary policy which is government intervention.

          Business leaders just want monetary policy that rations credit so that labor markets hit the goldilocks spot, not too tight.

          [Sep 04, 2015] Four-fifths of the Economy is a Complete Waste of Time

          EconoSpeak

          Four-fifths of the "Economy" is a Complete Waste of Time

          There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"
          Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory. -- Paul Romer, "The Assumptions in Growth Theory"
          Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.
          As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'

          Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

          Name one.

          Carry on, growth theorists.

          [Sep 04, 2015] What Happened to the Moral Center of American Capitalism?

          "...The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete."
          .
          "...The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)"
          The latest from Robert Reich begins with:
          What Happened to the Moral Center of American Capitalism? : An economy depends fundamentally on public morality; some shared standards about what sorts of activities are impermissible because they so fundamentally violate trust that they threaten to undermine the social fabric.

          It is ironic that at a time the Republican presidential candidates and state legislators are furiously focusing on private morality – what people do in their bedrooms, contraception, abortion, gay marriage – we are experiencing a far more significant crisis in public morality.

          We've witnessed over the last two decades in the United States a steady decline in the willingness of people in leading positions in the private sector – on Wall Street and in large corporations especially – to maintain minimum standards of public morality. They seek the highest profits and highest compensation for themselves regardless of social consequences.

          CEOs of large corporations now earn 300 times the wages of average workers. Wall Street moguls take home hundreds of millions, or more. Both groups have rigged the economic game to their benefit while pushing downward the wages of average working people.

          By contrast, in the first three decades after World War II – partly because America went through that terrible war and, before that, the Great Depression – there was a sense in the business community and on Wall Street of some degree of accountability to the nation.

          It wasn't talked about as social responsibility, because it was assumed to be a bedrock of how people with great economic power should behave.

          CEOs did not earn more than 40 times what the typical worker earned. Profitable firms did not lay off large numbers of workers. Consumers, workers, and the community were all considered stakeholders of almost equal entitlement. The marginal income tax on the highest income earners in the 1950s was 91%. Even the effective rate, after all deductions and tax credits, was still well above 50%.

          Around about the late 1970s and early 1980s, all of this changed dramatically. ...[continue]...

          Peter K. said...
          Krugman speculated it started when sports fans began discussing star baseball players' salaries. CEOs went Galt and asked why not us also?

          Workers are just inputs like fixed capital nothing more.

          What's good for GE and Goldman Sachs - profits - is good for America.

          DeLong asks the more central question. When did business leaders decide that growth, aggregate demand and full employment wasn't in the interest of their companies?

          In the 1950 and 1960s they were in favor of a high-pressured economy. That changed.

          Maybe it was the 1970s and "take this job and shove it."

          Peter K. said in reply to Peter K....

          They also forget about the Great Depression as it faded from memory.

          And the Cold War ended. Would they risk Western nations like Greece and Spain going to the other side because of sky high unemployment? No they'd govern them with military dictatorships.

          Ben Groves said in reply to Peter K....

          US investment/capital markets were semi-nationalized from WWII into the mid-70's. The whole basis was to fight the Nazis then Soviets. The economic crisis of the mid-70's, detente and excessive growth beyond cohort changed things. For all the 79-89 hype, the cold war died with that global economic crisis of the 1970's as the Soviet Union never recovered and China bailed.

          Business view was that the pre-WWII order needed to be restored. I think many people mistake the 50's and 60's as "normal", but they weren't. They were a time of war.

          Peter K. said in reply to Ben Groves...

          "War is the health of the state."

          We need an invasion from aliens.

          mulp said in reply to Ben Groves...

          Well, given the US has been at war since Reagan, elected because Carter would not go to war, how do you explain the punishment of workers to reverse the glorifying of workers from the 30s through even the 70s??

          It was not war that made the period before 1980 better over all, but the understanding that consumers could only spend as much as they were paid, and the problem for a corporation seeking to grow was making sure all the other corporations paid their employees well.

          By the end of the 80s, the iconic corporations of the 60s in terms of growth and loyalty to employees were criticized by free lunch MBAs for sticking with the old ways of treating employees as assets because they were being creamed by competitors who treated employees as liabilities. Eg, IBM was badly managed because it was not screwing its workers like Dell, HP was doomed because it was not firing all its US factory workers and contracting with Asia factories.

          You see, the MBAs were teaching that US workers are liabilities to replaced with the cheapest non US workers and the US consumer needs to be mined for ever more dollars of spending. And if consumers were not spending enough, the problem was they were taxed too much, so the calls for tax cuts to put money in consumer pockets so consumers could shop 24 by 7.

          Before 1980, everything was zero sum. If you want that $1000 car or boat, you had to first earn $1000, unless the manufacturer float you a loan with a threat of the repo man. That meant manufacturers needed every consumer to have a job. And every dollar paid to workers came back to them in consumer spending. And government was the same way - if you wanted better roads, you first had to agree to taxes to pay for it.

          After 1980, the idea economies were zero sum were thrown in the trash can. Want something, borrow and spend. Republicans would get government out of the way of the loan sharks. The loan sharks became bank owners and got rid of their enforcers, turning that over to Congress. Think of all the debt you can not shed but that government collects by force by the IRS and attaching your Social Security benefit.

          Once consumers could borrow and spend, workers are now purely liabilities. Get rid of them.

          In the real world, the ivory tower of business and economics is not able to be applied 100% or even 20%, but that even 20% of the connection between payroll and business sales is lost means an ever deepening pit of debt.

          Federal debt declined from before the end of WWII as a burden on GDP until Reagan and then it grew as if the US were waging a war larger than the Korean war or Vietnam war or WWI or maybe the Civil war.

          With the exception of the Clinton years which were not free of war, the budget has looked like a major war was going on.

          DrDick said...

          The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete.

          Paine said in reply to DrDick...

          Sweet bobby

          bakho said in reply to DrDick...

          Indeed. Greedy "Malefactors of Great Wealth" don't become wealthy by fair play. Nothing obtained by workers was ever got without a fight. Many bloody union battles over dead bodies won worker's rights. Once the unions lost power, workers went backward.

          mulp said in reply to bakho...

          And union leaders were all choir boys....

          raping their members like priests.

          As a liberal, I can play the game of name calling, character assassination, etc.

          How do you think it is that there are capitalists with loyal workers? Do you think there are capitalists who understand that economies are zero sum and that you can't have customers wealthier than employees are wealthy?

          I see lots of worker advocates who seem to think that every worker can be paid $1000 and only pay $500 for everything produced.

          Paine said in reply to mulp...

          Reading this is like chewing glue

          DrDick said in reply to Paine ...

          Which he was obviously huffing while writing it.

          Paine said in reply to Paine ...

          A system is not judged by its functioning components but by its malfunction components and the emergent failures of the system of components
          U know that

          Social production systems often grow and develop

          they re not zero sum !


          They produce a social surplus when functioning well

          That social surplus gets ex appropriated by an exploiter class in class systems

          The primary producers may add 1000 in value and receive only 600 of that value as compensation

          Suggesting radicals or at least some radicals want more then one hundred percent of the social product for the producers themselves is blatant Tom foolery

          bakho said in reply to mulp...

          "How do you think it is that there are capitalists with loyal workers?"

          The same way plantation owners had "loyal slaves". Loyalty lasted until Sherman's boys came and said, "You are free and if you show us where the silverware is hid, we'll split it with you."

          Loyalty only goes as far as the next better offer.

          anne said...

          Assuming there was at least a superficial acknowledgement of a "moral center of American capitalism," that surface acceptance was methodically worn away from the 1970s on. An early sign of the wearing away and the need to turn away from a moral center of capitalism came with this article in 1970:

          http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

          September 13, 1970

          The Social Responsibility of Business is to Increase its Profits
          By Milton Friedman - New York Times

          The carefully cultivated "Chicago Boys" not long after the article in the New York Times even gained a country to play with, Chile.

          anne said in reply to anne...

          http://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.html

          July 23, 2015

          If you don't know what I'm talking about, the term "Chicago boys" was originally used to refer to Latin American economists, trained at the University of Chicago, who took radical free-market ideology back to their home countries. The influence of these economists was part of a broader phenomenon: The 1970s and 1980s were an era of ascendancy for laissez-faire economic ideas and the Chicago school, which promoted those ideas....

          -- Paul Krugman

          Paine said in reply to anne...

          A charming little toad that Milty

          Swallow him and die of his poisons

          Paine said in reply to Paine ...

          Street value of milty's elixir: Oligopolistic Corporate free range capitalism

          Sandwichman said...

          1. The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)

          2. Slavery was extolled by Southern slaveowner aristocratic "ethics and theology" as the pinnacle of bible-based Western Civilization.

          3. After defeat of the Confederacy, the neo-Confederate heirs of the old slaveowner plutocrats rewrote history to deny that the South fought the Civil War to retain slavery.

          4. The big lie of "Lost Cause" neo-Confederacy is the secret sauce of the Republican Party "Southern strategy" emulated by the "centrism" of the Democrats.

          5. What happened to the "moral center" of American Capitalism?

          6. Just what "moral center" are you referring to, Bob?

          Sandwichman said in reply to Sandwichman...

          John Cairnes, 1862:

          "in spite of elaborate attempts at mystification, the real cause of the war and the real issue at stake are every day forcing themselves into prominence with a distinctness which cannot be much longer evaded. Whatever we may think of the tendencies of democratic institutions, or of the influence of territorial magnitude on the American character, no theory framed upon these or upon any other incidents of the contending parties, however ingeniously constructed, will suffice to conceal the fact, that it is slavery which is at the bottom of this quarrel, and that on its determination it depends whether the Power which derives its strength from slavery shall be set up with enlarged resources and increased prestige, or be now once for all effectually broken."

          Ben Groves said in reply to Sandwichman...

          Don't forget about 1600's Amsterdam. That was the kickstarter for finance capitalism. William the Orange exported it to the Brits and the rest is history. The link between the 2 is indeed "bible based".

          Sandwichman said in reply to Sandwichman...

          James Henley Thornwell:

          "The parties in this conflict are not merely abolitionists and slaveholders - they are atheists, socialists, communists, red republicans, jacobins, on one side, and the friends of order and regulated freedom on the other. In one word, the world is the battleground - Christianity and Atheism the combatants; and the progress of humanity at stake."

          Ben Groves said in reply to Sandwichman...

          Thornwell was a Rothschilds bagman fwiw. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the Rothschilds business interests.

          That is why quotes never workout. You create a dialect when it is all personal motive. Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

          anne said in reply to anne...

          Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

          [ I am waiting for the documentation of the many socialists who thought.... ]

          Paine said in reply to anne...

          Socialist is a very eclectic catch all term Anne

          Some socialist by self description probably believed in human sacrifice

          Oh ya that was us Stalinists

          anne said in reply to Paine ...

          http://economistsview.typepad.com/economistsview/2015/09/what-happened-to-the-moral-center-of-american-capitalism.html#comment-6a00d83451b33869e201b7c7c9199f970b

          September 4, 2015

          Ben Groves said in reply to Sandwichman...

          Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

          [ I know precisely what I have been asking for. I am still waiting for the documentation of the many socialists who thought.... ]

          anne said in reply to Ben Groves...

          Thornwell was a ----------- bagman for what it's worth. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the ----------- business interests.

          [ Again, where is the documentation, the "----------- bagman" documentation, to what I consider simply calumny? ]

          Sandwichman said in reply to Ben Groves...

          Wikipedia:

          James Henley Thornwell (December 9, 1812 – August 1, 1862) was an American Presbyterian preacher and religious writer from the U.S. state of South Carolina. During the American Civil War, Thornwell supported the Confederacy and preached a doctrine that claimed slavery to be morally right and justified by the tenets of Christianity.

          "Thornwell, in the words of Professor Eugene Genovese, attempted "to envision a Christian society that could reconcile-so far as possible in a world haunted by evil-the conflicting claims of a social order with social justice and both with the freedom and dignity of the individual."

          Sandwichman said in reply to Sandwichman...

          The "cornerstone speech"

          https://en.wikipedia.org/wiki/Cornerstone_Speech

          "The ideas entertained at the time of the formation of the old Constitution," says the Vice President of the Southern Confederacy [Alexander Stephens],

          "...were that the enslavement of the African race was in violation of the laws of nature; that it was wrong in principle, socially, morally, and politically. Our new government is founded on exactly opposite ideas; its foundations are laid, its corner-stone rests, upon the great truth that the negro is not equal to the white man; that slavery-subordination to the superior race-is his natural and moral condition. This our Government is the first in the history of the world based upon this great physical, philosophical, and moral truth. It is upon this our social fabric is firmly planted, and I cannot permit myself to doubt the ultimate success of the full recognition of this principle throughout the civilized and enlightened world.... This stone which was rejected by the first builders 'is become the chief stone of the corner' in our new edifice."

          Sandwichman said in reply to Sandwichman...

          Harry Jaffa: "this remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy."

          But not just the Jim Crow South, also the enduring white supremacy that permeates and dominates the American (incarceration nation) political discourse under code word dog whistles like "law and order" and orchestrated abhorrence of "political correctness".

          Where is the "moral center" of a cesspool whose "cornerstone" is hatred? Ask Dante.

          Mike Sparrow said in reply to Sandwichman...

          True, but accepting Jim Crow allowed the capitalists to expand down south slowly but surely. By 1950 the south was becoming industrialized and Jim Crow was under attack. Their agriculture had been automated. Jim Crow just delayed history.

          The problem I think people have with white neo-confeds is not so much "black slavery", but that white's were basically being starved and living standards reduced by the same system. The 1% of white's made it big with a global system at the expense of country. The anti-confeds are basically in a race war against what they see as foreign invasion. While the neo-confeds think they are protecting white "traditions" that really aren't really traditional to the white population as a whole. It is a good reason why socialists who patriot nationalism and organic unity can't unite with them. What they view as "white" is different. It leads toward political divide and conquer.

          Paine said in reply to Mike Sparrow...

          Jim crow delayed southern development

          Only if you abstract from the northern social formation that hatched and husbanded it. For 100 years
          Much as the slave system was husband by unionist northerns for 80 years

          Paine said in reply to Paine ...

          One could talk of a moral core to capitalists like thadeus Stevens
          But the north ended reconstruction not because of southern white resistance
          But because nothing more was need at that time and level of development
          Of the north and of the union

          Paine said in reply to Paine ...

          The Grant years were like a sign in the sun and a sign in the moon

          The sympathetic nations of Ameriika would remain in mortal struggle

          Race Injustice would rule to the horizon of time and space

          Paine said in reply to Paine ...

          We would and will live side by side and yet turn away from each other
          One side in torment the other in wrath

          Sandwichman said in reply to Sandwichman...

          I think it would be useful to cite the whole paragraph of Harry Jaffa's comment on the cornerstone speech. Who was Harry Jaffa, anyway? Some politically correct Marxist America hater? Jaffa was the guy who wrote Barry Goldwater's 1964 Republican nomination acceptance speech. You know, "Extremism in defense of liberty is no vice; moderation in pursuit of justice is no virtue." That's who.

          "This remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy. From the end of Reconstruction until after World War Il, the idea of racial inequality gripped the territory of the former Confederacy-and not only of the former Confederacy-more profoundly than it had done under slavery. Nor is its influence by any means at an end. Stephens's prophecy of the Confederacy's future resembles nothing so much as Hitler's prophecies of the Thousand-Year Reich. Nor are their theories very different. Stephens, unlike Hitler, spoke only of one particular race as inferior. But the principle ot racial domination, once established, can easily be extended to fit the convenience of the self-anointed master race or class, whoever it may be."

          Paine said in reply to Sandwichman...

          The battle between the declaration of independence and the constitution

          Sandwichman said in reply to Sandwichman...

          A MEASURING ROD FOR TEXT-BOOKS

          "The Committee respectfully urges all authorities charged with the selection of text-books for colleges, schools and all scholastic institutions to measure all books offered for adoption by this "Measuring Bod" and adopt none which do not accord full justice to the South. And all library authorities in the Southern States are requested to mark all books in their collections which do not come up to the same measure, on the title page thereof, "Unjust to the South."

          Reject a book that says the South fought to hold her slaves.

          Reject a book that speaks of the slaveholder of the South as cruel and unjust to his slaves.

          Sandwichman said in reply to Sandwichman...

          "How the Negroes Lived Under Slavery

          "Life among the Negroes of Virginia in slavery times was generally happy. The Negroes went about in a cheerful manner making a living for themselves and for those for whom they worked. They were not so unhappy as some Northerners thought they were, nor were they so happy as some Southerners claimed. The Negroes had their problems and their troubles. But they were not worried by the furious arguments going on between Northerners and Southerners over what should be done with them. In fact, they paid little attention to these arguments."

          What's a "coffle"? http://tinyurl.com/pkdxuvq

          anne said in reply to Sandwichman...

          Excellent series of posts.

          anne said in reply to Sandwichman...

          http://www.nytimes.com/2014/10/05/books/review/the-half-has-never-been-told-by-edward-e-baptist.html

          October 4, 2014

          A Brutal Process
          By ERIC FONER

          THE HALF HAS NEVER BEEN TOLD
          Slavery and the Making of American Capitalism
          By Edward E. Baptist

          For residents of the world's pre-­eminent capitalist nation, American historians have produced remarkably few studies of capitalism in the United States. This situation was exacerbated in the 1970s, when economic history began to migrate from history to economics departments, where it too often became an exercise in scouring the past for numerical data to plug into computerized models of the economy. Recently, however, the history of American capitalism has emerged as a thriving cottage industry. This new work portrays capitalism not as a given (something that "came in the first ships," as the historian Carl Degler once wrote) but as a system that developed over time, has been constantly evolving and penetrates all aspects of society.

          Slavery plays a crucial role in this literature....


          Eric Foner is the DeWitt Clinton professor of history at Columbia.

          DrDick said in reply to Sandwichman...

          As Sydney Mintz showed, capitalism was founded on and made possible by slavery.

          Paine said in reply to DrDick...

          Marx sounds this theme powerfully in his chapter in Kap I
          on primitive or primal accumulation

          Sandwichman said in reply to Paine ...

          Sounded the theme... but then failed to develop it. Maybe it was too obvious in those days, soon after the Civil War and before the "measuring rod" of neo-Confederate censorship rewrote history.

          anne said in reply to Sandwichman...

          http://www.common-place.org/vol-10/no-03/baptist/

          April, 2010

          Toxic Debt, Liar Loans, and Securitized Human Beings
          The Panic of 1837 and the fate of slavery
          By Edward E. Baptist

          Early in the last decade, an Ayn Rand disciple named Alan Greenspan, who had been trusted with the U.S. government's powers for regulating the financial economy, stated his faith in the ability of that economy to maintain its own stability: "Recent regulatory reform coupled with innovative technologies has spawned rapidly growing markets for, among other products, asset-backed securities, collateral loan obligations, and credit derivative default swaps. These increasingly complex financial instruments have contributed, especially over the recent stressful period, to the development of a far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago."

          At the beginning of this decade, in the wake of the failure of Greenspan's faith to prevent the eclipse of one economic order of things, Robert Solow, another towering figure in the economics profession, reflected on Greenspan's credo and voiced his suspicion that the financialization of the U.S. economy over the last quarter-century created not "real," but fictitious wealth: "Flexible maybe, resilient apparently not, but how about efficient? How much do all those exotic securities, and the institutions that create them, buy them, and sell them, actually contribute to the 'real' economy that provides us with goods and services, now and for the future?" ...

          chris herbert said...

          I don't think Capitalism has much to do with morality. Capitalists employed 8 year olds and a workweek of 60 hours at subsistence pay was the norm. Even today, look what American capitalists do to their employees in the Far East! Adam Smith figured that capitalism improved people's lives unintentionally. Not much of a moral statement, that one. That's why capitalism fails so miserably if not tightly regulated. Democracy, on the other hand, has pretty well defined moral foundations; Liberty, rights, equality etc. etc. Social democracies, in my opinion, have a stronger tether to the moral side of Democracy than we currently have here in the U.S. Our moral tether was shredded by the political right turn accomplished in the 1980s under Reagan. A similar degradation began in the U.K. about the same time under Thatcher. Oddly enough, that 30 plus year period between the end of WWII and 1980, was a period of strong progressive policy making. Pro labor laws, steeply progressive tax rates, voting rights, sensible retirement funding and Medicare for the elderly were all products of that time period. Maybe it was all an anomaly. A brief period of egalitarian ideals that created a middle class and produced a manufacturing hegemon. No longer. We are a military hegemon now. We are no longer a Democracy either. Most people haven't realized it; most especially working men and women who freely give up their rights and protections by voting for Republicans. We have the government we deserve. We are the most entertained and least informed citizens of any of the rich countries.

          Paine said in reply to chris herbert...

          Exploitation has a morality

          All that exists must be torn apart
          Rest is sin
          The future is blocked only by the present

          Faust

          Peter K. said...

          Off topic but everyone's favorite subject: monetary policy.

          http://macromarketmusings blogspot.com/2015/09/revealed-preferences-fed-inflation.html

          http://tinyurl.com/povj6qe

          Friday, September 4, 2015

          Revealed Preferences: Fed Inflation Target Edition
          by David Beckworth

          Over the past six years the Fed's preferred measure of the price level, the core PCE, has averaged 1.5 percent growth. That is well below the Fed's explicit target of 2 percent inflation. Why this consistent shortfall?

          Some Fed officials are asking themselves this very question. A recent Wall Street Journal article reporting from the Jackson Hole Fed meetings led with this opening sentence: "central bankers aren't sure they understand how inflation works anymore". The article goes on to highlight some deep soul searching being done by central bankers in the Wyoming mountains. It is good to see our monetary authorities engaged in deep introspection, but let me give them a suggestion. Dust off your revealed preference theory textbooks and see what they can tell you about the low inflation of the past six years.

          To that end, and as a public service to you our beleaguered Fed officials, let me provide some material to consider. First consider your inflation forecasts that go into making the central tendency consensus forecasts at the FOMC meetings. The figures below show the evolution of these forecasts for the current year, one-year ahead, and two-years ahead. There is an interesting pattern that emerges from these figures as you expand the forecast horizon: 2 percent becomes a upper bound.

          ....

          So rest easy dear Fed official. No need for any existential angst. According to revealed preferences, you are still driving core inflation--which ignores supply shocks like changes in oil prices--it is just that you have a roughly 1%-2% core inflation target corridor rather than a 2% target. So even though you may not realize it, you are doing a bang up job keeping core inflation in your target corridor."

          Peter K. said in reply to Peter K....

          Our Neo-Classsical single equilibrium friend Don Kervack says the economy "naturally" healed itself despite unprecedented fiscal austerity, a trade deficit and strong dollar.

          I don't buy it. Economics isn't broken. Politics is.

          The center-left party for the job class should be calling up the Fed and asking "WTF?"

          SomeCallMeTim said...

          In the mid-1970s, at some universities economics was still called 'political economy', micro began with consideration of equity vs. efficiency, and the legitimacy of countercyclical social programs wasn't so widely questioned.

          Was there a loss of nerve, at least in the U.S., following the Vietnam War, the 1973 oil shock, and the following recession that led to a quantum shift in generosity of spirit / belief in children exceeding their parents material well-being (or as politicians would later put it, voting one's fears instead of one's hopes)?

          Second Best said...

          http://www.counterpunch.org/2015/08/21/the-plague-of-american-authoritarianism/

          The Plague of American Authoritarianism

          by Henry Giroux

          Authoritarianism in the American collective psyche and in what might be called traditional narratives of historical memory is always viewed as existing elsewhere.

          Viewed as an alien and demagogic political system, it is primarily understood as a mode of governance associated with the dictatorships in Latin America in the 1970s and, of course, in its most vile extremes, with Hitler's poisonous Nazi rule and Mussolini's fascist state in the 1930s and 1940s. These were and are societies that idealized war, soldiers, nationalism, militarism, political certainty, fallen warriors, racial cleansing, and a dogmatic allegiance to the homeland.[i] Education and the media were the propaganda tools of authoritarianism, merging fascist and religious symbols with the language of God, family, and country, and were integral to promoting servility and conformity among the populace. This script is well known to the American public and it has been played out in films, popular culture, museums, the mainstream media, and other cultural apparatuses. Historical memory that posits the threat of the return of an updated authoritarianism turns the potential threat of the return of authoritarianism into dead memory. Hence, any totalitarian mode of governance is now treated as a relic of a sealed past that bears no relationship to the present. The need to retell the story of totalitarianism becomes a frozen lesson in history rather than a narrative necessary to understanding the present

          Hannah Arendt, the great theorist of totalitarianism, believed that the protean elements of totalitarianism are still with us and that they would crystalize in different forms.[ii] Far from being a thing of the past, she believed that totalitarianism "heralds as a possible model for the future."[iii] Arendt was keenly aware that the culture of traditionalism, an ever present culture of fear, the corporatization of civil society, the capture of state power by corporations, the destruction of public goods, the corporate control of the media, the rise of a survival-of-the-fittest ethos, the dismantling of civil and political rights, the ongoing militarization of society, the "religionization of politics,"[iv] a rampant sexism, an attack on labor, an obsession with national security, human rights abuses, the emergence of a police state, a deeply rooted racism, and the attempts by demagogues to undermine critical education as a foundation for producing critical citizenry were all at work in American society. For Arendt, these anti-democratic elements in American society constituted what she called the "sand storm," a metaphor for totalitarianism.[v]

          Historical conjunctures produce different forms of authoritarianism, though they all share a hatred for democracy, dissent, and human rights. It is too easy to believe in a simplistic binary logic that strictly categorizes a country as either authoritarian or democratic and leaves no room for entertaining the possibility of a mixture of both systems. American politics today suggests a more updated if not different form of authoritarianism or what some have called the curse of totalitarianism. In this context, it is worth remembering what Huey Long said in response to the question of whether America could ever become fascist: "Yes, but we will call it anti-fascist." [vi] Long's reply indicates that fascism is not an ideological apparatus frozen in a particular historical period, but as Arendt suggested a complex and often shifting theoretical and political register for understanding how democracy can be subverted, if not destroyed, from within.

          (more at link above)

          Anonymous said...

          1) Gut all regulation in the name of free markets.
          2) Sprinkle with the fairy dust of zero or negative real interest rates.
          3) Let it rip.

          I mean the moral fiber of society. this had a big hand in it.

          Anonymous said in reply to Anonymous...

          If anyone thinks incentives have nothing to do with deteriorating moral fiber, you are delusional.

          ezra abrams said...

          Is this the same RR who crossed a picket line at huff post, or someplace like that ?
          cause ya know, his views are just so critical...
          as my dad use to say, a scab never has to worry bout getting by, he can always steal from blind mens cups

          and liberals wonder why blue collars hate hi falutin people

          anne said in reply to ezra abrams...

          Where is the precise reference to this nastiness?

          Since Robert Reich provides his essays to any publication through a Creative Commons license, I cannot imagine how he could have crossed any picket line. Any essay by Reich can be used on any Internet site.

          Returning now to the nastiness....

          ilsm said...

          Thuglican Jesus, thuglican God......

          Factitious values based on thuglican God ordained "lesser people" should be property and the 98% exploited for the chosen .01%.......

          See Sandwichman at Angry Bear.

          cm said...

          I suspect the moral center has been declared as a cost center, and not only yesterday.

          [Sep 04, 2015] Belabored and Befuddled - 'Error and Repair'

          "...The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.

          And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'"

          Sep 03, 2015 | Jesse's Café Américain

          "Andrew Jackson was compelled to fight every inch of the way for the ideals and the policies of the Democratic Republic which was his ideal. An overwhelming proportion of the material power of the Nation was arrayed against him. The great media for the dissemination of information and the molding of public opinion fought him. Haughty and sterile intellectualism opposed him. Musty reaction disapproved him. Hollow and outworn traditionalism shook a trembling finger at him. It seemed sometimes that all were against him- all but the people of the United States."

          Franklin D. Roosevelt

          The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.

          And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'

          ... ... ...

          [Sep 03, 2015] Economics Has a Math Problem - Noah Smith

          Comment from Economist's View Links for 09-02-15

          Dan Kervick said...

          Noah Smith:

          "Econ developed as a form of philosophy and then added math later, becoming basically a form of mathematical philosophy."

          Interesting! And true I think.

          My own academic background was in analytic philosophy, and we too used and studied those various technical models of decision-making under uncertainty that the economists love. The difference is that philosophers use those tools to address purely conceptual puzzles and conundrums about the behavior of idealized super-rational agents in conceptually possible circumstances that are generally quite distant from actual world people and behavior: circumstances such as Newcomb problems or the Sleeping Beauty Problem.

          When I first began to look into economics, I was surprised to learn how similar it was to philosophy in its tools and arguments. The difference was that economists put forward the same conceptual idealizations as descriptions of *the actual world*!

          My impression is that a lot of economists are people who wandered into the field from math, theoretical physics and philosophy. Despite the fact that economics pretends to be a behavioral or social science, these wanderers from the other conceptual realms of the academy lack the empirical discipline to be real scientists, and aren't really terribly interested in the understanding and studying the behavior of actual human beings and societies. So they gravitate toward the areas of the field in which pulling sophisticated and rigorous conceptually fantasies out of one's butt is admired and glorified. These are the glamour pusses who intimidate everyone else with displays of pure mathematical and conceptual intelligence, and seem to lord it over the field and define the ground for pertinent discussion.

          I have read a lot of interesting papers over the past few years that were based on serious data. But doing that kind of work doesn't seem to be the way you get famous in economics.

          [Sep 03, 2015] Links for 09-01-15

          Economist's View

          pgl said...


          That paper that Matty Boy Bot obviously did not read is quite good. A highlight:

          "Two years after a 1 percentage point increase in the short-term interest rate, real house prices are estimated to decline by over 6%, while real GDP per capita declines by nearly 2%. This implies a ratio of 3.3 in terms of the decline in house prices for a 1% decline in the level of output after two years. Looking at a longer time horizon of three or four years (not shown in the figure), the ratio rises to about 3˝. Although imprecisely estimated, inflation also responds negatively to a monetary policy shock after a two-year lag."

          Once our favorite gold bug recovers from his chocolate coin hangover I wonder if he was unpack this. After all his recommendation of tight money does lower inflation. Cheers! And the fall in nominal interest rates is less so his 80 year old girl friend sees a rise in her real interest rates. Cheers!

          But real housing prices fall. That's bad for home owners - right? JohnH still says cheers as he is under the illusion that this actually benefits the banks. EMichael by now is going WTF?

          And real GDP per capita falls. That is really bad - right? Not to fret. JohnH will find some data source to manipulate and tell us that people actually benefit from a fall in real income per person.

          More evidence to manipulate. Cheers!

          JohnH said in reply to pgl...

          Of course, interest rates affect houses prices. Well, duh!

          The problem is, that house prices have been going up mostly in wealthier neighborhoods, reflecting the Fed's focus on driving the wealth effect for top incomes, which is supposed to trickle down, but hasn't.

          The second problem is that low interest rates haven't driven new housing starts, which is where you get real, direct economic impact--construction jobs.

          IMO this is just another superfluous study that does nothing to address the real problem of Fed policies not trickling down.

          pgl said in reply to JohnH...
          You have evidence for all your assertions. Of course you do - your 80 year old girl friend lives in the hood.

          "just another superfluous study". One you could not cherry pick and misrepresent so it is "superfluous"!

          JohnH said in reply to pgl...
          pgl treats the self-evident findings of this report as if they were some kind of divine revelation, which in fact they probably are for him.

          After all, this is the same pgl who spent weeks trying to convince me that low interest rates have no effect on stock prices, although even the Fed admits as much.

          JohnH said in reply to JohnH...
          Of course, pgl's campaign to convince me that interest rates don't affect stock prices came on the heels of his campaign to convince me that Obama didn't propose cutting Social Security... His rationale? Congress didn't pass his proposal; therefore Obama didn't propose it! You have to love pgl's contorted logic.

          And this is the idiot who is convinced that the Fed is doing a great job. Of course, pgl's probably a Mets fan (who haven't won anything in a decade), so his standard of success is clearly
          bizarre.

          With the Fed, like with the Mets, there's always next year!

          Anonymous said in reply to JohnH...
          for these people, Fed only effects housing and asset prices on the way up and not on the way down. pgl probably works for CNBC
          Paine said in reply to Anonymous...
          House LOTS are very much assets. So housing markets are coosite markets both asset and durable product

          It's the asset component that needs to be regulated by the state

          pgl said in reply to JohnH...
          See my comments agreeing with Dean Baker. Low interest rates increased P/E ratios. Do you know what a P/E ratio even is? Price of stock over earnings per share. And you are stupid enough to write:

          "pgl's campaign to convince me that interest rates don't affect stock prices".

          Oh that's right. You are campaigning for stupidest man alive. Well, you won - hands down!

          Anonymous said in reply to pgl...
          This is a stupid comment from a novice. When stocks go down, interest rates go down. When you say low interest rates increase PE ratios, you have no idea what you are talking about. Japan has had rock bottom interest rates and low PEs for decades. At the end of 2008, we had 2% bond yield; 0% fed funds and very low PE. Why? ask yourself. You are nothing but a novice. Armed with this kind of logic, you would lose a fortune in the stock market in no time.
          pgl said in reply to Anonymous...
          LOL! Let us known when you are teaching finance so we can tell the undergrads to run. Run far away! But yea - there is something here JohnH never got. Shift of an investment demand schedule versus shift along an investment demand schedule. Oh wait - you don't quite get this either. Idiots to the left of me. Idiots to the right of me.
          pgl said in reply to Anonymous...
          Did you know that during the 2001 recession the P/E ratios of stocks like Cisco doubled? Surprised I bet. Oh yea - Cisco's market valuation fell by 60% but then its earnings fell by 80%. Do the math - we'll wait a few days for you to do so.

          Of course the finance has something to do with how valuations respond to permanent versus temporary changes in earnings. We'll still be here in 10 years when you finally figure that one out.

          By then you good buddy JohnH may have read Finance for Dummies.

          Paine said in reply to Anonymous...
          Not a novice
          He's a side walk superintendent with a phd in textbookery and some information please almanac
          Fat of the land facts
          Paine said in reply to Paine ...
          Nothing more ridiculous then an academic on wall street [payroll]...

          [Sep 03, 2015] Non-intuiti4ve Neo-Fisherism

          Sep 01, 2015 | Noahpinion

          Comments from Economist's View Links for 09-01-15

          RogerFox said...

          'Non-intuitive Neo-Fisherism - Noahpinion'

          "So when the Fed lowers interest rates, it prints money in order to do so. But in a Neo-Fisherian world, that makes inflation fall ...."

          That has been the counter-intuitive observed phenomenon in the wake of QE3 - why?

          IMO it has to do with locking up ALL the QE$, all $4-trillion of it, at the Fed as 'excess reserves', and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation.

          Stop paying and start charging banks to keep such reserves and see what happens to inflation and asset prices - that would be informative, and dramatic IMO.

          Anonymous said in reply to RogerFox...

          Everytime, they announced a new QE, nominal yields on 10 year bonds rose and vice versa. That is evidence that we are living in a neo-Fisherian world.

          QE-1 was formally adopted in March 2009, when the U.S. T-Bond yield was 2.53%, but by the end of QE-1, in March 2010, the yield had moved up to 3.83%, for a rise of 1.3% points. When the Fed launched QE-2 in November 2010 the T-Bond yield was 2.62%, but 3.16% when QE-2 was ended in June 2011 – a rise of 0.5% points. QE-3 began at the end of 2012, when the T-Bond yield was 1.76%, by the end of QE, it was 2.4%.

          Peter K. said in reply to Anonymous...

          Everytime inflation expectations dipped, they did a new QE and inflation expectations went back up.

          Anonymous said in reply to Peter K....

          Yes. Another way to say the same thing. Question is isn't that neo Fisherian?

          Peter K. said in reply to Anonymous...

          Looks paleo-Keynesian to me, anonymous, whoever the fuck you are.

          The dipping of inflation expectations means the market expects less aggregate demand going forward.

          The central bank does a little stimulus.

          The market sees that and expects higher inflation going forward.

          JohnH said in reply to Peter K....

          Every time they did a new QE, stock prices rose. Asset inflation was right on target to serve the vast majority of stockholders ... the 1%.

          Peter K. said in reply to JohnH...

          So what? You want asset price deflation so that the economy tanks?

          How can we decouple the two? Usually the stock market goes up as the economy grows. Sorry.

          JohnH said in reply to Peter K....

          Usually the stock market goes up when the economy grows. Exactly! But this time around the stock market goes up when the real economy flat lines...which is pretty good proof that the Fed's low interest rates were used for speculation, not productive investment.The 1% figured out how to game a system that was already rigged in their favor.

          As a result monetary policy must be changed to discourage abuse and encourage productive investment, which is what ultimately drives job creation.

          pgl said in reply to Anonymous...

          a neo-Fisherian world? There is no neo-Fisherian world. The economists who have read these neo-Fisherian rants see them as just that - insane rants. Next discussion - what is it like to live in a world where trees grow sideways and the earth is flat.

          EMichael said in reply to RogerFox...

          "and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation."

          Any chance you know what that interest rate is?

          Any chance you think banks would not do this if they had real options to earn a higher interest rate?

          RogerFox said in reply to EMichael...

          Any banker who can't earn better than 0.25% on marginal AUM should be fired. Banks keep funds at the Fed because that was part of the deal for the Fed to buy them out of their largely worthless MBS stuff, and save them from the MTM-insolvency they were in up to their kosher necks.

          EMichael said in reply to RogerFox...

          So, can you tell me how much of the MBS purchases were owned by banks?

          In terms of the ability of bankers, they do need borrowers.

          EMichael said in reply to RogerFox...

          BTW, if you can find out which MBSs the FED bought I would love to see it.

          OTOH, there are some things I know for sure.

          1) Prior to QE in 2009, US depository institutions owned about a third of agency MBSs, or $1.3 Trillion.

          2) It is not possible that those banks owned only "worthless MMS stuff".

          pgl said in reply to RogerFox...

          Go to the income statement and balance sheet of JPMorgan Chase. A return on its assets. Yes banks do better. A lot better. But how would you know? This is accounting 101 - way over your head.

          EMichael said in reply to RogerFox...

          Oh, before I head out to lunch.

          I would love to see the conversation between the FED and Jamie Dimon where they tell him that now that all of his toxic MBSs are gone, you still have to keep excess reserves with the FED.

          Anonymous said...

          As Bernanke outlined over the years, monetary policy success is to be measured, in good part, by stock prices. Welcome to the hell created by Bernanke, Ms Yellen.

          http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html?hpid=topnews

          http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm

          kthomas said in reply to Anonymous...

          Why not cut to the chase and tells about how wealthy youve become trading in Gold?


          Share with us your financial wisdom.

          And Im thinking, as well, you are drawing false conclusions from former Chairman Bernanke. Perhaps you did not read any of this material, as pgl suggests.


          I also detect a subtle woft of anti-semitism in this post. It has an odor.

          Anonymous said...

          The great unresolved question in central banking today is: Should monetary policy be used to foster financial stability, even at the expense of achieving other macroeconomic goals such as inflation and employment?

          It is completely un symmetric. Always one way. ok to boost house prices, never to restrain them. why don't they leave regulation to boost prices? or regulation to say interest rates are too broad a tool to use in a situation?

          meanwhile, they will never use regulation.

          Second Best said...

          Will Americans Become Poorer? - Martin Fedlstein

          'Gordon argues that the major technological changes that raised the standard of living in the past are much more important than anything that can happen in the future. He points to examples such as indoor plumbing, automobiles, electricity, telephones, and central heating, and argues that all of them were much more important for living standards than recent innovations like the internet and mobile phones.'

          ---

          Plastics are also highly underrated in the contribution to living standards. Plastics show up in 90% of seabirds that eat them and die which makes more room for humans to consume plastics in peace and quiet, free of noise pollution from screeching seabirds.

          RC AKA Darryl, Ron said...

          RE: A Tale of Two Theories

          [We must choose between Larry Summers' sec stag theory and the hard money supply side theory of the BIS which is a repulsive idea. Thankfully though secular stagnation theory came about during the Great Depression from the works of Keynes and Alvin Hansen. So, I guess that I can stomach Summers given that consideration. There may be a bit more to it though, but I don't have another lifetime to become an economists and put together a better theory.

          The BIS is not entirely wrong about structural issues not getting addressed by purely demand side policies, but it was supply side policy going way back to Schumpeter and the consolidation of firms and wealth for efficient and innovative monopolies and capital formation that created this huge mess and now they suggest more supply side economics will get us out of it. We got more supply side with Reagan (and Thatcher in the UK) and that just made matters worse.]

          Peter K. said in reply to RC AKA Darryl, Ron...

          Your pet theory appears to be about monopoly (influenced by Sweezy?) while mine is about insufficient demand and more specifically an insufficient monetary-fiscal mix.

          Maybe the reality is a mix of both?

          The BIS is the Death Star/Sauron's Eye of bad economic theory. All of the trolls regurgitate their theories in one form or another.

          Summers's idea is that we can't have full employment without bubbles. What if hadn't deregulated the financial sector and cut taxes on capital gains?

          If Larry were Fed Chair, I bet he would be telling us "sorry we can't have rising wages because that would give us bubbles which would cause downturns and unemployment. We will have to raise rates even though there is labor market slack." Circular reasoning and a Hobson's choice.

          James Hamilton et al have a paper which is sited to counter the secstags theory. During the housing bubble, supposedly, the large trade deficit and high oil prices were subduing demand such that the Fed was in a fix as the housing bubble blew. It had rates at the right price.

          If oil prices had been lower and there was no trade deficit, then the Fed could have had higher interest rates and no housing bubble.

          Seems like Summers is saying the same thing in a way. Better fiscal policy and no secstags.

          Thanks to Kervick, I'm moving away from the fiscalist position to more of a monetarist or fiscal-monetarist agnositic mix.

          There are no secstags because the Fed didn't exhaust its powers or employ all of its tools. It hit the ZLB and then employed the weakest possible QE just to avoid deflation. It's no wonder people believe QE doesn't work.

          Reply Tuesday, September 01, 2015 at 05:38 AM

          RC AKA Darryl, Ron said in reply to Peter K....

          Understood. I'm could say I am moving to fiscal-monetarist gnostic mix but I have been there all along. Either if done wrong in context can defeat the other. An unflinching bold application of both in tandem are necessary for rapid results.

          Reply Tuesday, September 01, 2015 at 06:13 AM

          Peter K. said in reply to RC AKA Darryl, Ron...

          Ah but do you believe an unflinching bold application of monetary policy would work?

          I don't know. It hasn't been tried.

          No I believe it may be sufficient if combined with other robust regulatory measures - all things anathema to a Republican Congress:

          stronger financial regulations
          financial transaction taxes
          stronger anti-monopoly and anti-trust policies
          stronger safety net
          stronger workers rights
          etc.

          given all of those things a robust monetary policy could provide tight labor markets and wage gains without Kervack's politburo's picking winners and losers in the economy.

          Reply Tuesday, September 01, 2015 at 06:35 AM

          RC AKA Darryl, Ron said in reply to Peter K....

          Granted - eventually. If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy. No interest loans at long terms to households might not even have been enough unless defaults were easy on households. Sending out checks free of debt is fiscal policy regardless which agency sends them out.

          Under ordinary circumstances then monetary policy is entirely sufficient. I am not sure that any cognizant being says otherwise.

          Reply Tuesday, September 01, 2015 at 08:59 AM

          Peter K. said in reply to RC AKA Darryl, Ron...

          "If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy."

          Again, I don't know if I agree with you. It hasn't been tried.

          With short term rates, the Fed says "we'll lower the rate to .25 percent..."

          With long term rates and MBS they said "we'll do QE and buy a certain amount each month" and we'll see what happens.

          What if they said, "we'll buy enough to lower long term rates and mortgages" to .5 percent?

          We don't know because they didn't try.

          Reply Tuesday, September 01, 2015 at 10:23 AM

          RC AKA Darryl, Ron said in reply to Peter K....

          "Your pet theory appears to be about monopoly (influenced by Sweezy?)"

          [My pet theory is of my own design and monopoly is just part of it. I am for tax preferences on dividends and interest earnings, and penalizing levels of taxation on capital gains for assets held less than one year. That would do more about the BIS complaints on how well money is invested than tight fiscal and monetary policy, but BIS would not like the public investment aspect that goes along with the other part of my pet theory. Increased oligopoly enabling mergers were just one aspect of the capital gains tax preference, especially since the dividends tax credit was permanently rescinded in 1954. The entire gamut of the financialization of non-financial firms has troubled me from my earliest understanding of it in high school in the 60's. It just kept getting worse as time passed.

          Who is Sweezy? ]

          Reply Tuesday, September 01, 2015 at 08:54 AM

          RC AKA Darryl, Ron said...

          RE: Whither inflation?

          [I must leave this to pgl to tackle. Is the goal of monetary policy to lower output? I guess that is one way to get inflation, but I doubt that it would do anything for real wages.]

          Reply Tuesday, September 01, 2015 at 04:42 AM

          Peter K. said in reply to RC AKA Darryl, Ron...

          "But in 2008, interest rates hit zero. The broom handle could not move. The conventional view predicted that the broom will topple. Traditional Keynesians warned that a deflationary "spiral" or "vortex" would break out [if the Fed didn't take extraordinary measures which it did including recommending Obama's fiscal stimulus]. Traditional monetarists looked at QE, and warned hyperinflation would break out."

          Fixed. Cochrane is a dishonest ideologue who enjoys expensive bottles of wine with the likes of villians like Republican Paul Ryan and hedge fund manager Clifford Asness. Let them eat cake!

          http://www.slate.com/blogs/browbeat/2011/07/12/so_what_if_paul_ryan_drank_a_350_bottle_of_wine_.html

          Reply Tuesday, September 01, 2015 at 05:50 AM

          Peter K. said in reply to Peter K....

          Oh he does admit he was being dishonest later on in the post:

          "Maybe the Fed is so wise it neatly steered the economy between the Great Deflationary Vortex on one side with just enough of the Hyperinflationary Quantitative Easing on the other to produce quiet. Maybe the great Fiscal Stimulus really did have a multipler of 6 or so (needed to be self-financing, as some claimed) and just offset the Deflationary Vortex.'

          Reply Tuesday, September 01, 2015 at 05:53 AM

          pgl said in reply to Peter K....

          Great Fiscal Stimulus? WTF? OK, there was that 2009 thing where Cochrane said the multiplier was zero as he never understood his own Ricardian Equivalence proposition. Now he says it is 6? Talk about malleable opinions. Cochrane is insane.

          Reply Tuesday, September 01, 2015 at 06:17 AM

          RC AKA Darryl, Ron said in reply to Peter K....

          We still drink way more beer than wine in my part of the country. I have a bottle of port on my bar that has been there since last year and I have not had any other wine at all this year. But I agree with the article in that all of those people are assholes regardless of what they are drinking.

          But I know that pgl really loves Cochrane, loves as in can resist screwing with him. Too mathy for me, but framing the idea of raising interest rates to increase inflation while lowering output as an economic solution does not pass the sweat shirt test (H. Pat Artis's euphemism for reality check).

          Reply Tuesday, September 01, 2015 at 06:44 AM

          RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

          can't resist - oops

          Reply Tuesday, September 01, 2015 at 06:45 AM

          Peter K. said in reply to RC AKA Darryl, Ron...

          Agreed. Maybe he'd a have a problem with lowering output if it hurt profit margins.

          Reply Tuesday, September 01, 2015 at 06:47 AM

          Peter K. said in reply to Peter K....

          This is what DeLong has a tough time understanding. He's too naive or something. Or things have changed with the financialization of the economy.

          Businesses and business leaders should want more demand for their products and services. They *should* want full employment and full output.

          And yet the creditors and bankers really run things. Inflation is more of problem for them. And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity.

          Reply Tuesday, September 01, 2015 at 06:50 AM

          Peter K. said in reply to Peter K....

          DeLong points out that in the post-war golden years business leaders were for full employment and full output.

          I tend to believe it was because of the Cold War. Would Europe risk sky high unemployment in the Spain, Greece, Italy etc. now if the Cold War was still on? They'd risk those countries falling under the control of the Communists.

          Reply Tuesday, September 01, 2015 at 06:53 AM

          RC AKA Darryl, Ron said in reply to Peter K....

          "DeLong points out that in the post-war golden years business leaders were for full employment and full output.

          I tend to believe it was because of the Cold War..."

          [Yep, Paine has mentioned that fairly often. Maybe it is just a way that commies like Paine can take credit for the post war boom in the free world :<) - LOL}

          Reply Tuesday, September 01, 2015 at 09:06 AM

          Dan Kervick said in reply to Peter K....

          Well CEOs have managed to increase their own compensation dramatically over the past several decades with less than full employment. The chronically under-employed workforce keeps labor costs down and the return to capital high; and the shareholders reward the CEO for treating the firm as a dividend farm, not a long term project. And if they do need to boost output, they can always hire poor people in other countries in the global supply chain. So from their point of view, why should they do anything differently?

          Reply Tuesday, September 01, 2015 at 06:44 PM

          RC AKA Darryl, Ron said in reply to Peter K....

          "...And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity."

          [Yep to that and all you said before it.]

          Reply Tuesday, September 01, 2015 at 09:02 AM

          pgl said in reply to RC AKA Darryl, Ron...

          Cochrane seems to know a bit of finance although sometimes he gets a little sloppy. I love it when finance types think they are also masters at macroeconomics. Modigliani and Tobin could walk in both worlds but Cochrane could not hold their shoes in either.

          Reply Tuesday, September 01, 2015 at 08:56 AM

          RC AKA Darryl, Ron said in reply to pgl...

          Understood. Commenting on Cochrane's piece was all in fun. Even I got the problem with increasing the output gap in his model of interest rate increases; not good for full employment.

          Reply Tuesday, September 01, 2015 at 09:09 AM

          Peter K. said in reply to Peter K....

          "Traditional monetarists looked at QE, and warned hyperinflation would break out."

          Actually monetarists like Scott Sumner predicted it wasn't enough to do the job.

          Goldbugs predicted runaway inflation.

          Cochrane is wrong again.

          Reply Tuesday, September 01, 2015 at 06:57 AM

          pgl said in reply to RC AKA Darryl, Ron...

          I started to read John Cochrane's insane modeling but as usual it made me sea sick. He has a habit of making easy things hard. The stated twin goals of monetary policy are to avoid accelerating inflation and to get us as close to full employment as possible. While one can argue that obtaining the latter jeopadizes the former, I don't see any real tradeoff at the moment. Expected inflation has been incredibly low for many years now and the output gap is still really high. I know some FED members are freaking out over INFLATION but I suspect they hate too much of that chocolate candy at Jackson Hole. Cochrane? Apparently he's been putting away too much of that expensive wine.

          Reply Tuesday, September 01, 2015 at 06:15 AM

          RC AKA Darryl, Ron said in reply to pgl...

          Since Cochrane appears quite sanguine about lowering output then that implies he does not really care much about employment either.

          I know that Cochrane is one of your favorite snack foods along with Taylor, the two too conservative Johns.

          Reply Tuesday, September 01, 2015 at 06:33 AM

          pgl said in reply to RC AKA Darryl, Ron...

          Cochrane is a New Classical type. Shorter version of their school - what recession? After all - the market is perfectly efficient and always clears in their ivory tower world.

          Reply Tuesday, September 01, 2015 at 08:57 AM

          RC AKA Darryl, Ron said in reply to pgl...

          Yep. I place neo-classical economics next to "natural law" (meaning social laws - not science laws) in the circular filing cabinet.

          Reply Tuesday, September 01, 2015 at 09:12 AM

          ilsm said in reply to RC AKA Darryl, Ron...

          Cochrane leaves a lot to the imagination, sensitivity to assumptions etc.

          Then there is the main issue with Social Sciences validation and accrediting the models.

          While the fresh water school depends on belief resulting in epistemic closure.

          Reply Tuesday, September 01, 2015 at 03:19 PM

          Anonymous said...

          Shiller's CAPE debate:

          Saying that high PEs are fine because they just mean lower expected returns is like saying a blind man's eyes are fine just means he sees less than other people. Low expected returns do not come in 2%, 2%, 2%... kind of stream. They go down a lot and go up a lot. In 99-2000, people said high PE just meant low future returns. Yes, S&P had a zero return over almost a decade. But it had two huge drawdowns in the middle. Bernanke said the same of house prices in 2006 - they will be zero for a while. Yes, average is zero. does not mean you will go there in a straight line.

          Reply Tuesday, September 01, 2015 at 04:43 AM

          RC AKA Darryl, Ron said in reply to Anonymous...

          Yep! There are more troubles here than can be covered by Shiller's CAPE and Dick Serlin's robots are not likely to fix them either.

          Reply Tuesday, September 01, 2015 at 05:51 AM

          pgl said in reply to Anonymous...

          Hey is one thing a lot of us keep trying to tell Anne. There is not a single P/E ratio that is the right number for all times. This ratio depends on fundamentals with one of the fundamentals being the cost of capital. And I thought everyone knew by now that interest rates are currently a lot lower than they were in the 1980's.

          Reply Tuesday, September 01, 2015 at 06:18 AM

          Peter K. said in reply to pgl...

          Isn't that what Dean Baker was saying also?

          http://www.cepr.net/blogs/beat-the-press/robert-shiller-s-case-for-a-stock-bubble

          "The other reason why the current PEs in the stock market might be justified is that interest rates are well below their historic averages. With the nominal rate on 10-year Treasury bonds at just over 2.0 percent and the inflation rate around 1.6 percent, the real interest rate is roughly 0.5 percent. This compares to a long-period average in the range of 2.5-3.0 percent.

          With the alternatives to holding stock offering returns that are far lower than they have in the past, it makes sense that people would be willing to accept a much lower return on their stock. The current PE should still allow a premium in the range of 4.0 percentage points relative to bonds, which is roughly the long period average. Of course if we had reason to expect that the real returns on bonds would rise sharply in the near future, then this argument would not carry much weight, but there does not appear to be any good story as to why real bond yields should be headed much higher in the near future."

          Reply Tuesday, September 01, 2015 at 06:22 AM

          pgl said in reply to Peter K....

          Deano has this exactly right. Of course they are the idiots like JohnH who just claimed that Dean and I are saying lower interest rates have no effect on stock prices. Hmm - P/E ratios are defined as stock prices relative to earnings per share. So someone should ask JohnH how a P/E ratio is supposed to rise if P does not change. Oh that's right - his 80 year granny girl friend has no earnings (E).

          Reply Tuesday, September 01, 2015 at 09:00 AM

          JohnH said in reply to Peter K....

          pgl still can't admit that he tried to convince me that high stock prices (and the wealth of the 1%) were not fueled by low interest rates.

          pgl was so desperate to defend historically low interest rates, that he lied about their most obvious effect--higher asset prices and wealth redistribution upwards.

          Question is, why is pgl so zealous about defending the gains of the 1%?

          Reply Tuesday, September 01, 2015 at 09:59 AM

          pgl said in reply to JohnH...

          Find the comment where I allegedly made this statement. Either you are lying (which you often do) or you failed to get what I was really saying. Maybe it was the latter given how incredibly stupid you are.

          Reply Tuesday, September 01, 2015 at 11:47 AM

          RGC said...

          Low-Income Workers Have Nowhere Affordable To Live, New Report Shows

          Even the most affordable metropolitan areas in the country are beyond the reach of millions of American families.

          Daniel Marans
          Reporter, The Huffington Post
          Posted: 08/27/2015 07:34 AM EDT


          Low-income workers and their families do not earn enough to live in even the least expensive metropolitan American communities, according to a new analysis of families' living costs published Wednesday.

          The analysis, released by the left-leaning Economic Policy Institute, is an annual update of the think tank's Family Budget Calculator that reflects new 2014 data. The Family Budget Calculator is a formula designed to determine the income "required for families to attain a secure yet modest standard of living" in 618 different communities across the country that the U.S. Census Bureau defines as metropolitan areas. The formula uses data collected by the government and some nonprofit groups to measure costs of housing, food, child care, transportation, health care, "other necessities" like clothing, and taxes for families of 10 different compositions in these specific locales.

          The updated Family Budget Calculator shows that even the most affordable metropolitan areas in the country are beyond the reach of millions of American families with incomes above the official federal poverty level. The official federal poverty level for a family of two parents and two children in 2014 was $24,008, according to the EPI. But the least expensive metropolitan area in the country for this family type is Morristown, Tennessee, where a family needs an income of $49,114, according to the Economic Policy Institute's budget calculator.

          The Economic Policy Institute also estimates that minimum-wage workers -- who almost universally earn less than the federal poverty level -- lack the income needed to make an adequate living in any of the communities surveyed, even if they are single and childless. The think tank notes that this includes minimum-wage workers living in cities or states with a higher minimum wage than the federal minimum of $7.25 an hour, or $15,080 a year for a full-time worker.

          Even families with incomes closer to the middle of the earnings spectrum lack the means to maintain an adequate standard of living. The nation's median household income was $51,939 in 2013 -- the most recent year in which data were available -- not much higher than the cost of living in the relatively inexpensive Morristown.

          The median household income nationwide is also significantly less than is needed to live in the metropolitan area of Des Moines, Iowa, which is the median in costliness for a family with two parents and two children among the communities included in the Economic Policy Institute's budget calculator. A family of that makeup in Des Moines requires an income of $63,741 to live adequately.

          In addition, the updated Family Budget Calculator found that Washington, D.C., is the most expensive metropolitan area in the country for a family to raise children. A family with two parents and two children requires $106,493 to maintain an adequate living standard in the D.C. metropolitan area. Following D.C., the most expensive metropolitan areas for a family of the same makeup were Nassau-Suffolk, New York (Long Island); Westchester County, New York; New York City; Stamford-Norwalk, Connecticut; Honolulu; Poughkeepsie-Newburgh-Middletown, New York; Ithaca, New York; San Francisco; and Danbury, Connecticut.

          The Economic Policy Institute argues in a paper accompanying the release of the updated data that its Family Budget Calculator more accurately reflects people's actual living needs than traditional measurements like the federal poverty level, which does not account for the myriad geographic differences in living costs. (The federal government only provides separate, statewide poverty measurements for Alaska and Hawaii.) Critics have long argued that the federal poverty level formula, which was created in the 1960s, is outdated, significantly undervaluing the costs of essential goods like health care for contemporary families.

          The more recent Supplemental Poverty Measure developed by the U.S. Census Bureau tries to account for more current expenses and geographic differences in housing, as well as income from new benefit programs. But the Economic Policy Institute says that the measure still does not weigh child care costs sufficiently, or account for local variability in expenses other than housing.

          The Economic Policy Institute hopes the new figures strengthen the case for policies that augment the incomes of workers, particularly on the lower end of the earnings spectrum.

          "Wage growth has been stagnant for most workers for decades and, as a result, there is a mismatch between what workers are paid and what it takes to live and support a family," said Elise Gould, senior economist at the Economic Policy Institute, in a statement. "We need a variety of policies to boost wage growth, which includes a higher minimum wage, stronger overtime rules, collective bargaining rights, and enforcement of labor standards as well as the pursuit of a full-employment economy."

          http://www.huffingtonpost.com/entry/low-income-workers-have-nowhere-to-live-new-report-shows_55de2b29e4b029b3f1b17e4c?ncid=txtlnkusaolp00000592&kvcommref=mostpopular

          Reply Tuesday, September 01, 2015 at 05:00 AM

          Death B. Y. Humidity said in reply to RGC...


          "
          ; Poughkeepsie-Newburgh-Middletown, New York
          "
          ~~Daniel Marans~

          If you like cucarachas, you will simple love Honolulu.

          Reply Tuesday, September 01, 2015 at 05:28 AM

          JohnH said in reply to RGC...

          And pgl continues to insist that current economic policy, presided over by the Fed, is just great! And that it's trickling down to workers!

          But ordinary Americans get it, even if ivory tower 'economists' don't--a new Quinnipiac University Poll shows that by more than 7 to 1, Americans are "dissatisfied" with the way things are going in this country, including 41 percent who are "very dissatisfied."
          http://finance.yahoo.com/news/two-polls-show-exactly-why-190000376.html

          Reply Tuesday, September 01, 2015 at 10:06 AM

          pgl said in reply to JohnH...

          So many lies today and your 80 year old girl friend still refuses to have sex with you? Try Viagra. Oh wait - she is waiting for you to bring home the bacon. Which means you won't get laid until her 100th birthday!

          Reply Tuesday, September 01, 2015 at 11:48 AM

          JohnH said in reply to RGC...

          After seven years of an economic quagmire, presided over by the Fed, it's amazing that the Fed has any credibility left at all.

          I'm reading increasing numbers of articles that consider the Fed to be a laughing stock...

          Reply Tuesday, September 01, 2015 at 10:10 AM

          Peter K. said in reply to JohnH...

          So you obsolve Congress's fiscal austerity of any blame. They brought the deficit down from 10 percent to 2.3 percent and lo and behold, no confidence fairy.

          The Fed's QEs offset that to a degree, otherwise we'd have deflation, declining incomes and growing unemployment.

          Reply Tuesday, September 01, 2015 at 10:27 AM

          pgl said in reply to Peter K....

          That's what chocolate coin JohnH wants - declining incomes and growing unemployment. He seems to think this will get granny all hot and bothered!

          Reply Tuesday, September 01, 2015 at 11:50 AM

          RC AKA Darryl, Ron said in reply to RGC...

          Maybe metropolitan American communities are hoping that gentrification can cure urban blight.

          Reply Tuesday, September 01, 2015 at 10:30 AM

          RC AKA Darryl, Ron said...

          RE: Picasso: the price of everything

          [Best for the classic quote at the end:]

          ...There is, of course, a danger of confusing high prices with aesthetic value; as Oscar Wilde put it, of knowing 'the price of everything and the value of nothing'.

          [Oscar Wilde has often been quoted in discussions of economics and economists. This is the first time that I ever read it used with respect to art.]

          Reply Tuesday, September 01, 2015 at 05:59 AM

          Peter K. said...

          Obama and the National Labor Review Board and Clinton.

          "We're really digging out of a 40-year hole," Mr. Mishel said. "The Clinton years were ones where they more triangulated between business and workers rather than weigh in on the side of workers."

          One area where I believe Krugman and DeLong aren't on the up and up - for whatever reason - is the history of the Clinton years. Here's another example of where the Clinton years don't look so good and Obama looks better in comparison.

          Krugman had a column about paleoliberalism making a comeback not long ago. In reality it was never gone. The Clintonoids moved the Democrats to the right.

          Reply Tuesday, September 01, 2015 at 06:00 AM

          Peter K. said in reply to Peter K....

          That's why I supported Obama over Hillary and support Bernie over Hillary. If Hillary is elected hopefully she has moved to the left along with the Democrats but I wouldn't hold my breath.

          It's possible that she'll do better than her Senate career would suggest. Finance is New York's local business and she was being cautious in order to run for President.

          Reply Tuesday, September 01, 2015 at 06:04 AM

          JohnH said in reply to Peter K....

          Yeah, it only took a lame duck Obama seven years to realize that workers needed some help. Now there was change you could believe in...

          It's amazing that there are still Democrats who can't admit that Obama is just another neo-liberal tool.

          Peter K. said...

          Noah Smith and the neo-Fisherians.

          Seems like Cochrane ignores fiscal policy. The Republican Congress hit the economy with unprecedented austerity. There was the sequester and debt ceiling clown show. The deficit went from 10 percent to 2.3 percent. Bernanke and the Fed complained regularly about fiscal headwinds. It's no wonder the Fed never managed to hit their 2 percent inflation target ceiling, given that all they tried was a few weak QEs.

          Whenever inflation expections dipped, they did a QE, and they went back up. That's it. They weren't trying to raise inflation quickly. They are paranoid about inflation getting out of hand and becoming "unmoored."

          Nothing surprising to me about inflation's behavior. Look at the employment-population ratio.

          Perhaps it's surprising that we didn't hit sustained deflation early on in the financial crisis, but perhaps the markets believed the Fed would get things back on track relatively quickly.

          That is they believed in the Fed's long-term inflation / implicit NGDP target and in the ability of the Fed to manage the economy.

          Reply Tuesday, September 01, 2015 at 06:18 AM

          anne said...

          http://krugman.blogs.nytimes.com/2015/08/31/the-china-debt-zombie/

          August 31, 2015

          The China-Debt Zombie
          By Paul Krugman

          Matthew Klein notes that Very Serious People are now worried that China's troubles, which have caused it to switch rather suddenly from a buyer of Treasuries to a seller, will cause U.S. interest rates to spike. He rightly finds this unconvincing. What he doesn't note is we're looking at another instance of an economic zombie in action.

          For the new concern about China is, in economic terms, the same as the old concern – that the Chinese could destroy our economy by cutting off funding, either for political reasons or out of disgust over our budget deficits. This always reflected a fundamental failure to understand the economic logic, as was pointed out many times not just by yours truly * (and much earlier here ** ) but also by people like Dan Drezner. *** But scare stories about our supposed financial dependence on China just keep shambling along, propounded by people who don't even realize that there are other views, let alone that they're talking nonsense.

          * http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/

          ** http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/

          *** http://belfercenter.ksg.harvard.edu/publication/19622/bad_debts.html

          Reply Tuesday, September 01, 2015 at 06:24 AM

          anne said in reply to anne...

          http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/

          March 15, 2010

          China's Water Pistol
          By Paul Krugman

          Dean Baker * gets upset by this line in today's very useful Keith Bradsher article: **

          "China is the biggest buyer of Treasury bonds at a time when the United States has record budget deficits and needs China to keep buying those bonds to finance American debt."

          As I said, this was a very good article about China; the debt line was probably inserted because it's considered obligatory to say this in any article about US-China relations. As it happens, however, while it's part of what everyone knows, it's also completely false.

          Why don't people get this? Part of the answer is that it's really hard for non-economists - and many economists, too! - to wrap their minds around the Alice-through-the-looking-glass nature of economics when you're in a liquidity trap. *** Even if they've heard of the paradox of thrift, they don't get the extent to which we're living in a world where more savings - including savings supplied to your economy from outside - are a bad thing.

          Also, and I think harder to forgive, is the way many commentators seem oblivious to how we got here. Yes, we have large budget deficits - but those deficits have arisen mainly as the flip side of a collapse in private spending and borrowing. Here's what net borrowing by the US private and public sectors looks like in the Fed's flow of funds report:

          [Private and public net borrowing, 2003-2009]

          The US private sector has gone from being a huge net borrower to being a net lender; meanwhile, government borrowing has surged, but not enough to offset the private plunge. As a nation, our dependence on foreign loans is way down; the surging deficit is, in effect, being domestically financed.

          The bottom line in all this is that we don't need the Chinese to keep interest rates down. If they decide to pull back, what they're basically doing is selling dollars and buying other currencies - and that's actually an expansionary policy for the United States, just as selling shekels and buying other currencies was an expansionary policy for Israel **** (it doesn't matter who does it!).

          As Dean nicely puts it, "China has an unloaded water pistol pointed at our heads." Actually, it's even better: China can, if it chooses, throw some cold water on us - but it's a hot day, and we would actually enjoy it.

          * http://prospect.org/article/nyt-spreads-nonsense-china-buying-us-debt

          ** http://www.nytimes.com/2010/03/15/business/global/15yuan.html

          *** Near zero short term Treasury interest rates

          **** http://krugman.blogs.nytimes.com/2010/03/14/israel-china-america/

          Reply Tuesday, September 01, 2015 at 06:24 AM

          anne said in reply to anne...

          http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/

          October 18, 2013

          The China-Debt Syndrome
          By Paul Krugman

          Matthew Yglesias notes * an uptick in Very Serious People warning that China might lose confidence in America and start dumping our bonds. He focuses on China's motives, which is useful. But the crucial point, which he touches on only briefly at the end, is that whatever China's motives, the Chinese wouldn't hurt us if they dumped our bonds - in fact, it would probably be good for America.

          But, you say, wouldn't China selling our bonds send interest rates up and depress the U.S. economy? I've been writing about this issue ** a lot in various guises, and have yet to see any coherent explanation of how it's supposed to work.

          Think about it: China selling our bonds wouldn't drive up short-term interest rates, which are set by the Fed. It's not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy those bonds up.

          It's true that China could, possibly, depress the value of the dollar. But that would be good for America! Think about Abenomics in Japan: its biggest success so far has been driving down the value of the yen, helping Japanese exporters.

          But, you say, Greece. Well, Greece doesn't have its own currency or monetary policy; capital flight there led to a fall in the money supply, which wouldn't happen here.

          The persistence of scaremongering about Chinese confidence is a remarkable thing: it continues to be what Very Serious People say, even though it literally makes no sense at all. As Dean Baker once put it, "China has an empty water pistol pointed at our head."

          * http://www.slate.com/blogs/moneybox/2013/10/17/china_bond_purchases_stop_being_wrong.html

          ** http://krugman.blogs.nytimes.com/2013/10/03/phantom-crises-wonkish/

          Reply Tuesday, September 01, 2015 at 06:25 AM

          Peter K. said...

          http://krugman.blogs.nytimes.com/2015/09/01/multipliers-what-we-should-have-known/

          Multipliers: What We Should Have Known
          by Krugman

          SEPTEMBER 1, 2015 9:19 AM

          There's a very nice interview* with Olivier Blanchard, who is leaving the IMF, in which among other things Olivier says the right thing about changing one's mind:

          "With respect to outside, the issue I have been struck by is how to indicate a change of views without triggering headlines of "mistakes,'' "Fund incompetence,'' and so on. Here, I am thinking of fiscal multipliers. The underestimation of the drag on output from fiscal consolidation was not a "mistake'' in the way people think of mistakes, e.g., mixing up two cells in an excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the Fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful."

          Indeed. There are a lot of people out there whose idea of a substantive argument is "you used to say X, now you say Y" - never mind the reasons why you changed your view, and whether it was right to do so.It's important not to fall into the trap of being afraid to let new evidence or analysis speak.

          One thing I would say, however, is that on this particular issue the Fund should have known better. Olivier says that the evidence "turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts", but didn't we know that? I certainly did.

          And let me also beat one of my favorite drums: the prediction that multipliers would be much larger in a liquidity trap came out of IS-LMish macro (or, to be fair, New Keynesian models) and has been overwhelmingly confirmed by experience. So this was yet another victory for Keynesian analysis, the success story nobody will believe.

          -------------------
          * http://www.imf.org/external/pubs/ft/survey/so/2015/RES083115A.htm

          Reply Tuesday, September 01, 2015 at 06:24 AM

          Peter K. said in reply to Peter K....

          John Cochrane doesn't give an honest assessment of the Keynesian side of the argument. He pulls a Don Kervack and presents a straw man in order to knock it down.

          "Keynesians predicted a deflationary vortex!"

          And then when conservatives are confronted with what they actually said in the past, they dishonestly change their story. Kervack does the same thing.

          Reply Tuesday, September 01, 2015 at 06:26 AM

          pgl said in reply to Peter K....

          Cochrane goes on and on about nothing. Kervack goes on and on about nothing. Twins separated at birth?!

          Reply Tuesday, September 01, 2015 at 09:01 AM

          Peter K. said in reply to Peter K....

          "in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. "

          Or rather monetary policy *will not* offset the negative effects of budget cuts.

          Fixed.

          Reply Tuesday, September 01, 2015 at 06:45 AM

          anne said in reply to Peter K....

          http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/

          November 10, 2009

          Depression Multipliers
          By Paul Krugman

          Barry Eichengreen and Kevin O'Rourke have lately been scoring a series of research coups, based on the combination of historical perspective and a global view. Most famously, they showed that on a global basis the first year of the current crisis was every bit as severe * as the first year of the Great Depression.

          Now they and collaborators have a new piece on policy effects, ** especially fiscal multipliers.

          The background here is that there are two problems with estimating multipliers relevant to our current situation. First, you need to look at what happens under liquidity-trap conditions - and except in Japan,these haven't prevailed anywhere since the 1930s. The second is that in the United States, fiscal policy was never forceful enough to provide a useful natural experiment. We didn't have a really big fiscal expansion until World War II; and WWII isn't a good experiment because the surge in defense spending was accompanied by government policies that suppressed private demand, such as rationing and restrictions on investment. ***

          What E&R do here is use a broad international cross-section to overcome this problem. This works because a number of countries had major military buildups during the 1930s - fiscal expansions that can be regarded as exogenous to the economic situation, since they were

          "driven above all by Hitler's rearmament programmes and other nations' efforts to match the Nazis in this sphere, and by one-off events like Italy's war in Abyssinia."

          What do E&R find? Initial fiscal multipliers of 2 or more, although they shrink over time. Yes, fiscal expansion is expansionary.

          * http://www.voxeu.org/index.php?q=node/3421

          ** http://www.econ.berkeley.edu/~eichengr/great_dep_great_cred_11-09.pdf

          *** I really, really don't understand why this point has been so hard to get across.

          Reply Tuesday, September 01, 2015 at 06:48 AM

          Peter K. said...

          http://www.cepr.net/blogs/beat-the-press/a-public-service-announcement-the-bureau-of-labor-statistics-budget

          A Public Service Announcement: The Bureau of Labor Statistics Budget
          by Dean Baker

          Published: 31 August 2015

          The sequester put in place as part of the 2011 budget agreement is continuing to bite, as most areas of discretionary spending are seeing their budget cut in real terms. One of the areas slated for the biggest proportional cuts in the Bureau of Labor Statistics (BLS). Ready to head for the barricades?

          Okay, I know that the data produced by the BLS doesn't sound especially sexy. After all, we aren't talking about children going hungry or pregnant women being denied medical care. But on a per dollar basis, I would argue that BLS funding is among the best investments out there.

          The purpose of the data collected by the BLS is to let us know how the economy is doing. Based on the data it produces we can know who is getting ahead and who is falling behind. We can know whether college degrees are really paying off, or paying off equally for everyone. We can know how long people spend being unemployed after losing a job or how much less they are likely to make when they find a new job.

          Yes, we all have common sense understandings of these issues. We have friends, neighbors, and co-workers all of whom have experiences in the labor market, dealing with health care insurance, planning for retirement. These impressions are valuable, but sometimes our impressions are wrong. Our immediate circles of contacts may not be typical. The data from BLS lets us get beyond these impressions to get a fuller picture of the economy.

          This matters hugely for important policy decisions. Right now there are many people who are anxious to have the Federal Reserve Board raise interest rates to slow the economy and the pace of job creation. The key factors in whether this makes sense are the pace of inflation, the pace of wage growth, and the extent of unemployment or various forms of under-employment.

          We should want the best possible data on all of these items. It would be an enormous tragedy if the Fed raised rates and prevented hundreds of thousands of workers from getting jobs, and millions from getting pay increases, because it thought the inflation rate was higher than it actually is.

          The BLS budget in 2015 was about $90 million less in real dollars than the 2010 budget. (That's roughly 0.002 percent of the total federal budget.) The BLS is looking at still further cuts in 2016. Suppose it would take another $100 million a year to keep BLS funded adequately. If a mistaken Fed decision on interest rates costs us just 0.2 percent in GDP growth, it would imply a loss of $36 billion in GDP and mean roughly 300,000 fewer people have jobs. (It probably also means some number of children are going hungry and pregnant women are being denied health care.)

          If it sounds far-fetched that the Fed may make a wrong decision because of bad data, consider the fact that the consumer price index (CPI) overstated the inflation rate that would be shown using current methods by roughly 0.5 percentage points annually in the early and mid-1990s. This means that if the current BLS methodology showed a 2.0 percent rate of inflation, the methodology used to construct the CPI in the early and mid-1990s would have reported the inflation rate as 2.5 percent.

          The Fed did in fact raise interest rates from 3.0 percent to 6.0 percent over the period from February of 1994 to March of 1995. This proved to be unnecessary, since inflation remained well-contained and the Fed eventually lowered interest rates in the second half of 1995. It's hard to say whether the wrong data on inflation contributed to the Fed's mistaken rate hikes. The problems with the CPI were known at the time and hopefully the Fed was able to adjust for them, but we can't know for sure if they did.

          There is a real cost to mistaken policy decisions. While the folks at Fed and other policy making bodies are perfectly capable of making bad decisions even when they have the right data, we should want to do everything we can to avoid preventable mistakes. This means ensuring that they have good data, which means giving the BLS the money it needs to do its job.

          One last point, this is not a partisan issue. There are plenty of economists across the political spectrum who support full funding for BLS. We all like to think that our arguments are based on data, but we can't know that is the case if the data are not available.

          --------------------------------

          Republicans: We're not scientists, but we just defund data collection so that the scientists are unable to do their science which may contradict our preferred policies.

          Reply Tuesday, September 01, 2015 at 06:41 AM

          pgl said in reply to Peter K....

          Bruce Bartlett has never forgiven Newt Gingrich for starting this trend in 1995. This is why we like the last honest conservative - Bruce that is!

          Reply Tuesday, September 01, 2015 at 09:02 AM

          Dan Kervick said in reply to Peter K....

          Always one of the easiest ways for reactionary forces to ward of social challenges, class conflict and criticism: destroy the data so that people can't figure out how bad things are.

          Note that Republicans have also had an obsession with the US Census. They don't want Americans to understand America.

          A couple of years ago, some interesting studies were carried out on public perceptions of inequality. It turns out that until they are presented with the actual data on economic distribution in the US, Americans tend to have a much rosier perception about how equal the US is than is actually the case.

          Apart from these cases were the politicians are trying to make the existing data worse, there are also important kinds of data which we need but do not yet collect. We're still in the dark ages when it comes to putting together a complete social inventory and accounting of all forms of private wealth, so that we know who owns what and where the stuff that is owned is located.

          Reply Tuesday, September 01, 2015 at 09:53 AM

          pgl said in reply to Dan Kervick...

          Uh Dan? It is the Census - not BEA - that reports on income inequality measure. FYI!

          Reply Tuesday, September 01, 2015 at 11:52 AM

          Dan Kervick said in reply to pgl...

          Yes, I know. But it doesn't collect that data nearly as frequently, and has no straightforward and reliable methods for combining the inequality data with the other economic measurements that the BEA does routinely.

          When the BEA reports on the growth of national income, Americans should be able to pull out right away information on what that growth looks like across income deciles. We deserve to know what an aggregate 3.7% growth quarter looks like for most Americans.

          Reply Tuesday, September 01, 2015 at 01:19 PM

          anne said...

          http://krugman.blogs.nytimes.com/2015/09/01/gravity/

          September 1, 2015

          Gravity
          By Paul Krugman

          Now that's fun: Adam Davidson tells us * about trade in the ancient Near East, as documented by archives found in Kanesh - and reports that the volume of trade between Kanesh and various trading partners seems to fit a gravity equation: trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat.

          But what does the seemingly universal applicability of the gravity equation tell us? Davidson suggests that it's an indication that policy can't do much to shape trade. That's not where I would have gone, and it's not where those who have studied the issue closely ** have gone.

          Here's my take: Think about two cities with the same per capita GDP - we can relax that assumption in a minute. They will trade if residents of city A find things being sold by residents of city B that they want, and vice versa.

          So what's the probability that an A resident will find a B resident with something he or she wants? Applying what one of my old teachers used to call the principle of insignificant reason, a good first guess would be that this probability is proportional to the number of potential sellers - B's population.

          And how many such desirous buyers will there be? Again applying insignificant reason, a good guess is that it's proportional to the number of potential buyers - A's population.

          So other things equal we would expect exports from B to A to be proportional to the product of their populations.

          What if GDP per capita isn't the same? You can think of this as increasing the "effective" population, both in terms of producers and in terms of consumers. So the attraction is now the product of the GDPs.

          Is there anything surprising about the fact that this relationship works pretty well? A bit. Standard pre-1980 trade theory envisaged countries specializing in accord with their comparative advantage - England does cloth, Portugal wine. And these models suggest that how much countries trade should have a lot to do with whether they are similar or not. Cloth exporters shouldn't be selling much to each other, but should instead do their trading with wine exporters. In reality, however, there's basically no sign of any such effect: even seemingly similar countries trade about as much as a gravity equation says they should.

          Calibrated models of trade have long dealt with this reality, somewhat awkwardly, with the so-called Armington assumption, *** which simply assumes that even the apparently same good from different countries is treated by consumers as a differentiated product - a banana isn't just a banana, it's an Ecuador banana or a Saint Lucia banana, which are imperfect substitutes. The new trade theory some of us introduced circa 1980 - or as some now call it, the "old new trade theory" - does a bit more, and possibly better, by introducing monopolistic competition and increasing returns to explain why even similar countries produce differentiated products.

          And there's also a puzzle about both the effect of distance and the effect of borders, both of which seem larger than concrete costs can explain. Work continues.

          Does any of this suggest the irrelevance of trade policy? Not really. Changes in trade policy do have obvious effects on how much countries trade. Look at what happened when Mexico opened up starting in the late 1980s, as compared with Canada, which was fairly open all along - and which, like Mexico, mainly trades with the US:

          [Graph]

          So what does gravity tell us? Simple Ricardian comparative advantage is clearly incomplete; the process of international trade is subtler, with invisible as well as visible costs. Not trivial, but not too unsettling. And gravity models are very useful as a benchmark for assessing other effects.

          * http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

          ** https://www2.bc.edu/~anderson/GravitySlides.pdf

          *** http://wits.worldbank.org/wits/wits/witshelp/Content/SMART/Demand%20side%20the%20Armington.htm

          Reply Tuesday, September 01, 2015 at 06:54 AM

          anne said in reply to anne...

          http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

          August 29, 2015

          The V.C.s of B.C.
          By ADAM DAVIDSON

          One morning, just before dawn, an old man named Assur-idi loaded up two black donkeys. Their burden was 147 pounds of tin, along with 30 textiles, known as kutanum, that were of such rare value that a single garment cost as much as a slave. Assur-idi had spent his life's savings on the items, because he knew that if he could convey them over the Taurus Mountains to Kanesh, 600 miles away, he could sell them for twice what he paid.

          At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad, who said he was heading on the same journey. He offered to take the older man's donkeys with him and ship the profits back. The two struck a hurried agreement and wrote it up, though they forgot to record some details. Later, Sharrum-­Adad claimed he never knew how many textiles he had been given. Assur-idi spent the subsequent weeks sending increasingly panicked letters to his sons in Kanesh, demanding they track down Sharrum-Adad and claim his profits.

          These letters survive as part of a stunning, nearly miraculous window into ancient economics. In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal. Through a series of incredibly unlikely events, archaeologists have uncovered the comprehensive written archive of a few hundred traders who left their hometown Assur, in what is now Iraq, to set up importing businesses in Kanesh, which sat roughly at the center of present-day Turkey and functioned as the hub of a massive global trading system that stretched from Central Asia to Europe. Kanesh's traders sent letters back and forth with their business partners, carefully written on clay tablets and stored at home in special vaults. Tens of thousands of these records remain. One economist recently told me that he would love to have as much candid information about businesses today as we have about the dealings - and in particular, about the trading practices - of this 4,000-year-old community.

          Trade is central to every key economic issue we face. Whether the subject is inequality, financial instability or the future of work, it all comes down to a discussion of trade: trade of manufactured goods with China, trade of bonds with Europe, trade over the Internet or enabled by mobile apps. For decades, economists have sought to understand how trade works. Can we shape trade to achieve different outcomes, like a resurgence of manufacturing or a lessening of inequality? Or does trade operate according to fairly fixed rules, making it resistant to conscious planning? ...

          Reply Tuesday, September 01, 2015 at 06:56 AM

          Dan Kervick said in reply to anne...

          One trading region, at one moment in history, based on "GDP" estimates from fragmentary records. From this, an economic law is abducted and proposed.

          There is the science of economics for you.

          Reply Tuesday, September 01, 2015 at 09:57 AM

          RC AKA Darryl, Ron said in reply to Dan Kervick...

          A lot of economics is an art, particularly surrounding financialization and globalization, and the primary practice of that art is equivocation. The science act in this case is a shell game. Under which shell is the arbitrage?

          Mineral resources, water, and land exist where they do, but the industrial revolution produced the means for sufficient skilled labor to reside almost anywhere.

          Reply Tuesday, September 01, 2015 at 10:51 AM

          pgl said in reply to RC AKA Darryl, Ron...

          "In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal."

          Dan K. is mad that the BEA for not reporting on GDP data back then. And he insists that they should have been reporting on income distribution during the Roman Empire as well.

          Reply Tuesday, September 01, 2015 at 11:55 AM

          pgl said in reply to Dan Kervick...

          FYI for the clueless one. GDP accounting was only invented in the 1940's. And you expect the BEA is report on information from centuries ago.

          Reply Tuesday, September 01, 2015 at 11:53 AM

          Dan Kervick said in reply to pgl...

          You're confused. I said nothing about the BEA in this comment. I talking about *economists* using limited data to propose grand laws.

          Reply Tuesday, September 01, 2015 at 01:21 PM

          anne said...

          http://www.cepr.net/publications/op-eds-columns/the-china-panic

          August 31, 2015

          The China Panic
          By Dean Baker

          One of the benefits of the massive inequality in the distribution of wealth is that the vast majority of us can sit back and enjoy the show when stock markets go into a worldwide panic, as they have been doing for the last couple of weeks. In spite of what you hear in the media, fluctuations in the stock market generally have little direct or indirect impact on the economy.

          This means that if you don't have a lot of money in the stock market, you don't have much to lose. And, according to data from the Federal Reserve Board, three quarters of households have less than $36,000 in the stock market, including their 401(k)s.

          But the markets have been putting on quite a show, so it is worth asking what is going on. At the most basic level, it seems evident that China's market had a very serious bubble. Its main index had increased by more than 150 percent from June of 2014 to its peak in June of this year. While it's possible that China's market has hugely undervalued in 2014, it seems more likely that this rise was bubble-driven. This means that people were buying into the market because they saw it going up, not because they had done an assessment of the future profit prospects for Chinese companies and decided that they were worth two-and-half times as much as they had been worth a year earlier.

          Bubbles inevitably burst. At some point there are no longer people willing to pay too much for stock, houses, tulips, or whatever. That seems to have been the story in China, where many new investors were buying into the market on credit. At some point they have trouble borrowing further and the upward spiral goes into reverse. The clumsy efforts of China's government to stop this correction proved largely futile.

          The next question is why did the fun spill over to Europe, the United States, and the rest of the world's stock markets? Most of these markets are high by historic standards, but they are not obviously experiencing bubbles. To use one common metric, Robert Shiller's ratio of the S&P 500 to trailing ten years' earnings peaked at just over 26 to 1 in June. This is higher than the long term average of 15 to 1, but well below the peak of 44 to 1 in the late 1990s bubble. There would be a similar story with most other major markets.

          Furthermore, in the late 1990s there was an obvious investment alternative. Ten-year U.S. Treasury bonds paid a nominal interest rate of over 5.0 percent which translated into roughly a 2.5 percent real rate at the time. Currently 10-year Treasury bonds are paying a bit over 2.0 percent interest, which translates into a real interest rate of roughly 0.5 percent. Given these fundamentals, there is no reason to expect sharp declines in the U.S. and other major markets, but nothing says that they can't be 5–10 percent below current levels.

          But there are some stories for the real economy that do go along with the stock market turbulence. First, China is going through a process of adjustment where it goes from growth led by investment and exports to growth led by domestic consumption. The stock market run-up was helping this transition as people increased their consumption based on bubble-generated wealth. The plunge in prices will hurt this process, but it is important to remember that stock prices are still almost double their level of last summer.

          While predictions of a collapse of the Chinese economy will almost certainly be proven wrong, it is likely to be on a slower growth path going forward. This is a major factor in the falloff in commodity prices, most notably oil, the price of which has dropped below $40 a barrel. This drop in oil prices will exacerbate the economic troubles of major oil exporters like Russia and Venezuela.

          However, the drop in commodity prices could have even more far-reaching effects. The economies of Canada and Australia have also been driven to an important extent by booming commodity exports. These economies recovered much more rapidly from the 2008 crash than most other wealthy countries. Part of this story is that that house prices in both countries quickly returned to bubble levels.

          The price of a typical home in Canada is 13 percent higher than in the United States despite the fact that its per capita income is more than 20 percent lower. In Australia, with an average income that is 93 percent of the U.S. level, the median house price is almost twice the U.S. level. It's pretty hard to tell a story where this gap is justified by the fundamentals of the market. After all, neither country is notably short of land (not that this explanation generally makes sense).

          It may turn out to be the case that the plunge in commodity prices will be the factor that will teach homebuyers and potential homebuyers in these countries the arithmetic they need to recognize the bubbles in their markets. If that proves to be the case, then we may see the unraveling of these bubbles, and that will not be a pretty picture.

          Unlike stock, middle income people do have a real stake in the value of their house. If prices in these countries were to fall to U.S. levels, it would imply a massive loss of wealth. This will almost certainly lead to a large drop in consumption and in all probability a serious recession....

          Reply Tuesday, September 01, 2015 at 08:00 AM

          RC AKA Darryl, Ron said in reply to anne...

          Ouch! THANKS!

          Reply Tuesday, September 01, 2015 at 10:56 AM

          anne said...

          http://www.cepr.net/publications/op-eds-columns/the-china-syndrome-bubble-trouble

          August 31, 2015

          The China Syndrome: Bubble Trouble
          By Dean Baker

          The financial markets have been through some wild and crazy times over the last two weeks, although it appears that they have finally stabilized. The net effect of all the gyrations is that a serious bubble in China's market seems to have been at least partially deflated. After hugely over-reacting to this correction, most other markets have largely recovered. Prices are down from recent peaks, but in nearly all cases well above year ago levels.

          But the stock market is really a side-show; after all back in 1987 the U.S. market fell by almost 25 percent for no obvious reason, with little noticeable effect on the U.S. economy. The more serious question is what is happening with the underlying economy, and there are some real issues here.

          China's economy had become a major engine for world growth just as the U.S. economy had been a major engine for world growth in the last decade. While predictions of an economic collapse in China will almost certainly prove wrong (many China experts have a long history of such predictions), it does seem likely that its growth going forward will be considerably slower than it has been in the past.

          This will be bad news for exporters of oil and other commodities, the price of which were being sustained by the rapid growth in China. But a slowdown in China will also be bad news for the United States and other rich countries who were expecting that continued strong growth in China would boost their net exports, thereby lifting their weak growth rates.

          Over the longer term it is reasonable to expect that China will continue to move from large trade surpluses to trade deficits or at least near balanced trade, the movement will likely be in the other direction in the immediate future. This means that trade with China will be a factor slowing growth in Japan, Europe, and the United States for the immediate future.

          While we can be unhappy with China for slowing our growth, the important point to remember is that we do still possess the keys for more rapid growth. After all, the problem is simply a lack of demand in the U.S. and world economy. We can create more demand by having the government spend money or give out tax cuts. Larger deficits will boost the economy.

          If the private sector isn't prepared to spend, the government can increase demand by repairing and improving the infrastructure, increased funding for health care, child care, and education, or subsidizing wind, solar, and other forms of clean energy. With interest rates at extraordinarily low levels and no signs of inflation anywhere in sight, there is no economic barrier to spending in these and other areas. Such spending would both help to make up the demand gap resulting from our trade deficit, thereby creating jobs, and also increase our economy's longer term potential and the country's well-being.

          The only obstacle to such spending is political. This spending would mean larger budget deficits and our politicians are scared of talking about budget deficits.

          The current economic situation is more than a bit absurd. Essentially, we have a worldwide shortfall in demand. Countries that have their own currencies, like the United States, United Kingdom, and Canada could deal with their own shortfalls simply by running larger budget deficits. But for political reasons these countries don't want to run large budget deficits. Instead, they are praying that their trading partners will increase their budget deficits, which will increase net exports and lead to more economic growth.

          If the path to increase growth and employment remains blocked for political reasons, we should always remember that we can look to increase employment by going the opposite direction of decreasing supply. This can begin with work sharing, the policy of encouraging companies to reduce work hours rather than lay off workers. This was the key to Germany's low unemployment rate even at the worst points in the recession.

          And, we can look to measures such as mandated paid sick days, parental leave, and vacation, which have the effect of reducing the average number of hours worked in a year. These are all policies that can be implemented without running large budget deficits. Furthermore, since the reduced labor supply is likely to tighten up the labor market, it could lead to stronger wage growth. And, these measures will provide for a better balance between work-life and family life.

          The best part is that these policies may be more politically feasible than other approaches....

          Reply Tuesday, September 01, 2015 at 08:00 AM

          RC AKA Darryl, Ron said in reply to anne...

          THANKS! Dean is the best.

          Reply Tuesday, September 01, 2015 at 11:00 AM

          Peter K. said...

          http://uneasymoney com/2015/08/31/economic-prejudice-and-high-minded-sloganeering/

          http://tinyurl.com/nv8uw2j

          Economic Prejudice and High-Minded Sloganeering
          by David Glasner
          Published August 31, 2015

          In a post yesterday commenting on Paul Krugman's takedown of a silly and ignorant piece of writing about monetary policy by William Cohan, Scott Sumner expressed his annoyance at the level of ignorance displayed people writing for supposedly elite publications like the New York Times which published Cohan's rant about how it's time for the Fed to show some spine and stop manipulating interest rates. Scott, ever vigilant, noticed that another elite publication the Financial Times published an equally silly rant by Avinah Persaud exhorting the Fed to show steel and raise rates.

          Scott focused on one particular example of silliness about the importance of raising interest rates ASAP notwithstanding the fact that the Fed has failed to meet its 2% inflation target for something like 39 consecutive months:

          "Yet monetary policy cannot confine itself to reacting to the latest inflation data if it is to promote the wider goals of financial stability and sustainable economic growth. An over-reliance on extremely accommodative monetary policy may be one of the reasons why the world has not escaped from the clutches of a financial crisis that began more than eight years ago."

          Scott deftly skewers Persaud with the following comment:

          "I suppose that's why the eurozone economy took off after 2011, while the US failed to grow. The ECB avoided our foolish QE policies, and "showed steel" by raising interest rates twice in the spring of 2011. If only we had done the same."

          But Scott allowed the following bit of nonsense on Persaud's part to escape unscathed (I don't mean to be critical of Scott, there's only so much nonsense that any single person be expected to hold up to public derision):

          "The slowdown in the Chinese economy has its roots in decisions made far from Beijing. In the past five years, central banks in all the big advanced economies have embarked on huge quantitative easing programmes, buying financial assets with newly created cash. Because of the effect they have on exchange rates, these policies have a "beggar-thy-neighbour" quality. Growth has been shuffled from place to place - first the US, then Europe and Japan - with one country's gains coming at the expense of another. This zero-sum game cannot launch a lasting global recovery. China is the latest loser. Last week's renminbi devaluation brought into focus that since 2010, China's export-driven economy has laboured under a 25 per cent appreciation of its real effective exchange rate."

          The effect of quantitative easing on exchange rates is not the result of foreign-exchange-market intervention; it is the result of increasing the total quantity of base money. Expanding the monetary base reduces the value of the domestic currency unit relative to foreign currencies by raising prices in terms of the domestic currency relative to prices in terms of foreign currencies. There is no beggar-thy-neighbor effect from monetary expansion of this sort. And even if exchange-rate depreciation were achieved by direct intervention in the foreign-exchange markets, the beggar-thy-neighbor effect would be transitory as prices in terms of domestic and foreign currencies would adjust to reflect the altered exchange rate. As I have explained in a number of previous posts on currency manipulation (e.g., here, here, and here) relying on Max Corden's contributions of 30 years ago on the concept of exchange-rate protection, a "beggar-thy-neighbor" effect is achieved only if there is simultaneous intervention in foreign-exchange markets to reduce the exchange rate of the domestic currency combined with offsetting open-market sales to contract – not expand – the monetary base (or, alternatively, increased reserve requirements to increase the domestic demand to hold the monetary base). So the allegation that quantitative easing has any substantial "beggar-thy-nation" effect is totally without foundation in economic theory. It is just the ignorant repetition of absurd economic prejudices dressed up in high-minded sloganeering about "zero-sum games" and "beggar-thy-neighbor" effects.

          And while the real exchange rate of the Chinese yuan may have increased by 25% since 2010, the real exchange rate of the dollar over the same period in which the US was allegedly pursuing a beggar thy nation policy increased by about 12%. The appreciation of the dollar reflects the relative increase in the strength of the US economy over the past 5 years, precisely the opposite of a beggar-thy-neighbor strategy.

          And at an intuitive level, it is just absurd to think that China would have been better off if the US, out of a tender solicitude for the welfare of Chinese workers, had foregone monetary expansion, and allowed its domestic economy to stagnate totally. To whom would the Chinese have exported in that case?

          Reply Tuesday, September 01, 2015 at 08:09 AM

          Peter K. said...

          http://jwmason.org/slackwire/is-capital-being-reallocated-to-high-tech-industries/

          Is Capital Being Reallocated to High-Tech Industries?

          by J.W. Mason
          Posted on September 1, 2015

          Readers of this blog are familiar with the "short-termism" position: Because of the rise in shareholder power, the marginal use of funds for many corporations is no longer fixed investment, but increased payouts in the form of dividends and sharebuybacks. We're already seeing some backlash against this view; I expect we'll be seeing lots more.

          The claim on the other side is that increased payouts from established corporations are nothing to worry about, because they increase the funds available to newer firms and sectors. We are trying to explore the evidence on this empirically. In a previous post, I asked if the shareholder revolution had been followed by an increase in the share of smaller, newer firms. I concluded that it didn't look like it. Now, in this post and the following one, we'll look at things by industry.

          In that earlier post, I focused on publicly traded corporations. I know some people don't like this - new companies, after all, aren't going to be publicly traded. Of course in an ideal world we would not limit this kind of analysis to public traded firms. But for the moment, this is where the data is; by their nature, publicly traded corporations are much more transparent than other kinds of businesses, so for a lot of questions that's where you have to go. (Maybe one day I'll get funding to purchase access to firm-level financial data for nontraded firms; but even then I doubt it would be possible to do the sort of historical analysis I'm interested in.) Anyway, it seems unlikely that the behavior of privately held corporations is radically different from publicly traded one; I have a hard time imagining a set of institutions that reliably channel funds to smaller, newer firms but stop working entirely as soon as they are listed on a stock market. And I'm getting a bit impatient with people who seem to use the possibility that things might look totally different in the part of the economy that's hard to see, as an excuse for ignoring what's happening in the parts we do see.

          ....

          Reply Tuesday, September 01, 2015 at 08:11 AM

          Peter K. said in reply to Peter K....

          Part of the backlash Mason mentions and links to.

          http://www.newyorker.com/magazine/2015/08/24/the-short-termism-myth

          AUGUST 24, 2015 ISSUE

          The Short-Termism Myth
          BY JAMES SUROWIECKI

          In recent years, it's become a commonplace that American companies are too obsessed with the short term. In the heyday of Bell Labs and Xerox PARC, the argument goes, corporations had long time horizons and invested heavily in the future. But now investors care only about quarterly earnings and short-term stock prices, so companies skimp on R. & D. and waste hundreds of billions propping up their stock with share buybacks. This "tyranny of accountants" has damaged both the long-term prospects of companies and the U.S. economy as a whole.

          The latest public figure to embrace this diagnosis is Hillary Clinton. In a speech a couple of weeks ago, she unveiled a solution: changing the capital-gains tax in order to encourage investors to hold stocks longer. Right now, there are only two capital-gains categories: anything held for less than a year is short-term; anything longer is long-term. Clinton's plan, which would apply only to investors in the highest tax bracket, would expand the definition of short-term to include any investment held for less than two years, and it would create a sliding scale of rates. For every extra year (up to six) that you keep a stock, you pay a lower rate.


          The political appeal of the plan is clear. It targets wealthy investors, is friendly to executives, and is aimed at getting companies to spend more money. Unfortunately, it almost certainly won't work. The simplest reason for this is that the plan would affect only a small slice of the market. Len Burman, a tax expert at the Urban Institute, told me, "The plan's unlikely to have a major impact on stock prices, since most of the money in the market is controlled by institutions that don't pay capital-gains taxes, like endowments and pension funds." Burman also made the point that pushing people to hold stocks they would rather sell is hardly conducive to productive investment. "Even if short-termism is the problem, locking people into unprofitable transactions for long periods of time doesn't really seem like a great solution," he said.

          Aside from these practical problems, the plan rests on two common but ultimately questionable assumptions. The first is that corporate decision-makers care only about the short term. The second is that it's the stock market that makes them think this way. These assumptions are widely shared and long-standing, in both business and academe. A famous report from the Council on Competitiveness in the early nineties concluded that, compared with Germany and Japan, the U.S. was greatly underinvesting in the future. In 2005, the C.E.O. of Xerox, Anne Mulcahy, described the pressure from Wall Street for short-term profits as "a huge problem," and, in a survey of executives that same year, more than half said they would delay valuable new projects in order to boost short-term earnings.

          That sounds pretty bad. Yet when you actually look at the numbers the story gets more complicated. There is reason to think that some companies are investing too little in the future. As a whole, though, corporate spending on R. & D. has risen steadily over the years, and has stayed relatively constant as a share of G.D.P. and as a share of sales. This year, R. & D. spending is accelerating at its fastest pace in fifty years and is at an all-time high as a percentage of G.D.P. Furthermore, U.S. companies don't spend notably less on R. & D. than their international competitors. Similarly with investors: their alleged obsession with short-term earnings is hard to see in the data. Several studies in the nineties found that companies announcing major R. & D. investments were rewarded by the markets, not punished, and that companies with more institutional investors (who typically have shorter time horizons) spent more on R. & D., not less. A 2011 Deutsche Bank study of more than a thousand companies found that those which spent significantly more on R. & D. than their competitors were more highly valued by investors. And a 2014 study of companies that cut R. & D. spending in order to meet short-term earnings goals found that their stocks underperformed after earnings had been announced-hardly what you'd expect if the market cared only about the short term.

          Of course, there's no shortage of investors who are myopic. But the market, for the most part, isn't. That's why companies like Amazon and Tesla and Netflix, whose profits in the present have typically been a tiny fraction of their market caps, have been able to command colossal valuations. It's why there's a steady flow of I.P.O.s for companies with small revenues and nonexistent earnings. And it's why the biotech industry is now valued at more than a trillion dollars, even though many of the firms have yet to bring a single drug to market. None of these things are what you'd expect from a market dominated by short-term considerations.


          To the extent that companies are underinvesting in the future, the blame lies not with investors but with executives. The pay of many C.E.O.s is tied to factors like short-term earnings, rather than to longer-term metrics, which naturally fosters myopia. That 2014 study of companies that cut R. & D. spending found that the executives responsible saw their pay rise sharply, even though the stock didn't. If Clinton really wants to deal with short-termism, she'd be better off targeting the way executive compensation works, instead of the way capital gains are taxed. Ultimately, the solution to short-termism isn't on Wall Street. It's in the executive suite.

          Reply Tuesday, September 01, 2015 at 08:12 AM

          Peter K. said...

          http://www.avclub.com/article/stephen-colberts-second-week-guests-includes-berni-224697

          Bernie Sanders will be on Colbert's show in the second week.

          What are Sanders's views on monetary policy? He should have attended the Fed Up counter conference. Just as he should have attended black lives matter protests.

          If his views on monetary policy are like Kervick's I'll be voting for Hillary.

          Reply Tuesday, September 01, 2015 at 08:29 AM

          Peter K. said in reply to Peter K....

          Corbyn has some sophisticated, cutting edge ideas about macro policy. Here's Richard Murphy, not to be confused with the Austrian Robert Murphy.

          http://www.taxresearch.org.uk/Blog/2015/08/30/corbynomics-four-weeks-on/

          Corbynomics Four Weeks On

          ....

          So, what of the most contentious one, People's Quantitative Easing? Let's break this down. For ease I will use The Economist again, but will refer to the many others who have made similar points.

          First, the debate on investment has been welcomed, from the Economist, to the FT, to the Guardian and in the blogosphere: indeed, one of the criticisms is I have not made it strongly enough. As the Economist says:

          "As a percentage of GDP, Britain's government investment is the seventh-lowest of 26 countries tracked by Eurostat (though it is higher than in some big economies, like Germany) and lower now than during the financial crisis."

          The first success of this policy has been to put this issue back into debate.

          Second, the idea of a National Investment Bank has been pretty widely welcomed. The Economist said:

          "To increase investment he wants to set up a "national investment bank", which would, under government direction, spend on roads, houses and green energy. Nothing wrong with that."

          Many agreed.

          Third, the argument on Bank of England independence has been shown to be a red-herring. All QE has been Treasury approved: the idea that the BoE had operational control of this policy cannot be supported by any evidence.

          Fourth, it has been agreed, by Chris Giles in the FT and Larry Elliott in the Guardian for example, that PQE would have made sense in 2012 when stimulus was needed. In other words, PQE could have directed funds to the real economy more effectively then than actually happened at that time. Their argument is that PQE is, however, no longer relevant because we were now growing and they assume that will continue to be the case. Technically, the case was won at that point: the argument that PQE might work was over when it was conceded it was all down to timing.

          Fifth, the argument that it is not legal has lost all head wind: it's been effectively authorised in the UK and my design is Article 123 of the EU compliant. I have made clear I would expect some of the bond sales from the NIB, at least, to be held by the public, especially by pension saving institutions.

          Sixth, some technical arguments on cost have been resolved: it is agreed that PQE would create new central bank reserves on which it has been conventional to pay bank rate interest, but as Adair Turner ha argued, that is just convention: there is no need to do so. Funding via PQE will then be cheaper than bond funding of the same investment and this matters when a significant part of UK gilts are owned overseas.

          Seventh, the inflation argument got silly. The Telegraph turned up with the Zimbabwe argument, on cue. The fact that PQE is either clearly intended to stop if there is a risk of inflation because full employment is achieved, or would be countered (in that case only) by tax was not noticed by them. That's just indication of the poverty of their thinking. There is no serious argument on this point: PQE is another tool in the armoury to create inflation when we do not have it, and need it.

          Eighth, along came China. A week after I told the FT that another recession was likely and tools to deal with it would be needed China tried to deliver one. Now, of course, we have no clue what will happen as yet on that front, but markets are down and will stay down in my view, whilst people are very worried about what will happen if the Fed and BoE are daft enough to raise rates. Whether or not they do the risk of long term export of both recession and deflation from China itself via the emerging markets looks very real indeed. In other words, the need for a new fiscal tool when all monetary options have now failed became very starkly apparent and the prescient adoption of PQE by Jeremy Corbyn began to look like a good move: even the Telegraph seemed to note that.

          Ninth, Mark Carney admitted monetary policy is near enough dead yesterday. He has said real interest rates of more than 1% (that means 1% over inflation) look unlikely for a long time to come. Thirty years ago real rates could be vastly higher: they have fallen 4.5% in real terms over that period, he says. The impact is significant. He is effectively saying that the room to manage the economy using interest rates has largely disappeared. With QE also largely discredited for creating asset price hikes, fiscal policy is now the only game in town. PQE is fiscal policy, but of course not the only fiscal policy. That is why it may well be important. What else is anyone going to use when the next crisis comes when no one else has suggested anything new: they just declare the cupboard bare?

          Tenth, discussion of modern monetary theory has increased as a result, and that has clearly upset those dedicated to bond financing and / or central bank control of monetary policy. This is not an academic debate: it is about whether or not unelected people and bond markets control the choices governments make. PQE is not just a technical issue: it is about making clear who is in control, and I am emphatic it must be politicians accountable to parliament who are. PQE is intended to achieve that goal. No wonder that this has become a key point of contention. This is not about economics at all, per se: it is about the politics of power and in whose interests the economy is run. Difference here is not an issue of right or wrong: it is about belief. Many have not spotted this: I make it explicit.

          And last, not everyone agrees on this issue. But haven't you heard the one about asking two economists for an opinion and you will get three answers?

          So, to summarise on PQE I suggest we've got somewhere near the following position:

          1) Austerity can be opposed and PQE has fuelled that debate.

          2) Investment is widely acknowledged to be needed. PQE delivers it.

          3) A National Investment Bank is needed: PQE can help fund it

          4) Private investors should not be excluded from these ideas: my suggestions on linking the NIB to pension saving as well as PQE should ensure that is possible. It also means the legality question goes away.

          5) Questions of Bank of England independence have been raised but those doing so are going to have a much tougher time defending their case in future

          6) Whether PQE is a policy only for recession is to be resolved: I certainly think it may have more use in that scenario but stress I do not think the state fills in the gaps left by the private sector. Sometimes it has to meet need and the curtail the private sector at the same time if social priorities are to be met. PQE and higher taxes can achieve that goal simultaneously. Those making the timing argument ignore this altogether and that is their mistake in my opinion.

          7) The cost issue remains out there, although I am not sure why.

          8) The bond preference issue is interesting, but is most often (but not always) used by those who have opposed their use for deficit funding, and so is in too many cases disingenuous. It also ignores the cost issue and the leakage out of the UK economy whilst still supporting the view that we are constrained by bond markets. We are not, and PQE indicates that fact. I fully admit that part of PQE is about changing narratives and power relationships and think that important.

          I stress: I hope it is clear that I am listening and I do note the points made. But I also think PQE is still, very firmly, on the agenda after all that. It will change (it has already in some ways) but I can't see it going away.

          No doubt omissions will be pointed out. But please keep to the arguments: I am bored by the rest.

          Reply Tuesday, September 01, 2015 at 08:38 AM

          im1dc said...

          US ECONOMIC INDICATORS - 1h ago

          "US construction spending rises 0.7% in July, reaches highest level in 7 years - @USATODAYmoney"

          Reply Tuesday, September 01, 2015 at 08:31 AM

          im1dc said...

          FORD MOTOR COMPANY - 1h ago

          "Ford senior economist Yong Yang says Chinese economic slowdown's effect on US is 'likely modest' - @NathanBomey"

          see original on twitter.com

          Reply Tuesday, September 01, 2015 at 08:32 AM

          pgl said in reply to im1dc...

          Ford has never been able to sell their cars to the Chinese before. Why start now?

          Reply Tuesday, September 01, 2015 at 11:56 AM

          im1dc said...

          US ECONOMIC INDICATORS - 1h ago

          "Dow Jones average sinks 300* points in early trading following weak China manufacturing data - @AP"

          *323 points as I type this

          Reply Tuesday, September 01, 2015 at 08:34 AM

          im1dc said in reply to im1dc...

          I don't think the China Data had anything much to do with this mornings weakness. It is more probable that this weekends bullish statements by FedRes member Stanley Fischer and other Interest Rate Hawks that put the notion of a September interest rate hike in play again caused market bulls to sell instead of buy in an effort to jiggle their portfolios with more cash and less exposure to volatile equities in a raising interest rate environment.

          That's just me thinking out loud.

          Reply Tuesday, September 01, 2015 at 08:39 AM

          pgl said in reply to im1dc...

          Yep - Stanley Fischer took some chocolate coins from JohnH, ate them, and then made JohnH happy by talking about higher interest rates. Stock values down - JohnH applauds, real GDP down - JohnH applauds. Inflation may fall - JohnH's 80 year old girl friend is getting all happy.

          Reply Tuesday, September 01, 2015 at 11:58 AM

          im1dc said...

          A major trading partner of the US is and will be buying less from us for awhile

          I do not understand the FedRes rush to raise Interest Rates under weaker global economic conditions given that the USA is doing well but obviously has limited upside until a global economic drivers return.

          CANADA - 3h ago

          "Canada slumps into technical recession after 2nd consecutive quarterly contraction of GDP - @CBCAlerts"

          Reply Tuesday, September 01, 2015 at 08:44 AM

          pgl said in reply to im1dc...

          Canada does buy more from us than China. This is worrisome.

          Reply Tuesday, September 01, 2015 at 11:59 AM

          im1dc said...

          Update re EL NIŃO

          Growing up in SF Bay Area EL NIŃO was a friendly force of nature. Will have to wait and see if that friendly force has returned or not.

          EL NIŃO - 3h ago

          "El Nińo weather conditions to strengthen before the end of 2015, UN weather agency says - @Reuters"

          Reply Tuesday, September 01, 2015 at 08:47 AM

          pgl said in reply to im1dc...

          Let it rain!!!

          Reply Tuesday, September 01, 2015 at 11:59 AM

          im1dc said...

          US Construction up, car sales not so much

          So the pendulum swings to neutral?

          HONDA - 2m ago

          "Honda US sales down 6.9% in August; Honda Division down 7.5%, Acura down 1-1% - @Automotive_News"

          Reply Tuesday, September 01, 2015 at 08:59 AM

          im1dc said in reply to im1dc...

          US auto sales top expectations in August - expect this to be to due fleet sales not individual sales as with Honda

          AUTO INDUSTRY - 31m ago

          "US auto sales top expectations in August; Fiat Chrysler sales rise 1.7%, Ford 5.4%, General Motors slips 0.7% - @forbes"

          read more on forbes.com

          Reply Tuesday, September 01, 2015 at 09:49 AM

          im1dc said...

          Everyone reading these emails will see Hillary Clinton and her team as the best of the best in DEM policy, realpolitik, and analysis, and therefore the best person for President in 2016.

          The import of Tumulty's article is that it fully comports with and lends substantial real-time inner circle proofs to Ron Suskind's "Confidence Men" take of the first term of the Obama presidency. I hope you all read it when I recommended it earlier this year.

          Hillary Clinton and her team have been and are far better analysts, strategists, and Policy makers than President Obama and his team were through 2011.

          Read the emails for yourself:

          http://www.washingtonpost.com/news/post-politics/wp/2015/09/01/within-clintons-circle-resentments-against-obama-persisted-for-years/

          "Within Clinton's circle, resentments against Obama persisted for years"

          By Karen Tumulty...September 1, 2015...10:00 AM

          "Within Hillary Clinton's inner circle, resentment over her defeat by President Obama in the bitter 2008 Democratic primary festered well into his presidency, as evidenced by a string of e-mails from one of her most frequent correspondents, who often passed along unflattering reports about Obama.

          In the latest trove of her emails, released late Monday night, Clinton confidant Sidney Blumenthal frequently makes subtle and not-so-subtle digs..."

          Reply Tuesday, September 01, 2015 at 09:32 AM

          Fred C. Dobbs said...

          Between Iraq and a Hawk Base
          http://nyti.ms/1JzngLJ
          NYT magazine - ROBERT DRAPER - SEPT. 1

          GOP presidential candidates struggle to craft a foreign
          policy that can please the gung-ho and win in 2016 -
          without overpromising military force.

          The first sign that the Republican Party's 17 presidential candidates might have trouble explaining what a conservative foreign policy should look like - beyond simply saying that it should not look like Barack Obama's - emerged on May 10. That's when the Fox News host Megyn Kelly asked Jeb Bush a rather predictable question about the Iraq war: ''Knowing what we know now, would you have authorized the invasion?''

          Bush said yes. Shortly after that, he said that he had misheard the question; later, that the question was hypothetical and thus unworthy of an answer; and finally, upon further review, that he in fact would not have authorized the invasion. The jittery about-face suggested that Bush had spent little, if any, time digesting the lessons of the war that defines his older brother's presidency.

          The shadow that George W. Bush's foreign policy casts over Jeb Bush's quest for the White House is particularly prominent. But it also looms over the entire G.O.P. field, reminding the candidates that though Republican voters reject what they see as Obama's timid foreign policy, the public has only so much appetite for bellicosity after more than a decade spent entangled in the Middle East. At some point, even the most conservative of voters will demand an answer to the logical corollary of Megyn Kelly's question: How does a president project American strength while avoiding another Iraq?

          Among the many advisers recruited to help Jeb Bush answer that question is Richard Fontaine, the president of the Center for a New American Security, a policy group based in Washington. Fontaine was a senior foreign-­policy adviser for Senator John McCain's 2008 presidential campaign, where he first learned that winning over voters was a radically different task from those he navigated during his career in the Bush administration. ''Diplomacy is about minimizing differences,'' he told me. '' 'Pol Pot and the Pope - surely there's something they can agree on.' A political campaign is exactly the opposite. It's about taking a minor difference and blowing it up into something transcendent.''

          Watching Jeb Bush flub the Iraq question confirmed a theory about that war and its unheeded lessons that Fontaine had been nurturing for several months. In February, he co-wrote an essay in Politico Magazine arguing that Congress should not authorize Obama to use military force against ISIS until it had done the kind of due diligence that Congress utterly failed to do before authorizing Bush to invade Iraq in 2002. In response to the essay, Fontaine said, many of his peers acknowledged to him ''that there actually hasn't been a lot of thinking on this from the entire foreign-policy establishment other than the knee-jerk 'Well, we're never gonna do that again.' ''

          Fontaine, who is 40, Clark Kentish in appearance and wryly self-deprecating in conversation, has been doing quite a bit of thinking on the matter of Iraq. He worked in the State Department as well as the National Security Council during the first year of the Iraq war before signing on as McCain's foreign-policy aide in 2004. Over the next five years, he and McCain traveled to Iraq 10 times. His boss had been one of the loudest advocates of toppling Saddam Hussein and then one of the most candidly chagrined observers when the war effort began to crumble before his eyes. ''We'd been running this experiment from 2003 to the end of 2006 of trying to make political changes in Iraq and hoping this would positively influence the security,'' Fontaine recalled. ''It only got worse and worse. Things got to the point where there was no political or economic activity in the country, because the violence was so bad.''

          The troop surge in 2007 succeeded in stabilizing the country. By then, however, Americans were weary of military aggression. In 2008, they elected president a one-term U.S. senator who had consistently opposed the war in Iraq and vowed to end it so he could devote most of his attention to a foundering economy. Four years later, the electorate awarded Obama a second term, with the same priorities in mind. Exit polls showed that 60 percent of voters regarded the economy as the predominant issue in 2012, while a mere 4 percent cited foreign affairs as their chief voting issue.

          Three years later, this has changed - especially for Republican voters, who, according to several polls, now say national security rivals the economy as a foremost concern. Several factors explain this. While the economy has continued to improve, the Obama administration has watched with seeming helplessness as ISIS dominates swaths of Iraq and Syria while beheading American hostages; as Iran threatens to make good on its nuclear ambitions unless the United States agrees to lift sanctions; as Vladimir Putin reasserts Russian primacy by invading the Crimean Peninsula; and as China spreads its influence across Asia and Africa. These and other developments have revived concerns that the United States has become dangerously weaker under a Democratic president, one whose first secretary of state happens to be the apparent favorite for that party's presidential nomination.

          The swaggering rhetoric of Donald Trump, the current Republican front-runner, seems deftly calibrated to reflect the mood of a G.O.P. base spoiling for fights abroad. According to a Quinnipiac University poll in July, 72 percent of registered Iowa Republican voters (where the first contest for presidential delegates will be held early next year) favor sending American ground troops into Syria and Iraq to fight ISIS. In August, Quinnipiac found that 86 percent of all Republicans opposed the Iran nuclear deal. ...

          Reply Tuesday, September 01, 2015 at 09:40 AM

          Fred C. Dobbs said in reply to Fred C. Dobbs...

          Why the 2007 surge in Iraq actually failed http://www.bostonglobe.com/opinion/2014/11/17/why-surge-iraq-actually-failed-and-what-that-means-today/0NaI9JrbtSs1pAZvgzGtaL/story.html?event=event25 via @BostonGlobe
          Alex Kingsbury - November 17, 2014

          "We had it won, thanks to the surge. It was won." - John McCain, Sept. 11, 2014


          The goals of the Iraq surge were spelled out explicitly by the White House in Jan. 2007: Stop the raging sectarian bloodletting and reconcile Sunnis, Shiites, and Kurds in the government. "A successful strategy for Iraq goes beyond military operations," then-President George W. Bush said.

          In light of all that has happened since that announcement, it is jaw-dropping to still hear the surge described as a success. Yet the myth of its success is as alive as it is dangerous. It's a myth that prevents us from grappling with the realities of the last effort in Iraq, even as we embark on another.

          To believe in the myth of the surge is to absolve Iraqis of their responsibility to resolve their differences. It gives the US government an unrealistic sense of its own capabilities. And it ignores the roots of the conflict now stretching from Damascus to Baghdad. ...

          For Americans, the myth of the victorious surge is so seductive because it perpetuates an illusion of control. It frames the Iraq War as something other than a geostrategic blunder and remembers our effort as something more than a stalemate. What's more, it reinforces the notion that it's possible to influence events around the world, if only military force is deployed properly. It's a myth that makes victory in the current Iraq mission appear achievable.

          Dispelling the myth of the successful surge begins by measuring it against its own metrics for success: violence and reconciliation.

          There is far too little written on the Iraqi perspective, but their evaluation of the surge is illustrative: In 2008, only 4 percent of Iraqis said additional US forces were responsible for the decline in violence. They know their own country well.

          Violence in Iraq began to decline before the surge started. Civilian deaths peaked in July 2006, at more than 3,250 per month, a full six months before the surge policy was even announced. This was the result of many factors, including the completion of the ethnic cleansing of Baghdad's neighborhoods. Some 80 percent of the casualties in the Iraqi civil war pre-surge occurred within 30 miles of Baghdad. ...

          Reply Tuesday, September 01, 2015 at 10:46 AM

          ilsm said in reply to Fred C. Dobbs...

          The Iraq surge [like Vietnam versions] was as successful as US "victory" in Tet '68 and the next year Tet II.

          Neither made it so the Iraqis would be nice to each other.

          Bombing and trillions from poor kids and the elderly cannot make it so US boys can do it for them when they want ISIS.

          Reply Tuesday, September 01, 2015 at 05:07 PM

          anne said...

          http://techscience.org/a/2015081104/

          August 11, 2015

          Larger Issuers, Larger Premium Increases: Health insurance issuer competition post-ACA
          By Eugene Wang and Grace Gee

          Abstract

          The Patient Protection and Affordable Care Act (ACA) has substantially reformed the health insurance industry in the United States by establishing health insurance marketplaces, also called health exchanges, to facilitate the purchase of health insurance. The ACA has increased transparency in insurance pricing and in issuer pricing behavior. Using 2014 and 2015 Unified Rate Review (URR) data, this study examines changes in health insurance premiums made by individual health insurance issuers in 34 federally facilitated and state-partnership health insurance exchanges.

          Results summary

          Our study shows that the largest issuer in each marketplace had a 75% higher premium increase from 2014 to 2015 compared to other same-state issuers. On average, the largest issuers raised rates by 23.9%, while the other issuers only raised rates by 13.7%. Moreover, the largest issuers' premium increase affects a larger proportion of plans and do not seem justified from the standpoint of incurred claims-to-premium ratio. Projected Index Rate from the rate review process is used as a summary of an issuer's premiums across different plans and Projected Member Months as a proxy for on-exchange market share. Our findings suggest that even after the Affordable Care Act, the largest on-exchange issuers may be in a better position to practice anti-competitive pricing compared to their same-state counterparts.

          Reply Tuesday, September 01, 2015 at 09:43 AM

          im1dc said...

          ISIL will not like this nor will Turkey, Iran, Iraq, SA, Emirates, et. al., Islam Consersatives

          http://news.discovery.com/history/religion/fragments-of-worlds-oldest-koran-may-predate-muhammad-150901.htm

          "Fragments of World's Oldest Koran May Predate Muhammad"

          by FoxNews.com/Science...Sep 1, 2015...09:10 AM ET

          "British scholars have suggested that fragments of the world's oldest known Koran, which were discovered last month, may predate the accepted founding date of Islam by the Muslim prophet Muhammad.

          The Times of London reported that radiocarbon dating carried out by experts at the University of Oxford says the fragments were produced between the years 568 A.D. and 645 A.D. Muhammad is generally believed to have lived between 570 A.D. and 632 A.D. The man known to Muslims as The Prophet is thought to have founded Islam sometime after 610 A.D., with the first Muslim community established at Medina, in present-day Saudi Arabia, in 622 A.D.

          "This gives more ground to what have been peripheral views of the Koran's genesis, like that Muhammad and his early followers used a text that was already in existence and shaped it to fit their own political and theological agenda, rather than Muhammad receiving a revelation from heaven," Keith Small of Oxford's Bodleian Library told the Times.

          The two sheets of Islam's holy book were discovered in a library at the University of Birmingham in England, where they had been mistakenly bound in a Koran dating to the seventh century. They were part of a collection of 3,000 Middle Eastern texts gathered in Iraq in the 1920s.

          Muslims scholars have disputed the idea that the Birmingham Koran predates Muhammad, with Mustafa Shah of the University of London's School of Oriental and African Studies telling the Times: "If anything, the manuscript has consolidated traditional accounts of the Koran's origins."

          The first known formal text of the Koran was not assembled until 653 A.D. on the orders of Uthman, the third caliph, or leader of the Muslim community after Muhammad's death. Before that, however, fragments of the work had circulated through oral tradition, though parts of the work had also been written down on stones, leaves, parchment and bones. The fragments of the Birmingham Koran were written on either sheepskin or goatskin.

          Small cautioned that the carbon dating was only done on the parchment in the fragments, and not the actual ink, but added "If the dates apply to the parchment and the ink, and the dates across the entire range apply, then the Koran - or at least portions of it - predates Mohammed, and moves back the years that an Arabic literary culture is in place well into the 500s."

          Reply Tuesday, September 01, 2015 at 09:45 AM

          Fred C. Dobbs said in reply to im1dc...

          A Find in Britain: Quran Fragments Perhaps
          as Old as Islam http://nyti.ms/1VtMTns
          NYT - DAN BILEFSKY - JULY 22, 2015

          LONDON - The ancient manuscript, written on sheep or goat skin, sat for nearly a century at a university library, with scholars unaware of its significance.

          That is, until Alba Fedeli, a researcher at the University of Birmingham studying for her doctorate, became captivated by its calligraphy and noticed that two of its pages appeared misbound alongside pages of a similar Quranic manuscript from a later date.

          The scripts did not match. Prodded by her observations, the university sent the pages out for radiocarbon testing.

          On Wednesday, researchers at the University of Birmingham revealed the startling finding that the fragments appeared to be part of what could be the world's oldest copy of the Quran, and researchers say it may have been transcribed by a contemporary of the Prophet Muhammad. ...

          Birmingham Qur'an manuscript dated
          among the oldest in the world
          http://www.birmingham.ac.uk/news/latest/2015/07/quran-manuscript-22-07-15.aspx

          Reply Tuesday, September 01, 2015 at 10:03 AM

          im1dc said...

          A look at today's business climate. Doesn't seem to shout 'time to raise interest rates' to me.

          http://money.cnn.com/2015/09/01/investing/stocks-plunge-china/index.html?section=money_latest

          "Uh-oh! Dow falls 400 points on more China fears
          CNN" - ‎2 hours ago‎

          http://www.wsj.com/articles/china-boosts-efforts-to-keep-money-at-home-1441120882

          "China Boosts Efforts to Keep Money at Home"
          Wall Street Journal - ‎22 minutes ago‎

          http://www.bloomberg.com/news/articles/2015-09-01/dollar-tree-falls-after-sales-forecast-lags-analysts-estimates

          "Dollar Tree Shares Fall as Sales Forecast Trails Estimates" Bloomberg - ‎1 hour ago‎

          and

          http://www.wsj.com/articles/ism-manufacturing-index-falls-to-51-1-in-august-1441116755

          "ISM Manufacturing Index Falls in August"
          Wall Street Journal - ‎51 minutes ago‎

          Reply Tuesday, September 01, 2015 at 09:54 AM

          Fred C. Dobbs said...

          Specialists see no criminal
          trouble for Clinton in e-mail flap http://www.bostonglobe.com/news/nation/2015/08/31/legal-specialists-see-criminal-trouble-for-clinton-thus-far/aSX8r2PtvCdCz26sDVpqaK/story.html?event=event25 via @BostonGlobe
          Ken Dilanian - AP - September 1, 2015

          WASHINGTON - Specialists in government secrecy law see almost no possibility of criminal action against Hillary Rodham Clinton or her top aides in connection with now-classified information sent over unsecure e-mail while she was secretary of state, based on the public evidence thus far.

          Some Republicans, including leading GOP presidential candidate Donald Trump, have called Clinton's actions criminal and compared her situation to that of David Petraeus, the former CIA director who was prosecuted after giving top secret information to his paramour. Others have cited the case of another past CIA chief, John Deutch, who took highly classified material home.

          But in both of those cases, no one disputed that the information was highly classified and in many cases top secret. Petraeus pleaded guilty to a misdemeanor; Deutch was pardoned by President Bill Clinton.

          By contrast, there is no evidence of e-mails stored in Hillary Clinton's private server bearing classified markings. State Department officials say they don't believe that e-mails she sent or received included material classified at that time. And even if other government officials dispute that assertion, it is extremely difficult to prove anyone knowingly mishandled secrets.

          ''How can you be on notice if there are no markings?'' said Leslie McAdoo, a lawyer who frequently handles security-clearance cases.

          The State Department posted 4,368 documents totaling 7,121 pages online Monday night.

          Parts of several e-mails, however, have subsequently been declared classified.

          On Monday, the State Department released a batch of about 7,000 e-mails - the largest such release to date. Those include about 150 that have been partially or entirely censored because the State Department determined they contain classified material.

          Department officials said the redacted information was classified in preparation for the public release of the e-mails and not identified as classified at the time Clinton sent or received the messages. All the censored material in the latest group of e-mails is classified at the ''confidential'' level, not at higher ''top secret'' or compartmentalized levels, they said.

          Still, the increasing amounts of blacked-out information from Clinton's e-mail history as secretary of state will surely prompt additional questions about her handling of government secrets while in office and that of her most trusted advisers.

          The Democratic presidential front-runner now says her use of a home e-mail server for government business was a mistake, and government inspectors have pointed to exchanges that never should have been sent via unsecured channels.

          Reply Tuesday, September 01, 2015 at 09:56 AM

          im1dc said in reply to Fred C. Dobbs...

          NPR this morning said it more simply this way, Hillary Clinton's emails were not Classified until well AFTER she read them, not when she read them, thus there is no there there for Boehner and the Boys of the Incompetent GOPster Hater Inner Circle to use against her.

          Nor for FOXNews, Rush Limbaugh, Mark Levine, Savage et. al., although that will not stop them all from claiming otherwise or for Republican Congressmen blaming her, calling her a traitor, and unfit for the presidency.

          The Republican Party's Propaganda Spin machine does not let facts stand in the way of their rhetorical smears, hate speech, or nonsensical idiotic diatribes.

          Reply Tuesday, September 01, 2015 at 11:03 AM

          Fred C. Dobbs said in reply to im1dc...

          So you would say it's ok for the
          most senior State Dept official
          to ignore rules that require e-mail
          activity to be conducted on servers
          under government control.

          Ok, fair enough. Such bad judgment
          should not preclude being president.

          Or maybe it's mandatory to hold the office.

          Reply Tuesday, September 01, 2015 at 12:28 PM

          im1dc said in reply to Fred C. Dobbs...

          Perhaps bad official administrative judgment for junior officials and those not running for president one day, however no rules were broken and no classified emails sent or received.

          If Hillary Clinton had departed from prior SoS behavior her own State Dept would have told her to use the .gov server or the White House, which did know about but chose to ignore her use of her own email account, would have enforced the administrative rule to use .gov.

          But FAR more importantly as SoS she knew her emails would become political football if she were to run for president so she kept them away from the prying eyes of her foes.

          I think her decision to use her own email server and keep absolute control over her personal correspondence, so prying eyes of foes could not see, was both politically smart and shows elite Presidential temperament, i.e., 'badges, I don't need no stinkin' badges'.

          Reply Tuesday, September 01, 2015 at 01:12 PM

          ilsm said in reply to Fred C. Dobbs...

          Fred I was a US gumint guy for years (overlapped Hil's time at State) never heard of any rule about not using my home computer.......

          Bad judgment seems to be a required trait of thuggie presidents since Nixon.

          Wonder where the e-mails of Iran Contra went?

          Oh yeah North was a Marine not techie.

          Reply Tuesday, September 01, 2015 at 05:12 PM

          Fred C. Dobbs said in reply to im1dc...

          Clinton private email violated
          'clear-cut' State Dept. rules - March 2015
          http://www.politico.com/story/2015/03/state-department-email-rule-hillary-clinton-115804

          The State Department has had a policy in place since 2005 to warn officials against routine use of personal email accounts for government work, a regulation in force during Hillary Clinton's tenure as secretary of state that appears to be at odds with her reliance on a private email for agency business, POLITICO has learned.

          The policy, detailed in a manual for agency employees, adds clarity to an issue at the center of a growing controversy over Clinton's reliance on a private email account. Aides to Clinton, as well as State Department officials, have suggested that she did nothing inappropriate because of fuzzy guidelines and lack of specific rules on when and how official documents had to be preserved during her years as secretary. ...

          http://www.state.gov/documents/organization/88404.pdf

          Reply Tuesday, September 01, 2015 at 07:32 PM

          anne said...

          http://www.cepr.net/blogs/beat-the-press/washington-post-ed-board-federal-reserve-board-cultists

          September 1, 2015

          Washington Post Editorial Board: Federal Reserve Board Cultists

          It's always dangerous when followers of an insular cult gain positions of power. Unfortunately, that appears to be the case with the Washington Post editorial board * and the Federal Reserve Board Cultists.

          The Federal Reserve Board Cultists adhere to a bizarre belief that the 19 members (12 voting) of the Federal Reserve Board's Open Market Committee (FOMC) live in a rarified space where the narrow economic concerns of specific interest groups don't impinge on their thinking. According to the cultists, when the Fed sits down to decide on its interest rate policy they are acting solely for the good of the country.

          Those of us who live in the reality-based community know that the Fed is hugely responsive to the interests of the financial sector. There are many reasons for this. First, the twelve Fed district banks are largely controlled by the banks within the district, which directly appoint one third of the bank's directors. The presidents of these banks occupy 12 of the 19 seats (5 of the voting seats) on the FOMC.

          The seven governors of the Fed are appointed by the president and approved by Congress, but even this group often has extensive ties to the financial industry. For example, Stanley Fischer, the current vice-chair, was formerly a vice-chair of Citigroup.

          The third main reason why the Fed tends to be overly concerned with the interests of the financial sector is that its professional staffers are often looking to get jobs in the sector. While jobs at the Fed are well-paying, staffers can often earn salaries that are two or three times higher if they take their expertise to a bank or other financial firm. As economic theory predicts, this incentive structure pushes them toward viewpoints that often coincide with those of the industry.

          The net effect of these biases is that the Fed tends to be far more concerned about the inflation part of its mandate rather than the high employment part, even though under the law the two goals symmetric. If the Fed tightens too much and prevents hundreds of thousands or even millions of workers from getting jobs, most of the top staff would not be terribly troubled and it is unlikely anyone would suffer in their careers. On the other hand, if they allowed the inflation rate to rise to 3.0 percent, it is likely that many top officials at the Fed would be very troubled.

          There is very little basis in economic research for maintaining that a stable 3.0 inflation rate is more costly to the country that having 1 million people being needlessly unemployed, but the view coming from the Fed is that the former is much worse than the latter. The Fed cultists at the Washington Post and elsewhere want us to just accept that this is the way the world works. It's not surprising that some folks don't quite see it that way.

          * https://www.washingtonpost.com/opinions/the-federal-reserves-independence-is-a-strength/2015/08/31/511a3932-5010-11e5-933e-7d06c647a395_story.html

          -- Dean Baker

          Reply Tuesday, September 01, 2015 at 10:38 AM

          im1dc said in reply to anne...

          "Federal Reserve Cultists"

          Loved every word of Dean Baker's glimpse behind the curtain at the Federal Reserve.

          He is 100% SPOT ON.

          Reply Tuesday, September 01, 2015 at 10:54 AM

          im1dc said...

          NYMEX Crude Oil off 7%

          http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic

          "Crude Oil - Electronic (NYMEX) Oct 2015"

          NMN: CLV5

          $45.67...Change -3.53... -7.18%

          Market still open

          Reply Tuesday, September 01, 2015 at 10:50 AM

          im1dc said in reply to im1dc...

          @ 2:36p

          "Oct. oil drops $3.79, or 7.7%, to settle at $45.41/bbl on Nymex"

          Lost most of its gain from Monday.

          Reply Tuesday, September 01, 2015 at 11:39 AM

          im1dc said...

          Dow Indu close 16,058 -470 ... 2.84%

          The squirrels were putting up nuts for winter's storms.

          Reply Tuesday, September 01, 2015 at 01:16 PM

          Fred C. Dobbs said in reply to im1dc...

          (Thank you sir, may I have another.)

          Kevin Bacon - Animal House
          https://youtu.be/qdFLPn30dvQ

          'The stock market's losses in August may be foreshadowing more declines in September, if history is any guide. ...

          In the 11 instances since 1945 when the S&P 500 fell more than 5% in August, September returns were negative 80% of the time, averaging a decline of 4%, said Sam Stovall, U.S. equity strategist at S&P Capital IQ.' ...

          History points to more pain on Wall Street
          in September http://on.mktw.net/1PH9N61

          Reply Tuesday, September 01, 2015 at 03:47 PM

          im1dc said...

          How to capture pervasive scientific fraud in the Health Care Industry in an econ model?

          http://www.marketwatch.com/story/amgen-finds-data-falsified-in-obesity-diabetes-study-featuring-grizzly-bears-2015-09-01-121032242

          "Amgen finds data falsified in obesity-diabetes study featuring grizzly bears"

          By Jonathan D. Rockoff...Sept 1, 2015...12:23 p.m. ET

          "A scientific paper that had captured widespread attention because its subjects were massive grizzly bears was retracted on Tuesday after one of the authors was said to have manipulated some of the data.

          The paper attracted news coverage around the world after its publication in August 2014 in the journal Cell Metabolism, which put on its cover an image of a grizzly bear clutching a fish between its jaws.

          The paper discussed how grizzly bears' metabolisms adjust to hibernation, and the key role of a certain fat protein, which offered a clue to a new kind of treatment for diabetes. Biotech Amgen Inc. was working on the bear research to get a better grip on the biology behind diseases like obesity and diabetes.

          But Amgen AMGN, +0.71% said it discovered late last year, in reviewing the computer files of one of its researchers, that some experimental data cited in the Cell Metabolism paper had been changed in a way the company said made some of the results look stronger.

          Amgen and its collaborators at Washington State University and the University of Idaho said they quickly asked Cell Metabolism for a retraction. The journal then reviewed the matter, resulting in the paper's retraction."

          Reply Tuesday, September 01, 2015 at 01:25 PM

          im1dc said...

          Boston Fed agrees with me, do not raise in September

          http://www.wsj.com/articles/feds-rosengren-global-economic-weakness-argues-for-rate-rise-caution-1441127405

          "Fed's Rosengren: Global Economic Weakness Argues for Rate Rise Caution"

          'Boston Fed president says global weakness makes reaching 2% inflation more difficult'

          By Michael S. Derby...Sept. 1, 2015...2:45 p.m. ET

          "NEW YORK-Federal Reserve Bank of Boston President Eric Rosengren said Tuesday that global turmoil argues in favor of being cautious about starting the process to normalize monetary policy, in a speech that emphasized central-bank interest-rate increases likely would come at a slow pace.

          "Indications of a much weaker global economy would at least increase the uncertainty surrounding policy makers' economic growth and inflation forecasts," and that could affect how officials should proceed in boosting the Fed's target off its current near zero levels, Mr. Rosengren said in a speech given to an economists' group here..."

          Reply Tuesday, September 01, 2015 at 01:35 PM

          im1dc said...

          It is official, Mickey D's is rolling out breakfast all day1

          http://www.wsj.com/articles/mcdonalds-set-to-offer-all-day-breakfast-1441134058

          "McDonald's Set to Offer All-Day Breakfast"

          'National rollout marks company's biggest initiative in 6 years, will require menu changes'

          By Julie Jargon...Sept. 1, 2015...3:00 p.m. ET

          "McDonald's Corp. is embarking on its biggest operational change in years as it tries to juice flagging sales, with plans to offer breakfast items all-day at its more than 14,300 U.S. restaurants starting Oct. 6.

          The move to all-day breakfast, which McDonald's has been testing since March, was approved in a vote by franchisees last week and affirmed on Tuesday by a franchisee leadership council, the company said..."

          Reply Tuesday, September 01, 2015 at 01:37 PM

          ilsm said in reply to im1dc...

          Lovin' it...... (not me my cardiologist!)

          Reply Tuesday, September 01, 2015 at 05:14 PM

          im1dc said...

          Well it isn't secret anymore WaPo...what the hell is wrong with the MSM?

          Fight against Islamic State militants - 1h ago

          "CIA, US special operations forces launch secret campaign to hunt terrorism suspects in Syria - @washingtonpost"

          Read more on washingtonpost.com

          Reply Tuesday, September 01, 2015 at 02:54 PM

          im1dc said in reply to im1dc...

          "U.S. Makes Secret ISIS Drone Program"

          Turns out to be a Drone program. Drone programs are all secret until they kill someone.

          Reply Tuesday, September 01, 2015 at 03:09 PM

          ilsm said in reply to im1dc...

          Sending US spooks to hunt former Protege's.

          Reply Tuesday, September 01, 2015 at 05:16 PM

          im1dc said...

          Due to crude oil's low prices jobs go missing in the USA, 500 in Houston, TX all good paying jobs in the oil sector

          http://www.fox26houston.com/home/14925423-story

          "By: Carolina Sanchez...Sep 01 2015...02:40PM CDT

          "ConocoPhillips announced on Tuesday that it expects to cut 10% of its global workforce.

          The largest percentage of the layoffs will be in North America.

          Currently, the global company employs around 18,000 people.

          ConocoPhillips employs 3,753 workers in Houston. The expected reductions will be more than 500 of our Houston employees.

          In a statement the company said it took several steps to strengthen its position but ultimately decided workforce reductions were needed.

          Read part of the statement below:

          "We have taken several significant steps as a company to strengthen our position, including reducing our capital spending and future deepwater exploration program. However, the workforce reductions are necessary to become a stronger, more competitive company."

          Reply Tuesday, September 01, 2015 at 02:59 PM

          im1dc said...

          Original thinking or wishful thinking?

          http://www.thedailybeast.com/articles/2015/08/31/petraeus-use-al-qaeda-fighters-to-beat-isis.html

          "Petraeus: Use Al Qaeda Fighters to Beat ISIS"

          by Shane Harris & Nancy A. Youssef...08.31.15...9:00 PM ET

          'To take down the so-called Islamic State in Syria, the influential former head of the CIA wants to co-opt jihadists from America's arch foe.'

          "Members of al Qaeda's branch in Syria have a surprising advocate in the corridors of American power: retired Army general and former CIA Director David Petraeus.

          The former commander of U.S. forces in Iraq and Afghanistan has been quietly urging U.S. officials to consider using so-called moderate members of al Qaeda's Nusra Front to fight ISIS in Syria, four sources familiar with the conversations, including one person who spoke to Petraeus directly, told The Daily Beast..."

          Reply Tuesday, September 01, 2015 at 03:07 PM

          Fred C. Dobbs said in reply to im1dc...

          Could be he's looking for a
          job as a jihadist commander.

          Can the US Use al Qaeda Fighters to Defeat ISIS? David Petraeus Has a Plan http://www.thefiscaltimes.com/2015/09/01/Can-US-Use-al-Qaeda-Fighters-Defeat-ISIS-David-Petraeus-Has-Plan

          Reply Tuesday, September 01, 2015 at 05:04 PM

          ilsm said in reply to im1dc...

          A new surge from the guy who sold the last mistake.

          Like arming VC to fight NVA!

          Reply Tuesday, September 01, 2015 at 05:17 PM

          ilsm said in reply to ilsm...

          Hahhhh!, Haaaqaa!

          No regrets!

          US already doing this recruiting Sunnis to fight Sunnis ISIS.

          They have a few hundred 'recruits'.

          Obama already tried it to quiet Iraq down to get out: guns and money to Sunni tribes in Mosul, Tikrit and Fallujah. All of it ended up going to ISIS.

          I sold my war bonds in the 80's seeing how Reagan was tossing money out the door in cargo planes.

          No regrets there.

          Reply Tuesday, September 01, 2015 at 05:21 PM

          im1dc said in reply to im1dc...

          OK, it is a bad idea!

          Reply Tuesday, September 01, 2015 at 06:52 PM

          anne said...

          https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

          September 1, 2015

          The 3 month Treasury interest rate is at 0.03%, the 2 year Treasury rate is 0.70%, the 5 year rate is 1.48%, while the 10 year is 2.17%.

          The Vanguard Aa rated short-term investment grade bond fund, with a maturity of 3.1 years and a duration of 2.6 years, has a yield of 1.83%. The Vanguard Aa rated intermediate-term investment grade bond fund, with a maturity of 6.4 years and a duration of 5.5 years, is yielding 2.77%. The Vanguard Aa rated long-term investment grade bond fund, with a maturity of 22.3 years and a duration of 13.1 years, is yielding 4.09%. *

          The Vanguard Ba rated high yield corporate bond fund, with a maturity of 5.3 years and a duration of 4.3 years, is yielding 5.60%.

          The Vanguard unrated convertible corporate bond fund, with an indefinite maturity and a duration of 5.9 years, is yielding 1.79%.

          The Vanguard A rated high yield tax exempt bond fund, with a maturity of 16.2 years and a duration of 6.3 years, is yielding 2.87%.

          The Vanguard Aa rated intermediate-term tax exempt bond fund, with a maturity of 8.7 years and a duration of 4.9 years, is yielding 1.78%.

          The Vanguard Government National Mortgage Association bond fund, with a maturity of 6.5 years and a duration of 4.3 years, is yielding 2.22%.

          The Vanguard inflation protected Treasury bond fund, with a maturity of 8.5 years and a duration of 8.1 years, is yielding 0.27%.

          * Vanguard yields are after cost. Federal Funds rates are no more than 0.25%.

          Reply Tuesday, September 01, 2015 at 04:55 PM

          anne said...

          http://www.multpl.com/shiller-pe/

          Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2015

          (Standard and Poors Composite Stock Index)

          September 1, 2015 PE Ratio ( 24.27)

          Annual Mean ( 16.62)
          Annual Median ( 16.01)

          -- Robert Shiller

          Reply Tuesday, September 01, 2015 at 04:55 PM

          anne said...

          http://www.multpl.com/s-p-500-dividend-yield/

          Dividend Yield, 1881-2015

          (Standard and Poors Composite Stock Index)

          September 1, 2015 Div Yield ( 2.19)

          Annual Mean ( 4.40)
          Annual Median ( 4.34)

          -- Robert Shiller

          Reply Tuesday, September 01, 2015 at 04:55 PM

          im1dc said...

          5 months in a row

          Hong Kong - 41m ago

          "Hong Kong retail sales decline for 5th month amid fewer tourist arrivals and stock market turmoil - @SCMP_News"

          Read more on scmp.com

          [Sep 03, 2015] The Dangerous Separation of the American Upper Middle Class

          Sep 03, 2015 | Economist's View

          Richard Reeves at Brookings:

          The dangerous separation of the American upper middle class: The American upper middle class is separating, slowly but surely, from the rest of society. This separation is most obvious in terms of income-where the top fifth have been prospering while the majority lags behind. But the separation is not just economic. Gaps are growing on a whole range of dimensions, including family structure, education, lifestyle, and geography. Indeed, these dimensions of advantage appear to be clustering more tightly together, each thereby amplifying the effect of the other.

          In a new series of Social Mobility Memos, we will examine the state of the American upper middle class: its composition, degree of separation from the majority, and perpetuation over time and across generations. Some may wonder about the moral purpose of such an exercise. After all, what does it matter if those at the top are flourishing? To be sure, there is a danger here of indulging in the economics of envy. Whether the separation is a problem is a question on which sensible people can disagree. The first task, however, is to get a sense of what's going on.

          Skipping the extensive analysis covering:

          "We are the 80 percent!" Not quite the same ring as "We are the 99 percent!" ...

          Defining the upper middle class...

          Upper middle class incomes: on the up...

          "Where did you get your second degree?" The upper middle class and education...

          Families, marriage and social class...

          Voting and Attitudes...

          The conclusion is:

          Conclusion The writer and scholar Reihan Salam has developed some downbeat views about the upper middle class. Writing in Slate, he despairs that "though many of the upper-middle-class individuals I've come to know are good, decent people, I've come to the conclusion that upper-middle-class Americans threaten to destroy everything that is best in our country."

          Hyperbole, of course. But there is certainly cause for concern. Salam points to the successful rebellion against President Obama's plans to curb 529 college savings plans, which essentially amount to a tax giveaway to the upper middle class. While the politics of the reform were badly bungled, it was indeed a reminder that the American upper middle class knows how to take care of itself. Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

          In the long run, an even bigger threat might be posed by the perpetuation of upper middle class status over the generations. There is intergenerational 'stickiness' at the bottom of the income distribution; but there is at least as much at the other end, and some evidence that the U.S. shows particularly low rates of downward mobility from the top. When status becomes more strongly inherited, inequality hardens into stratification, open societies start to close up, and class distinctions sharpen.

          Mike Sparrow
          The upper middle class will also be the ones who will be thrown to the wolves if everything falls apart. Hubris is a bitch.
          Sandwichman said in reply to Mike Sparrow
          Lucky them if they're thrown to the wolves.

          DrDick said in reply to Mike Sparrow
          There is also this possibility (given the large number in the tech industry):

          "I really don't know what you do about the "taxes are theft" crowd, except possibly enter a gambling pool regarding just how long after their no-tax utopia comes true that their generally white, generally entitled, generally soft and pudgy asses are turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people's fondest desires. Sorry, guys. I know you all thought you were going to be one of those paying a nickel for your cigarettes in Galt Gulch. That'll be a fine last thought for you as the starving remnants of the society of takers closes in with their flensing tools." (John Scalzi, http://whatever.scalzi.com/2010/09/26/tax-frenzies-and-how-to-hose-them-down/)

          Sandwichman
          Factitious values and cost-shifting. It's all that's left, really. Everything else is just resource depletion and overpopulation. Malthus was wrong! Then.

          Sandwichman said in reply to Sandwichman
          But not to worry. Nothing a little QE can't fix. Every time I get a bump or scrape I just rub some QE on it and... all better!

          Larry
          My litmus test about the liberalness of (homeowning) liberals is whether they favor replacing the mortgage interest deduction with a tax credit of fixed size. Those deductions are a huge UMC subsidy.

          Then you could talk about the massive federal aid to universities, again helping the 30% who go but not the 70% who don't.

          Sandwichman said in reply to Larry
          Yep. The "Upper Middle Class" is nothing but cost-shifting and factitious values. Smoke and mirrors. Punch one some time. It's like they are made out of twinkies.

          anne said in reply to Sandwichman
          Rubbish, not even sarcasm.

          Dan Kervick
          Maybe this is why economics has gotten so boring lately. For the upper 20%, which includes most academic economists, there is a 100% recovery. So they have stopped talking about what is wrong with American society, and gone back to talking about methodological issues, and about that time someone called them a mean name in graduate school.

          JF
          President Obama might direct that all economic data become reported first on the data associated with population who fit within the 90% strata and announce that this is being done to remind people every day that the public's govt is supposed to govern with the bulk of society in mind.

          The President's budget submission to Congress will discuss matters in this way too; that is, how are the 90% affected. And as you know, I'd prefer that this grouping is done mostly on a Net Worth basis, not income, so we have a constant reminder to consider economics looking at both wealth and income - not just income for the coming year.

          Of course the data that includes the 1% and the other 9% will be available too.

          JF said in reply to JF
          And I'd like academia to mirror this too. All studies will focus on the 90% and discuss from this perspective.

          Let the Koch-backed researchers do the other studies.

          It really would be interesting to have all professors tell their students to only use data for the 90% in their discussion papers.

          [Sep 03, 2015] Uber Strategy of Monopolization Through Sidestepping Labor Law May Be Coming to an End

          "...Uber's "disruption" derives mostly from skirting around labor laws and getting a lot of VC money amid promises to gouge their workers and customers once they put the taxi industry out of business. So having to pay back wages and payroll taxes and reimbursements would kind of blow up the whole thing."
          .
          "...In other words, if you are driving around carrying passengers (or pizza) for money, you have NO COVERAGE under your auto policy."
          September 3, 2015 | naked capitalism

          The best thing I've seen about Uber recently comes from about a month ago. The Wall Street Journal wrote up a perfunctory story about the company's $50 billion valuation, and it included a very truthful passage. So truthful, in fact, that presumably some PR flak got on the horn and made them change it for the online edition. @NeilAnAlien captured it on Twitter.

          Online edition: "The company hopes to attract enough drivers and passengers that its business model becomes profitable."

          Print: "The company hopes to build enough loyalty that it can charge customers more and pay drivers less."

          At this point I should mention that attempted monopolization is a criminal action under the Sherman Antitrust Act.

          But Uber has far bigger problems than that. A California judge is threatening their fiendish "Let's arbitrage state and federal law and replace a monopoly with a different monopoly" plan:

          Northern District Court Judge Edward Chen determined that 160,000 current and former Uber drivers in the state could be treated as a class, which will allow a lawsuit against the company to go forward. At stake are questions about the future of jobs in America and potentially billions of dollars for one of the world's fastest-growing companies.

          The lawsuit alleges that those drivers were misclassified as independent contractors rather than employees, and that Uber has thus cheated them out of things that employees get under California law, like reimbursements for gas, worker's compensation and other benefits. The lawsuit also claims that the company failed to pass on tips to the workers.

          Whether they'll get gas reimbursed is up in the air, it'll get decided later.

          Class action lawsuits have become VERY difficult to certify at the federal level. I wrote about this a couple years ago in conjunction with the Bank of America HAMP modification case, where employees for their servicing arm charged in testimony that they were told to lie and given bonuses for putting people into foreclosure. That was tossed, because of minor differences in the individual homeowner cases. The Supreme Court set the precedent for this in Walmart v. Dukes, creating a more stringent class certification test, forcing the complainants to prove up-front whether the commonality of their claims was the most important factor in the case. Indeed this is what Uber's lawyers argued – that Uber drivers are so diverse in their dealings with the company that they can't possibly make up a single class. The goal is to divide and conquer, to force individuals to pursue litigation alone (and be outgunned by Uber's legal team).

          So if a federal judge is certifying the Uber class, in many ways they've cleared the biggest hurdle. Uber has already lost a misclassification case like this at the California Labor Commission, but because it was an individual driver suing and not a class, they only had to pay $4,000. But Judge Chen saw right through Uber's gambit, writing: "Uber argues that individual issues with respect to each driver's 'unique' relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a class wide determination." In other words, Uber insists that all their drivers are independent contractors, but when challenged on it, claim they're all little snowflakes, no two alike.

          Judge Chen did exclude drivers from the class who didn't opt out of a forced arbitration clause in their driver contracts starting in May 2014. That's also fallout from a 2011 Supreme Court ruling, AT&T Mobility v. Concepcion, which effectively legalized putting mandatory arbitration in the fine print. Still, since Uber was late to that scheme, the class could be substantial – Uber says 15,000 but they're almost certainly lowballing.

          That's why you can expect Uber to appeal, and the same Supreme Court that backed up big business and closed the courthouse door to workers in the Walmart case might get a shot to do that for Uber. However, the rank stupidity of their argument – that everyone's a contractor but nobody's the same – might be too much even for the Roberts Court.

          If Uber ultimately loses this fight, forcing them to classify their drivers as employees, they become just another car service. Anyone can build an app to hail and pay for a ride – the New York City taxi system just unveiled one this week, and e-hailing apps do very well globally. Uber's "disruption" derives mostly from skirting around labor laws and getting a lot of VC money amid promises to gouge their workers and customers once they put the taxi industry out of business. So having to pay back wages and payroll taxes and reimbursements would kind of blow up the whole thing.

          Citing Matt Stoller on Uber from last year:

          Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to 'reward' drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.

          Remember, the customer doesn't even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to 'reward' them. And let's be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits.

          These are just the troubles Uber is having locally. In Mumbai the still-robust taxi union has been on strike for two days, protesting Uber's expansion after getting a ban overturned in June. In China there's a local rival that has 80 percent of the car-hailing market and has been buying up competitors. Korea's version, Kakao Taxi, is emerging as a strong competitor as well.

          There's no special sauce to what Uber does. And if they are prevented from breaking the law in the U.S., they'll just be another face among many, struggling for profitability.

          NotTimothyGeithner, September 3, 2015 at 9:35 am

          The insurers are in issue. Uber will inevitably be in lawsuits left and right as accidents pile up. Judges go ballistic on pizza deliverers anyone working for tips, they will always favor a non-uber claimant/plantiff/whatever with mind blowing evidence. A pizza delivery guy and my older sister had a quirky run in, and the judge asked where they were driving. When he heard pizza delivery, he ruled in favor of my sister. Taxis deal with regulatory structures which at least requires a certain level of competence. A taxi driver would not have hit my sister.

          When insurers have to start dealing with lawsuits because Uber drivers weren't taking care of their brakes, they are done. Uber and similar services will go the way of 30 minute pizza delivery promises.

          My guess is auto insurers want to get rid of Uber because they won't be able to determine who is running a unregulated taxi service.


          weinerdog43, September 3, 2015 at 10:04 am

          Virtually every single personal auto policy in the US contains the following language under the Exclusions section: "We do not provide Liability Coverage for any Insured; for that Insured's liability arising out of the ownership or operation of a vehicle while it is being used to carry persons or property for compensation or a fee." Go ahead and check your policy; it's there.

          In other words, if you are driving around carrying passengers (or pizza) for money, you have NO COVERAGE under your auto policy. You are 'going bare'. This is why Domino's has to buy commercial auto coverage for their drivers. The insurers don't care about Uber because it is not their problem. (I'm an insurance coverage lawyer.)


          washunate, September 3, 2015 at 7:45 pm

          I'm mildly optimistic actually on that front. The independent contractor loophole to employment law has become so egregious that I think there is serious interest in reigning in the more extreme excesses a tad, releasing some pressure if you will, and Uber works great for that. High public profile, low interconnectedness with the established power structure, specific industry that heavily regulates workers.

          Or to say it differently, I think Uber has violated the fundamental law of looting: don't be so blatant about it that the legal system can't justify it without completely destroying their own credibility. Face saving is key. If Uber drivers aren't employees, then even hugerer numbers of workers are not employees than already aren't employees today, and I don't think TPTB are in tight enough control to weather the fallout from that kind of logic. Especially with how much political capital went into entrenching employment-based health insurance with PPACA. Something the Roberts court found Constitutional, by the way.


          [Sep 01, 2015] Leveraged Bubbles

          "...When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting."
          "..."Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?"
          "...
          "When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."
          So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)
          "In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."
          If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets."
          "...Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?"
          economistsview.typepad.com

          The conclusion to "Leveraged bubbles," by Ňscar Jordŕ, Moritz Schularick, and Alan Taylor:

          ... In this column, we turned to economic history for the first comprehensive assessment of the economic risks of asset price bubbles. We provide evidence about which types of bubbles matter and how their economic costs differ. Our historical analysis shows that not all bubbles are created equal. When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.
          In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms. This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles. The findings presented here can inform ongoing efforts to devise better macro-financial theory and real-world applications at a time when policymakers are still searching for new approaches in the aftermath of the Great Recession.

          Posted by Mark Thoma on Tuesday, September 1, 2015 at 09:25 AM in Economics, Financial System | Permalink Comments (8)

          Double Capitulation said...

          "bursting of credit boom bubbles is significant and long lasting.

          In the past decades, central banks typically have taken"
          ~~Ňscar Jordŕ, Moritz Schularick, and Alan Taylor:~

          Did Kurt Vonnegut once quip

          "Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?

          Imprecisely, yet left us with a memorable hint of both his genius and fed governor's stupidity.

          djb said...

          of course if wages kept up with productivity, there would not have been as much of a bubble because people could have paid more, and borrowed less

          but I doubt BIS was worried about that particular issue

          Peter K. -> djb...

          "This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles."

          Likewise I don't the believe the BIS is big on tighter regulation of the banks. As Krugman and others have pointed out, the BIS is always for raising rates but switches rationals. Sometimes it's about inflation, sometimes bubbles.

          mulp -> djb...

          We need a Fed that sets as policy buying long term debt that funds new infrastructure projects that are required by Federal regulation to pay prevailing aka higher wages.

          If in 2010, the Fed had bought $3 trillion in bonds for such projects as building the NE HSR, for all the cities fixing their century old water and sewer systems, California's HSR, bonds for replacement bridges with tunnels as option, rerouting rail to eliminate grade crossings to speed for freight and truck traffic, then the Fed could have done what Republicans have done up until the Republicans decided to punish all the We the People for electing Obama.

          Any debt issued that does not build new capital assets requiring American labor, ie, debt paying labor costs, is totally worthless to the economy.

          Other than for some existing constant wealth redistribution purposes - during 2008-2011 savers were protected against having their wealth taken from them and given to the borrowers who had long ago spent it.

          Arne said...

          Is there some data on the extent to which asset price rises are credit fueled or not. My memory (which does not qualify as a data source) says that the housing bubble was much more so than the dot-com bubble.

          Blissex said...

          "When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."

          So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

          "In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."

          If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

          Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

          Not very hands-off at all.

          mulp -> Blissex...

          Are you questioning creating wealth by price inflation of decaying asset which are churned in pump and dump?

          Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?

          Wealth. Creating wealth. Wealth effect. Capital gains. Money in your pocket.

          Signs of free lunch economic smoke and mirrors.

          Wealth is created by paid labor or hard labor by the owner of the created wealth. But paying labor costs as a virtue is not something an economist is allowed to say in the post Reagan victory world.

          [Aug 31, 2015] China can ride out this crisis. But we're on course for another crash

          Notable quotes:
          "... There is every reason to fear more fallout from casino capitalism ..."
          "... A dysfunctional model of capitalism, built on deregulation, privatisation and low wages, crashed and burned seven years ago. But the fallout from that crisis is still ricocheting around the world, from Europe to the "emerging economies", as the attempt to refloat a broken model with cheap credit inflates asset bubbles and share buybacks – or enforce it with austerity – fuels new crises. ..."
          "... That's one reason why the anti-austerity movement and the demand for economic alternatives is growing across Britain, Europe and the US. The elites so evidently don't know what they're doing, even as they rake in the spoils. ..."
          "... Conclusion: dramatic market fluctuations of the past few weeks were primarily irrational !! Most losses have already been recouped and for all of the sound and fury, corrections appear to be marginal, not precipitous. ..."
          "... Steve Keen, for example, saw the 2008 crash coming, and continues to provide very good, reasoned analysis about what continues to occur. ..."
          "... First, we all know that markets have been rigged since QE was introduced to pull the Establishment's irons out of the fire. But surely there is an uncomfortable paradox in the knowledge that, in this latest saga, while the world's greatest totalitarian regime was signally unable to rig its market, conversely it took only a day for the great champion of free market capitalism to do so? ..."
          "... "In 2013, 45.3 million people (14.5 percent) in the USA were in poverty. ..."
          Aug 30, 2015 | The Guardian

          Market mayhem is the product of the aftershocks of 2008. No wonder calls for alternatives are growing


          It may not yet be the moment to get in supplies of tinned food. That was what Gordon Brown's former adviser during the 2008 crash, Damian McBride, suggested on Monday as stock markets crashed from Shanghai to New York and $1tn was wiped off the value of shares in one day. But seven years after the collapse of Lehman Brothers brought down the global financial system and plunged half the world into a slump, it's scarcely alarmist to see the financial panic as the harbinger of a new crisis in a still crippled world economy.

          The market gyrations that followed "Black Monday" this week and the 40% drop in the value of Chinese stocks since June have only underlined the fragility of what is supposed to be an international recovery. For all the finger-wagging hubris of western commentators over the fact that the latest mayhem has erupted in China, this is a global firestorm. And after three decades of deregulation punctuated by financial crises and a systemic meltdown, there is every reason to fear more fallout from casino capitalism.

          Financial markets pumped up with credit and quantitative easing to keep the real economy afloat are in any case ripe for a crash – or "correction", as the market players like to call it. The only question is how far and fast they go – and how great is the price paid by the rest of us.

          Paradoxically, Beijing may be better placed than others to ride out this storm. China's economy is slowing down, as it shifts from export-led growth to consumption. But it's still growing at 7%, nearly three times as fast as Britain and the US, which are supposed to be the west's current star performers. Even if China's figure is overstated, its growth is still at least double the Anglo-American rate: the kind of economic problem the rest of the world would be happy to have.

          That follows three decades when Chinese growth averaged 10% a year, delivering the fastest economic development and reduction in poverty in world history – as well as rising inequality and environmental degradation. But China's stock market is small compared with its western equivalents and relatively insulated from the rest of the economy.

          Despite its huge private sector, China is still a hybrid economy, dominated by state banks and publicly owned corporations. That means its financial system is shielded from the impact that a stock market crash on this scale would have in a western-style private banking system.

          China rode out the 2008 crash by pumping public investment into the economy, delivering 78% growth between 2007 and 2014, while the US managed 8%. That has left it with a huge debt pile, estimated at 282% of national income, which some now believe will bring China's economy to a juddering halt.

          But that is mostly debt between state-owned institutions, so there is no basis for a speculative Lehmans-type collapse. In fact, some of the problems China is now facing as it tries to bring the stock market crisis under control, such as capital outflow, stem from the liberalisation urged on it by the World Bank and its own home-grown would-be oligarchs.

          There is every reason to fear more fallout from casino capitalism

          China's room for manoeuvre would certainly be much narrower if it had gone for their full deregulation and privatisation package. But the main drag on the Chinese economy isn't the failings of its own economic model, but stagnation in the rest of the world. Global trade suffered its largest contraction since 2008 in the first six months of this year, partly as a result of the ongoing crisis in the eurozone. Eight years after the financial crisis erupted in the US, its aftershocks are still being felt across the world.

          A dysfunctional model of capitalism, built on deregulation, privatisation and low wages, crashed and burned seven years ago. But the fallout from that crisis is still ricocheting around the world, from Europe to the "emerging economies", as the attempt to refloat a broken model with cheap credit inflates asset bubbles and share buybacks – or enforce it with austerity – fuels new crises.

          That is what has been played out across financial markets this week, in which China has been a transmission belt rather than the motor. Any idea that the western economies that generated stagnation have been fixed is not serious. Their recoveries have been the slowest on record and interest rates remain at a historic low – because owners of capital are prepared to invest in anything except the productive economy. The likelihood must be that this stagnation continues indefinitely, punctuated by financial upheavals. Without far-reaching change in economic policy, they can be expected to trigger crises that will tip western economies, and others, back into full-blown recession.

          That's one reason why the anti-austerity movement and the demand for economic alternatives is growing across Britain, Europe and the US. The elites so evidently don't know what they're doing, even as they rake in the spoils. In such a context, calls for large-scale public investment, ownership and quantitative easing for the real economy made by Labour's leadership frontrunner, Jeremy Corbyn, look far more realistic than the business-as-usual offered by his rivals.

          If the current market chaos turns into another crash, the demand for much stronger measures will become unstoppable.


          the_thoughtful_one 29 Aug 2015 06:47

          well said article - and in the BBC news the ex Sainsbury's boss attacks a living wage - while he earns 176 times that wage and hardly presided over a great Sainsbury's did he - because their share price dropped 30% after his shift, his foundations

          and they still pay 3p/hr less than Tesco after a 4% pay rise so you can see this was forced on the company

          people of his ilk "ARE" the problem.

          HeinzH 29 Aug 2015 06:37

          With todays capitalism ,which derailed under Thatchers/Reagans reign,the problem is not deregulation and privatisation but looting of the economy.Free hands to the bank establishment has given us a never ending criminality in the markets and a rising number of extremly rich people in the industrialized world.Is it that difficult to understand that the amassment of riches amongst the already rich is no way for creating a just and sustainable society?


          soundofthesuburbs 29 Aug 2015 06:26

          The timeline for the collapsing global economy.

          Japanese banks had been on a maniacal lending spree into real estate and the bubble popped in 1989. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

          Japan then had the rest of the world to trade with that was still doing well but it never really recovered.

          US banks went on a maniacal lending spree into real estate and the bubble popped in 2008. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

          US banks used complex financial instruments to spread this problem throughout the West.

          "It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" (pg 404, "All the Presidents Bankers", Nomi Prins).

          Rather than own up to losses and admit their bankers were fools, the UK and Euro-zone
          covered up the problems with loose monetary policy.

          Japan, the UK, the US and the Euro-zone had the BRICS nations to trade with that were still doing well but they never really recovered.

          The BRICS nations are now heading for recession.

          Doesn't look good does it.


          coplani 29 Aug 2015 04:45

          The fundamental question is simply this....

          Can millions of people continue to make a living from sitting on their backsides and investing or gambling on the stock markets.
          "Loads of Money" and "Money Making Money from Investing"...

          Is it sustainable in a World where growth is no more...

          Markets and asset values at an all time high...Can this money making money from investing continue indefinitely...Especially when others are joining in by the million.

          Our whole way of life is now dependent on the markets and they cannot be allowed to go down in value...Thus Q.E. and record low interest rates....Currency devaluation could be next as has already happened elsewhere...

          Investment funds, Pension Schemes, Banks, Massive Financial Institutions etc now depend wholly on money making money....

          Any enterprise started, which seems to be profitable is snapped up by the market looking for money to make money...

          For how long can this be sustained....That is the question.


          KassandraTroy 28 Aug 2015 19:06

          Yup. The definition of insanity is doing the same thing over and over and expecting different results.

          Yet here we are, courtesy of the new "free trade agreements", ready to turn 40% of the global economy over to these same players right when we need to put on the brakes. Because, of course, the oligarchs have bought our governments. I shudder to think of a world ruled by the multi national corporations. It'll probably collapse in 6 months...maybe a few more for the planet to just stop

          nnedjo 28 Aug 2015 15:16

          Their recoveries have been the slowest on record and interest rates remain at a historic low – because owners of capital are prepared to invest in anything except the productive economy.

          Well, something like this, only more exclusively, says also a former Greek Finance Minister Yanis Varoufakis. In his article "How I became an erratic Marxist" Varoufakis says:

          Today, turning to the European crisis, the crisis in the United States and the long-term stagnation of Japanese capitalism, most commentators fail to appreciate the dialectical process under their nose. They recognise the mountain of debts and banking losses but neglect the opposite side of the same coin: the mountain of idle savings that are "frozen" by fear and thus fail to convert into productive investments.

          So, indeed, it seems that rich people of today are chosen only to remain rich, and to enjoy life. So they keep their money in banks, not taking anything with them, nor even think to invest it in something and so increase their capital. Accordingly, in addition to reducing the number of workers as a result of the automation of production, modern capitalism is faced with another phenomenon. He is in danger of losing the capitalists too.

          And, capitalism that has no workers, and at the same time has no capitalists too, in many ways resembles Marx's ideal of a classless society by the name of communism. :-)

          konga76 28 Aug 2015 15:08

          The author's message is suspect. The stock market crash of the last week was mostly panic. Fundamentals in China market are unchanged, Western investor participation in said market was severely limited by Chinese law, and Western exposure to market contraction was meager.

          In US, where biggest Western drop was seen, only 1% of economy hurt by China contraction. Additionally, there is considerable doubt that the author's 7% growth in China is accurate. Many economists inside and out of China believe it to be significantly less, and these suspicions are not of recent vintage. And, recent data corrections have shown US economy grew at 3.5% earlier this year, not the 2% previously reported.

          Conclusion: dramatic market fluctuations of the past few weeks were primarily irrational !! Most losses have already been recouped and for all of the sound and fury, corrections appear to be marginal, not precipitous.

          ID401112 -> goodlife9 28 Aug 2015 13:28

          Good post. Economics is imprecise, granted, and it doesn't help that most world leaders are completely financially illiterate. But there are different schools of thought and economist that offer very robust analysis of the current economic situation. They're just not listened to because the needed measures are both in direct conflict with the needs of party donors, and expectations of the voting public.

          Steve Keen, for example, saw the 2008 crash coming, and continues to provide very good, reasoned analysis about what continues to occur.

          Similary, the Austrian school of economics gives very good critique on the inherent dangers and problems associate with fiat money.

          But who in power would significantly reduce the value of housing or return to a gold standard as party policy.


          OstanesAlchemy 28 Aug 2015 09:57

          Who thought a debt based monetary system was a good idea? Oh yes, it was those people who had capital they wanted to "leverage" (multiply) without obligation.

          So why don't we face the fact that over 90% of the money in the economy was issued as debt, and that leads to the mathematical certainty that the debt is, not only never going to be paid off, but thanks to the compound interest, completely unsustainable.

          We must be so stupid as a species to allow the massive excess capacity in our economies to go to waste, and for our populations to go without for the want of the right numbers, in the right places on a computer chip. A problem that could literally be solved (or at least alleviated) at the stroke of a few keys.


          nishville -> Limiting_Factor 28 Aug 2015 02:14

          Is it the West's fault?

          In this case, a resounding yes. West caused this crisis by promoting and exporting neoliberal capitalism, a system that thrives on instability. You can regard it as a virus infecting the organism of interconnected world economy.


          RalphTheStaller 28 Aug 2015 01:17

          As the dust settles on the latest "correction", one is left with a sense of unease.

          First, we all know that markets have been rigged since QE was introduced to pull the Establishment's irons out of the fire. But surely there is an uncomfortable paradox in the knowledge that, in this latest saga, while the world's greatest totalitarian regime was signally unable to rig its market, conversely it took only a day for the great champion of free market capitalism to do so?

          Secondly, we all know that when a market is challenged it is either the earnings base which is called into question or the multiplier used to capitalise the income. Would it not have been healthier for the philosophical base of neo-capitalism if the challenge to valuation had come from bond investors seeking a real return rather than fears that corporate earnings would not fulfil expectations?


          nnedjo lib410 28 Aug 2015 00:36

          And some of the former Soviet and Communist bloc countries have already reached about 50% of this level, after only about 10 years of EU membership?

          More precisely, only one of the former socialist countries and it is Slovenia. Also, it should be noted that Slovenia was the most developed of the former Yugoslav republics. And former Yugoslavia had never belonged to the eastern bloc - Warsaw Pact, and besides that, by its economic development was roughly at the level of the least developed European countries, like for example Greece.

          So the fact that Slovenia, which had previously been economically developed as Greece, after 25 years of capitalism has again reached Greece in average salaries, for you is "an incredibly fast transformation".

          A very interesting observation, I must admit. :-)


          OneCommentator 27 Aug 2015 21:49

          Hunger eliminated in the developed world?? You must be a comedian.

          Here's a statistic for you to chew on:
          "According to the United States Department of Agriculture (USDA), 15.8 million children under 18 in the United States live in households where they are unable to consistently access enough nutritious food necessary for a healthy life.

          And another:
          "In 2013, 45.3 million people (14.5 percent) in the USA were in poverty.

          You say "very few cases" -
          You mean 15% or 1-in-7 qualifies as "very few"?

          Here's another fact:
          "Nearly 70 percent of the households served by food banks report that their most common spending tradeoff was between paying for utilities or food.

          If you're saying that 15% of American households are in poverty because they're drug-addicted, that's delusional. They're in jobs & paying their bills - But they can't keep up with expenses.


          eminijunkie 27 Aug 2015 19:24

          Henry Ford is one of the very few people of the modern, or near modern perhaps, age who actually understood the basic concept of a consumer based economy. There must be consumers, consumers must have the means to obtain what the consume, and if they consume those that produce that which is consumed can make a living by selling the goods that are consumed.

          Cut back on the money people have with which to purchase things and you strangle the economy as a whole. This is called austerity, and so naturally it does not work. The less one pays consumers to consume, the less they consume and the less the producers produce and eventually the whole scheme grinds to a point of catharsis of some sort.

          The idea of a small number of people becoming extravagantly by gained vast wealth is something that is entirely destructive of the whole idea of any economy, whether you call it communistic or capitalistic.

          The problem, of course, is that the earth just might not have unlimited resources, but there is such a thing as recycling and alternate forms of energy etc. The one thing there can't is a rich of inordinately wealthy hoarding all the money and mobs of consumers who don't have the wherewithal to consume.

          Ultimately, of course, if that continues too long and too seriously, history tells us the day will come when the consumers consume the wealthy.

          Perhaps some compromise will come first.

          As a side note, there was a problematic gentleman in Germany in the 1930's that listened to Ford and got himself on the cover of time magazine a number of times as an economic miracle worker, but we no longer pay any attention to him or what he accomplished by implementing the above concept of solving a server economic crisis by just giving citizens money to spend.

          People without wealth who are given money go right out and spend it all, and that's good for business everywhere.

          And a person who works hard enough and/or smart enough to make a billion dollars will, for the most part, work just as hard to earn a million if that's all he or she can get, because a measly million beats the public dole any day of the week.


          smalltownboy shaun 27 Aug 2015 19:15

          It means that the question is, who will now buy US treasuries? (Who will now back-stop the dollar?).

          Don't worry your pretty little head about it, shaun. There are lots of takers for US treasuries. China had no problem selling some of their stockpile in an an effort to prop up the yuan, which is still pegged to a basket of world currencies, including the dollar. You need to stop getting your financial news from Zero Hedge and RT.


          nnedjo nnedjo 27 Aug 2015 17:48

          Thus, the average EU-28 wage per hour amounts to about 18 euros, according to this chart.

          Realworldview 27 Aug 2015 17:48

          China can ride out this crisis. But we're on course for another crash

          We are certainly in for another crash, and its scale will be beyond all previous crashes, also China will not ride it out, it will crash along with other nations. The consequences of the looming financial collapse will last for centuries, because the era of economic growth is over meaning debt cannot be paid down. How Economic Growth Fails provides a plausible explanation, with the consequences explored in Deflationary Collapse Ahead? These extracts reveal a major blind spot in the discipline of economics that means economic and political elites fail to understand the impact of limits on the economy and why their "conventional" economic policies are failing:

          Today's general level of understanding about how the economy works, and energy's relationship to the economy, is dismally low. Economics has generally denied that energy has more than a very indirect relationship to the economy....

          Economics modelling is based on observations of how the economy worked when we were far from limits of a finite world. The indications from this modelling are not at all generalizable to the situation when we are reaching limits of a finite world. The expectation of economists, based on past situations, is that prices will rise when there is scarcity. This expectation is completely wrong when the basic problem is lack of adequate wages for non-elite workers. When the problem is a lack of wages, workers find it impossible to purchase high-priced goods like homes, cars, and refrigerators. All of these products are created using commodities, so a lack of adequate wages tends to "feed back" through the system as low commodity prices. This is exactly the opposite of what standard economic models predict.

          For a comprehensive overview of our situation and just how limited our future options are, this article by Nicole Foss posted on The Automatic Earth website is a must read: Nicole Foss: The Boundaries and Future of Solution Space. These extracts reinforce the role of plentiful cheap fossil fuel based energy in our industrial civilisation, and the unwelcome consequences of its future unaffordability once a global deflationary collapse has occurred:

          We are facing limits in many ways simultaneously – not surprising since exponential growth curves for so many parameters have gone critical in recent decades, and of course even more so in recent years. Some of these limits lie in human systems, while others are ecological or geophysical. They will all interact with each other, over different timeframes, in extremely complex ways as our state of overshoot resolves itself (to our dissatisfaction, to put it mildly) over many decades, if not centuries. Some of these limits are completely non-negotiable, while others can be at least partially mutable, and it is vital that we know the difference if we are to be able to mitigate our situation at all. Otherwise we are attempting to bargain with the future without understanding our negotiating position.

          The vast majority has no conception of the extent to which our modernity is an artefact of our discovery and pervasive exploitation of fossil fuels as an energy source. No species in history has had easy, long term access to a comparable energy source. This unprecedented circumstance has facilitated the creation of turbo-charged civilization.

          Huge energy throughput, in line with the Maximum Power Principle, has led to tremendous complexity, far greater extractive capacity (with huge 'environmental externalities' as a result), far greater potential to concentrate enormous power in the hands of the few with destructive political consequences), a far higher population, far greater burden on global carrying capacity, and the ability to borrow from the future to satisfy the insatiable greed of the present. The fact that we are now approaching so many limits has very significant implications for our ability to continue with any of these aspects of modern life. Therefore, any expectation that a future in the era of limits is likely to resemble the present (with a green gloss) are ill-founded and highly implausible.

          nnedjo Hippokl, 27 Aug 2015 17:43

          Well, these are the data obtained from Eurostat, the statistical office of the European Union. And on the left side of the graph you have data for the EU-28, and the Euro area EU-18. In the previous post I am slightly increased earnings per hour in the EU-28 at 25 euros, because it is in fact the information when other labour costs are added to the wages and salaries.


          nnedjo 27 Aug 2015 17:16

          Let's simplify things a bit. Technological development leads inevitably to the fact that things that were previously available only to a few individuals become available to most average people. The reason is that the development of technology increases the productivity of the average man, so that someone who previously could produce goods only for a few people, now can produce goods for the huge number of people.
          So, if we neglect the economy, judging solely on the basis of technological development should not be such a thing as stagnation in production, and every man would become constantly richer and richer because he would have received more and more goods, as well as other values in the field of health care, education, entertainment, recreation, ... etc.
          And, since even today is nothing wrong with technology, it is obvious that this is not a technological crisis, but this is the economic crisis.

          And, how did it come to this economic crisis? Well, advocates of austerity measures obviously claim that the crisis was created so that people are spending more than they earn, and this is why they must now spend less, or to agree to austerity measures. However, if someone is spending more than it earns, then someone else had to earn more than what he spent. In other words, if this is true, then the economic crisis would have occurred only in some countries and not in all countries of the world, including the most developed ones. That's the obvious flaw of this argument, and it is clear that this is a classic crisis of capitalism, like many that have occurred previously, and on which, among others, Karl Marx also was talking about.

          So the basis of Marx's teaching is precisely the fact that the employer pays employees based on quantitative measures of labor, ie the number of hours spent at work, and not on the basis of what he can really produce for the same number of hours. In this way, the worker always produces more values than it receives from the employer as wages. And in this way the owner appropriates this surplus of created values , and thus becomes more and more rich.

          However, that the surplus of produced values turned into capital, the owner must sell goods in the market. But who is going to buy the goods, if most customers are workers who also produced more goods than they get money for it? In other words, on the market appears surplus of goods, which nobody can buy. You have on one side the huge number of empty houses, and on the other side, you have a huge number of the homeless. (Does this sound familiar?). You have overproduction of food on one side, and on the other side, you have an army of hungry. Or, on the one hand, the huge number of cars, and on the other hand, people go on foot.
          And, since it is impossible to sell previously manufactured goods, it is clear that there is no purpose to increase the new production. In other words, production is decreasing, and the economy falling into recession.

          And how this crisis of capitalism can be overcome? Advocates of austerity say that capitalism can be saved only "by becoming more capitalist". Or in other words, so that the workers will be paid even less than before, either from private owners or by the state, and commodity (electricity, gas, water, etc ...) will become even more expensive. But, whether is not the main cause of the crisis precisely because the goods have become expensive for people who are not paid enough to be able to buy it? And then, how austerity measures may increase production and pull the economy out of recession? It is obvious that they can not, which means that the solution is not "capitalism that will become more capitalistic". Recession can be solved only in that way that capitalism will become more socialist, or roughly with the introduction of those measures that Jeremy Corbyn suggests. In that sense I would say that Seumas Milne is right because he gives Jeremy Corbyn for the right.

          MarkThomason 27 Aug 2015 17:11

          I should add that I know of three stores near me that had been in business a long time, and closed because their usual suppliers were unable to extend the usual terms for inventory, because the suppliers had lost their credit lines. None had new risks or new problems, they just had their long-standing arrangements cancelled on them due to the financial crisis.

          Meanwhile, the casino ran full blast with borrowed money provided by the government.

          [Aug 31, 2015] The Case for Realism in the Social Realm

          "...So there is nothing to choose. Current economics consists of political economics, which is scientifically worthless, and theoretical economics, which is logically and materially inconsistent. Luckily, Jackson Hole shows: economists are clueless but never speechless."
          "...We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research. And we will understand too that claims about the reality of "capitalism", the world financial system, or fascism are to be understood less weightily than they first appear. Capitalism exists in a time and place; but it is understood to be an ensemble of relations and actions by the people of the time."
          Aug 31, 2015 | Economist's View

          RC AKA Darryl, Ron -> djb...

          [Yes, I know mine is exactly 6.25 inches because I measured it, but I can only guess that yours is shorter because there is no way that I am ever going to measure it :http://economistsview.typepad.com/economistsview/2015/08/us-inflation-developments.html

          Egmont Kakarot-Handtke said...

          Always clueless, never speechless
          Comment on 'U.S. Inflation Developments'

          For a dispassionate observer Stanley Fischer's speech and the tidal wave of blog comments makes it pretty clear that there is an intellectual black hole where something like a true economic theory should be.

          There is absolutely no use in entering into the morass of conflicting nonsense. Here are two fixpoints to secure some orientation.

          • Inflation theory has never risen much above the commonplace Quantity Theory. The QT is plausible but ultimately untenable. The correct formula for the overall price level is given herehttps://commons.wikimedia.org/wiki/File:AXEC64.pngfor details see (2015, eq. (12)).

          • Alternative macroeconomic approaches like Krugman's IS-LM are fundamentally flawed since Keynes and Hicks (2014) without any economist ever spotting the provable formal defect.

          So there is nothing to choose. Current economics consists of political economics, which is scientifically worthless, and theoretical economics, which is logically and materially inconsistent. Luckily, Jackson Hole shows: economists are clueless but never speechless.

          Egmont Kakarot-Handtke

          References
          Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
          http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392856
          Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350

          RC AKA Darryl, Ron -> RC AKA Darryl, Ron...

          [WOW! Typepad really screwed up that post. Here is what it dropped.

          Keynes' definitions are debatable. I am in no way advocating the comment from yesterday's 'U.S. Inflation Developments' thread that I copy here nor its linked academic papers. I am actually defending Little's poorly written paper on this thread because there is a cogent point buried in his muddled over elaborated treatise on the distinctions between physical and social sciences. After reviewing the following and considering the sources of the actual "metrics" used in macro (e.g., interest, GDP, unemployment) then you might ask whether formalization or usefulness are the more important goals for macroeconomics.

          For my part, then I find no fault in a heuristic approach as long as we know where we are trying to go. I am a huge fan of Keynes.]

          RogerFox said...

          "First, there are no theories in the social sciences that have the predictive and explanatory success of the physical sciences ..."

          That admission necessarily puts the sword to social science theorizing, including interventionist macro, as an ethical guide to real world decision-making - the intervenors themselves admit they don't know whether the consequences of their interventions will make things worse or better.

          Away with all the charlatans who insist on meddling anyway.

          ilsm -> RogerFox...

          Admission? Nah!

          But there are no pentagon theories for war that can be relied upon.

          See Vietnam, Iraq three times, Afghanistan.......

          Fox admission only applies if you ignore reality.

          djb -> RogerFox...

          Yes RogerFox

          Daniel Little who represents all people who have ever studied economics has let the cat out of the bag

          That economists don't know anything

          We were all hoping no one would notice, but of course, you are too sharp for us

          Now of course it is probably too difficult for your shrunken brain to understand that your laissez faire philosophy is an economic concept, the results of which be studied and tested

          But that's alright you got us

          DAMN !!!

          Peter K. -> RogerFox...

          "interventionist macro,"

          How can macro not be interventionist? In the middle of Krugman's latest blog post, he writes:

          "What determines where we end up on that curve? Monetary policy. The Fed sets interest rates, whether it wants to or not - even a supposed hands-off policy has to involve choosing the level of the monetary base somehow, which means that it's a monetary policy choice."

          "the intervenors themselves admit they don't know whether the consequences of their interventions will make things worse or better."

          Not so, it's often easy to judge result.

          What is Mr. Fox's school of thought? Know-nothingism? The Austrian school?

          Peter K. -> Peter K....

          https://en.wikipedia.org/wiki/Know_Nothing

          "The immigration of large numbers of Irish and German Catholics to the United States in the period between 1830 and 1860 made religious differences between Catholics and Protestants a political issue. Violence occasionally erupted at the polls. Protestants alleged that Pope Pius IX had put down the failed liberal Revolutions of 1848 and that he was an opponent of liberty, democracy and Republicanism. One Boston minister described Catholicism as "the ally of tyranny, the opponent of material prosperity, the foe of thrift, the enemy of the railroad, the caucus, and the school."

          "The origin of the "Know Nothing" term was in the semi-secret organization of the party. When a member was asked about its activities, he was supposed to reply, "I know nothing." Outsiders called them "Know-Nothings", and the name stuck."

          One can imagine an old-timey Donald Trump railing against Irish and German immigrants.

          Lafayette said...

          {We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research. And we will understand too that claims about the reality of "capitalism", the world financial system, or fascism are to be understood less weightily than they first appear. Capitalism exists in a time and place; but it is understood to be an ensemble of relations and actions by the people of the time.}

          Good point.

          Capitalism is a mechanism, a tool. All outcomes depend upon how it is employed in a given socioeconomic context.

          Have all property owned by the state, then all profits will also be owned by the state, since individuals will receive only income. Of course, they tried that (calling it commune-ism), and it worked very badly.

          Having property owned by individuals is just as bad if said properties generate Income that trickles-up to Wealth, then is used to manipulate political outcomes that favor uniquely a certain class of individuals. (Which, for lack of a better word, we can call "Plutocrats".)

          Who then, because they think they are good-parents, leave their riches to their children thus extending dynastically the inherent Income Disparity into Wealth Disparity. That's not the case? Then why does Domhoff show this class breakdown of Net Worth (Wealth - Debt) in 2010:
          Top 1% Next 19% Bottom 80%
          35.4% .....53.5% .....11.1%

          No wonder the relatively poorer classes remain poor. Because if you don't have the educational qualifications (vocational, college, university) to scramble into the next class breakdown (the 20Percenters), then forget of any pretense to an existence without constant worry about how solid your job-prospects will be throughout your lifetime.

          And, with that, any social coverage for either illness or pension, etc. - ad nauseam.

          ilsm -> Lafayette...

          Capitalism is a tool [scam] to keep useful fools asking for more flogging.

          likbez -> Lafayette...

          "Capitalism is a mechanism, a tool. All outcomes depend upon how it is employed in a given socioeconomic context."

          I think outcomes can be by-and-large predicted from the form of social relations capitalism enforces. Looks like Marx prediction about increasing misery of the proletariat (or bottom 80%, if you wish) holds, despite temporary reversal of the trend in 1945-1985.

          Yes, the current form of capitalism which is neoliberalism is a tool, but it is a tool only for financial oligarchy. The tool of oppression to be exact.

          For workers of Asian sweatshops and Mexican maquiladoras and probably for a large part of Americans who face shrinking working hours (with the redefinition what full employment means -- now it does not mean 40 hours a week) and push into contractors without any social protection and McJobs, it is more of a prison then a tool.

          Here we get into the concept of countervailing force. Without countervailing force capitalism inevitably degrades into horrible, comparable with feudalism and slavery level of oppression of human beings. And in a way it creates such forces by the mere fact of its existence. In this sense the collapse of the USSR, while improved fortunes of top 20% in the USSR region, was a huge blow to lower 80% of Americans.

          Despite Margaret Thatcher pronouncement about TINA, now mankind (including large part of commenters of this blog ;-) is trying to find another viable countervailing force that can held neoliberalism in check.

          Very high oil prices might do the trick, as they will reverse globalization but they also can lead to the collapse of Western civilization as we know it.

          Some countries, like several in Latin America, try to revive elements of socialism on a new (post USSR crash) level, some elements of religious fundamentalism (with the most strong trends in Islam and Catholicism), some like Russia and China -- elements of state capitalism.

          But those development should be probably be understood in the context of the reaction on neoliberalism, not as completely independent developments.

          EugenR said...

          You speak here about Social sciences about economic factors that drive the society, about the political power in the society, and out there it is not relevant at all. Out there in the other half of the world, which is banging on the doors of your world, the main agenda is tribalism, cultural and ethical belonging.

          The leading agenda of these people, in the other half of the world is the faith in their local tribal myths. Their myth is not about God and submission to it, but about conspiracy theory of being victims. Victims of whom? Not of political and spiritual leaders from their tribes, who dragged them to the desperate existential problems. Not against the belief system, that pushes them to legitimize self imposed slavery, submission to the cruelest authority, and above all faith causing self imposed ignorance to knowledge. They don't see themselves victims of those among them, who by using force and violence, actively oppose learning and adaptation of modern teachings about social justice, political correctness, ethical systems of morality, legality, equality, fraternity.

          No! They will chose to be stuck in their old belief system familiar to them. Ancient tribal stories full of contradictions, indoctrinating and legitimating hatred, murder of the different, slavery, inequality, female discrimination, minority suppression, racism, etc. All these values, that created the political social systems and brought all this destruction in their homeland, from where they try in these days to run away, still remains to be THEIR value system. They will blame all the "others" who caused them their misery. The European colonists, the US Imperialists, the Zionists, the infidels, the homosexuals, the women exposing their natural beauty to admiration of man and women, the atheists, the scientists who still stick to their rational way of thinking, etc. But most of all will be hated those who gave them hand, when they most needed it, the humanitarian volunteers, because they are the first others, whom they encounter, when they exited from their burning world of destruction, and hate.

          They will start a fight against all the ideas of Western philosophers from Descartes to the post modernists, who seemingly successfully brought to the awareness of most of the "Western world" population the idea of human-centralism, following the disastrous WWII caused by similar myth imitators . After they settle down in their now homes, they will not torn their "Holly books", indoctrinating hate and violent action against the humanists, who put in front of their God the human being. They will not torn the burqa, the symbol of women's submission to arrogant male domination upon the women. Their spiritual leaders, when they will stand up in their legal or illegal houses of "GOD", and point to those who have to be hated. And it is not to hard to guess who they will be.

          RC AKA Darryl, Ron -> EugenR...

          Colonialism breeds reactionary radicalism among indigenous souls. On a grand scale nations do eventually reap a bit more than they sewed. Call it karma for lack of a better word.

          EugenR -> RC AKA Darryl, Ron...

          You are right, colonialism was a creepy, disastrous idea, even if at certain stage of human history it helped in the development of human understanding of the realities of the world. In the late nineteen century it became a very lousy business, and partially brought the first world war. Still to blame the Western colonialism that ended more than 50 years ago, for all the misery of Africa and the Arab world is just self deception...

          ilsm said...

          Observations on economics are blurred by the con artists and snake oil salesmen ruining civil society.

          Observer and instrument effects are symptoms.

          Peter K. said...

          "If this is the approach we take, then our claims about what is "real" in the social realm will be more modest that some have thought. We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research."

          It's all shorthand. What needs to be kept in mind is that words and phrases are shorthand and don't really capture the concept or "real thing" they are relating between the person who employs them and the listener or reader. Math and equations too obviously are shorthand. You can follow the word or phrase with qualifying sentences to specify and clarify what you mean by it.

          So when we talk about inflation, or full employment or "real" full employment or potential GDP or the Wicksellian Natural Rate or expected inflation, they are often contested concepts because they are shorthand and don't apply in an obvious manner to something "real" out there we can touch.

          Because of all of this, people disagree on some basic ideas about the social realm. Monetary policy doesn't work they say. Fiscal policy doesn't work they say. Even if most of the smart, objective, honest, knowledgeable people you meet - or dead authors you read - say otherwise.

          Just look at Mr. Fox. Language (shorthand) and contestable ideas bend easily to those under the influence of power, privilege and money.

          [Aug 30, 2015] Under the Hood of U.S. GDP Was Divide Between Growth, Incomes

          Aug 30, 2015 | Bloomberg Business

          Here's one key takeaway from the Commerce Department's report on gross domestic product Thursday in Washington: Gross domestic income climbed at a 0.6 percent annualized rate, well short of the rebound in growth.

          * The increase in GDI last quarter followed a 0.4 percent advance in the first three months of the year, marking the weakest back-to-back gains since mid-2012

          * The 3.1 percentage-point gap between GDI and GDP, which climbed at a 3.7 percent rate, was the largest in favor of GDP since the third quarter of 2007

          * While GDI and GDP should theoretically match over the long run, they can diverge from quarter to quarter. There has been a debate about which is more accurate, with some Federal Reserve researchers finding incomes give better signals

          [Aug 30, 2015] The Scary Number Hiding Behind Today's GDP Party

          "...Hmm. Which to believe? As the old joke goes: "A person with one clock always knows what time it is. A person with two is never quite sure.""
          Aug 30, 2015 | Bloomberg Business

          The federal government today released two very different estimates of the U.S. economy's growth rate in the second quarter. The one that got all the attention was the robust 3.7 percent annual rate of increase in gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent.

          That's a big discrepancy for two numbers that should theoretically be the same, since they're two ways of measuring the same thing: the size of the economy. If you believe the GDP number, you're happy. If you believe the GDI number, you're thinking the U.S. is skating close to a recession.

          The Bureau of Economic Analysis always gives more prominence to the GDP number in its quarterly press release. But today, for the second time in a quarterly report, it released an average of GDP and GDI growth rates. That average came in at 2.1 percent after rounding-and in this case, that's probably closer to the truth than either number alone.

          There is no name for the new hybrid data series, which was described rather prosaically as "the average of real GDP and real GDI." President Obama's Council of Economic Advisers nicknamed it gross domestic output in a July issue brief. Here's what it wrote:

          GDP tracks all expenditures on final goods and services produced in the United States, whereas GDI tracks all income received by those who produced that output. Conceptually the two should be equal because every dollar spent on a good or service (in GDP) must flow as income to a household, a firm, or the government (and therefore must show up in GDI). However, the two numbers differ in practice because of measurement error.

          [Aug 30, 2015] 15 Science-Backed Way4s To Fall Asleep Faster

          "A power nap is a sleep session that happens during the day (ideally between 1:00 to 4:00 PM) lasting between 10 and 30 minutes. Any longer and you run the risk of developing "sleep inertia" - that unpleasant groggy feeling that takes a considerable amount of time to shake off. And naps later than 4:00 PM can disrupt your regular nighttime sleep."

          [Aug 29, 2015] Great Recession Job Losses Severe, Enduring

          Nothing particularly surprising here -- the Great recession was unusually severe and unusually long, and hence had unusual impacts, but it's good to have numbers characterizing what happened:

          Great Recession Job Losses Severe, Enduring: Of those who lost full-time jobs between 2007 and 2009, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs.
          The economic downturn that began in December 2007 was associated with a rapid rise in unemployment and with an especially pronounced increase in the number of long-term unemployed. In "Job Loss in the Great Recession and its Aftermath: U.S. Evidence from the Displaced Workers Survey" (NBER Working Paper No. 21216), Henry S. Farber uses data from the Displaced Workers Survey (DWS) from 1984-2014 to study labor market dynamics. From these data he calculates both the short-term and medium-term effects of the Great Recession's sharply elevated rate of job losses. He concludes that these effects have been particularly severe.

          Of the workers who lost full-time jobs between 2007 and 2009, Farber reports, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs. This means only about 35 to 40 percent of those in the DWS who reported losing a job in 2007-09 were employed full-time in January 2010. This was by far the worst post-displacement employment experience of the 1981-2014 period.
          The adverse employment experience of job losers has also been persistent. While both overall employment rates and full-time employment rates began to improve in 2009, even those who lost jobs between 2011 and 2013 had very low re-employment rates and, by historical standards, very low full-time employment rates.
          In addition, the data show substantial weekly earnings declines even for those who did find work, although these earnings losses were not especially large by historical standards. Farber suggests that the earnings decline measure from the DWS is appropriate for understanding how job loss affects the earnings that a full-time-employed former job-loser is able to command.
          The author notes that the measures on which he focuses may understate the true economic cost of job loss, since they do not consider the value of time spent unemployed or the value of lost health insurance and pension benefits.
          Farber concludes that the costs of job losses in the Great Recession were unusually severe and remain substantial years later. Most importantly, workers laid off in the Great Recession and its aftermath have been much less successful at finding new jobs, particularly full-time jobs, than those laid off in earlier periods. The findings suggest that job loss since the Great Recession has had severe adverse consequences for employment and earnings.

          Paul Krugman A Moveable Glut

          "...No, that's a very bad place to start. Keynes refuted that kind of thinking almost 80 years ago. There is no magic full employment interest rate."
          Aug 29, 2015 | Economist's View
          The Rage -> Second Best...

          I will choose to disagree. I think China going "down" will be a good thing for the US economy in the short run and it depends on if China can build a consumer base in the long run.

          Wall Street literally knows now they will have to completely overhaul their investment portfolio. You could tell they hoped in the spring, everything was going back to "normal". Now they know it cannot happen. They must change as well and we are getting a hissy fit.

          Too many econ-bears want China to cause a credit contraction, but they don't seem to understand, the US IS the credit market. The 2008 financial crisis was totally a US generated event. Even Europe would have trouble matching it, though a eurozone collapse would try. Most of the credit risks are born in the US. Outside 98-00, the stock market provides very little consumer spending.

          I was out Saturday to some festivals and people were very optimistic in the future because of gas prices. The mental damage from the 04-14 spike is starting to recede and people are hopeful for prices even lower this winter than last. This also helps creditors because debtors have more spare capacity to take on debt with less risk. Whatever happened to Don? He basically has been screaming for this day for years. Much like him, I agreed China could not keep the "old" model going on forever and it was not helping the US economy like people thought. It stole investment from the US and basically hurt consumers through its manipulation of commodity markets with oil being the most important.

          ThomasH said...

          I think bubbles would cause limited damage if monetary authorities took seriously their responsibilities to keep price level trends on target and their actions were such as to persuade markets that they were serious. (NGDP would probably be a better target, but for these bubble popping issues it would amount much to the same thing.)

          sanjait -> ThomasH...
          Yes, yes, yes.

          I'm sick of central bankers who allow sagging inflation in a weak demand world, and then make up every excuse imaginable.

          Just hit your target. And if you miss, make it up next year. They talk about inflation like it's some barely comprehensive force of black magic, but it's just the markets price level response to a combo of current demand and forward expectations. The targets can be hit if central banks just commit to hitting them. But instead we get fearful genuflection about how risky are ZIRP and QE, while a generation of workers goes into year 7 of widespread underemployment.

          sanjait -> sanjait...

          I should have said: widespread CYCLICAL underemployment.

          Paine -> sanjait...

          Amen

          Dan Kervick -> Peter K....

          But Krugman's piece isn't about short term solutions. He says we have to take seriously the possibility that excess savings and persistent global weakness are the new normal. He's suggesting we are dealing with a long-term disease, not a short-term

          So then the question is, "Why?" Just saying that it's because demand is too low isn't an answer. Low demand is one of the phenomena to be explained. You can't treat a disease without an explanation of the cause.

          Paine -> Dan Kervick...

          Exactly. But it's up to a class based political economy to mobilize the forces behind a true global maxizer

          sanjait -> Dan Kervick...
          A few things:

          1) You just restated Say's Law as if it were a fact, when it is a known fallacy. No, output and demand aren't the same thing.

          The main thing to notice is that in the short and medium term we can get substantial deviations from a full employment equilibrium. That's what "weak demand" means. Again I think you were asking a question to which you actually know the answer, feigning ignorance as a rhetorical strategy.

          2) Yes, the world has many problems.

          3) No, you don't always have to have an explanation for the cause of a disease to treat it. From having an intermediate level of biomedical and bioscientific knowledge, I can tell you it is quite common for diseases to be treated with mysterious etiologies.

          In this case, the relevant thing to notice is that higher inflation addresses the problem of disequilibrium regardless of the cause. It doesn't solve every problem on earth, but it does solve the problem of a negative Hicksian natural rate of interest, and in doing so, it bolsters the ability of the economy to bounce back from both shocks and secular stagnation-like forces.

          So that's why we need more of it. At the VERY LEAST central banks should be more aggressive about hitting their stated targets, and IMO they should have higher targets.

          Sanjait -> sanjait...
          I meant Wickseian natural rate.

          Dan Kervick -> sanjait...

          "1) You just restated Say's Law as if it were a fact, when it is a known fallacy. No, output and demand aren't the same thing."

          No, you just committed the anti-Say's Law fallacy fallacy :)

          If all of the firms in the US committed tomorrow to expanding their annual output by 3%, would that guarantee that demand would grow by the 3% needed to buy up the additional output? No, of course not.

          But would demand increase by an amount approaching the ballpark of 3%. Yes. Because it is impossible for firms to increase their output by a given amount without increasing their own demand for their factor inputs by some amount at least close to that. They can't just squeeze it out of the same inputs and same quantity of labor.

          Dan Kervick -> sanjait...

          "So that's why we need more of it. At the VERY LEAST central banks should be more aggressive about hitting their stated targets, and IMO they should have higher targets."

          OK, why? We talk about this month after month here, and elsewhere, and everybody seems totally convinced that it is really really really important whet the rate of inflation if 2.5% instead of 1.5%. But nobody every explains why in cogent terms.

          How many people do you know in the business world who ever talk about the inflation target? ... ever? What reason do people have for thinking the Fed's "target" for inflation amounts to a hill of macroeconomic beans?

          And what specifically do people want the Fed to do to hit that target?

          sanjait -> Dan Kervick...

          "If all of the firms in the US committed tomorrow to expanding their annual output by 3%, would that guarantee that demand would grow by the 3% needed to buy up the additional output? No, of course not.

          But would demand increase by an amount approaching the ballpark of 3%. Yes."

          No. This is again just wrong. You ignored the role of capital stock entirely, which is a major error.

          "OK, why? We talk about this month after month here, and elsewhere, and everybody seems totally convinced that it is really really really important whet the rate of inflation if 2.5% instead of 1.5%. But nobody every explains why in cogent terms."

          As I already stated ... the concept of Wicksellian natural rate of interest is a good place to start.

          Both your comments show you aren't familiar with the concept, because it answers both.

          My quick summary would be this: raising the inflation rate pulls the real Wicksellian natural rate above zero, breaking the liquidity trap.

          Because, you see, what makes Say's Law actually work in practice in the medium term is if and only interest rates are set at the natural rate, but when the natural rate falls below zero (due to shocks, secular stagnation, whatever), then we end up with prolonged demand slumps.

          Google search for Wicksell and liquidity trap before you go telling me about the supposed Say's Law fallacy fallacy.

          The very simplified version of the story is this: inflation boosts demand by making it more expensive to sit on idle money.

          It also has the added benefits of whittling away nominal debts and overcoming sticky price problems that allow markets to clear, which are also significant.

          sanjait -> sanjait...
          Here's an even simpler version:

          a) Business investment, housing construction, auto purchases and other components of demand of various types based on credit will, all else equal, be higher if real interest rates are lower.

          b) At or near the zero bound, raising the rate of inflation results in lower real interest rates on short to medium term debt instruments.

          But still, before you go quibbling with that in some small way or claiming "nobody ever explains" why higher inflation would be useful, do go read about the Wicksell natural rate of interest.

          Amileoj -> sanjait...

          I get the Wicksellian story, but there are at least three largish problems with it:

          a) Following a collapse in aggregate demand, the effect of lower real interest rates might well be swamped by the effects of lower expected returns and less robust job prospects. Let money be as cheap as you will. If I think I'm not going to be able to sell any new output, or make any new payments, I'm still unlikely to borrow more. The idea that there simply must be price of credit (a 'natural' rate), at which all of these bench sitters will get in the game, and clear the glut, seems to me a lot more like a postulate than a conclusion warranted by logic & evidence.

          b) While it's true that a lower real rate will help debtors make existing payments, it also diminishes the income of creditors. The net effect would seem to depend entirely on the relative propensities to consume, but either way there's likely to be a fair amount of cancelling-out.

          c) Finally, since the CB cannot directly increase spending (not at least without the cooperation of the fiscal authority), the whole argument turns on the premise that the central bank can engineer higher inflation by getting investors/consumers to think higher inflation is coming. In other words, investors/consumers must be convinced that the central bank will bring something about, that it has no direct means to bring about, and this expectation, will substitute for the lack of such means. The evident circularity here doesn't exactly inspire confidence in the CB's ability, never mind its willingness, to 'credibly promise to be irresponsible.'

          Dan Kervick -> sanjait...
          "As I already stated ... the concept of Wicksellian natural rate of interest is a good place to start."

          No, that's a very bad place to start. Keynes refuted that kind of thinking almost 80 years ago. There is no magic full employment interest rate.

          "My quick summary would be this: raising the inflation rate pulls the real Wicksellian natural rate above zero, breaking the liquidity trap."

          No, even among the defenders of that line of thinking, that's not how it works. The Wicksellian real rate does not change as a result of a change in the price level. The idea that Krugman and others defend is that, given the fact that there is a nominal zero bound, by having higher inflation the real interest rate can fall into negative territory. (3% inflation with a 1% nominal rate, for example, equals a negative 2% real rate). So if the Wicksellian natural rate is negative, the inflation allows the real rate to fall to the natural rate.)

          The problem is that there is no reason to believe that such a thing as the Wicksellian natural rate exists.

          Amileoj -> ThomasH...

          I agree with one stipulation: monetary authorities who took such responsibilities seriously would need to promptly & publicly place their monetary tools at the disposal of the fiscal authorities.

          The most useful thing a central bank could do in such a circumstance would be to announce that interest rates on government debt will stay at the lower bound, no matter how large a deficit the government decides to run, until income output and employment are restored to at least their pre-crisis levels.

          This would be QE with a purpose--namely, to enable a real upside transmission mechanism that monetary policy alone invariably lacks.

          Paul Mathis said...

          "[G]overnment spending and debt aren't problems in the current environment."

          When have government spending and debt ever been a problem since FDR took us off the gold standard in 1933? Our national debt is more than 800 times greater since then and we have become the largest economy on the planet with the strongest military. We also overcame the Great Depression and won WWII because of the debt.

          The debt fear mongers -- Ron Paul, Tom Coburn, Alan Simpson -- have been dead wrong for years about the debt and yet everyone in D C worships at the altar of the balanced budget. Even Krugman won't give up his fears about the debt. Obama's 75% deficit reduction during the worst recession in 75 years is the main reason for our slow economic and wage growth. Enough of this nonsense!

          Paine -> Paul Mathis...
          One the one side
          Vicious no holds barred brutes
          On the other side
          debt hamlets
          pgl -> Paul Mathis...
          "Our national debt is more than 800 times greater" You love BIG numbers. What has happened to the price-level? To population? To real per capita income? Multiply these three and you get another really BIG number!

          "Even Krugman won't give up his fears about the debt."

          WTF? Was Casper the friendly ghost lurking behind him when he wrote his latest?

          Paul Mathis -> pgl...

          Do the debt fear mongers ever talk about the price level? Do they talk about per capita debt? Do they talk about per capita income?

          No of course not. They only talk about the total sum of the debt and "your share." They don't even relate it to GDP! But go ahead and explain why we should be worried about the debt. I'd love to hear it especially since we can print money to pay it at any time.

          Krugman has never completely backed away from his own fear mongering about the debt:

          "But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

          "And as that temptation becomes obvious, interest rates will soar. . . But unless we slide into Japanese-style deflation, there are much higher interest rates in our future."
          http://www.nytimes.com/2003/03/11/opinion/11KRUG.html

          Paine -> Paul Mathis...

          PK joined the highly partisan attack on little bush and his wealth building top down tax cut

          I recall the absurd dembots hysterics about run away deficits etc. Yes PK needs to fully confess self criticize and beg us to forgive him

          But he really has fear of the open budget school of Fay wray etc. He has an inner VSP he hasn't shot in the head .....yet

          Paul Mathis -> Paine ...

          Dubya's deficits never exceeded 3.5% of GDP, yet Krugman described them as a "trainwreck" and "a fiscal crisis that will drive interest rates sky-high."

          His explanation for inexplicably low interest rates:

          "I think that the main thing keeping long-term interest rates low right now is cognitive dissonance. Even though the business community is starting to get scared - the ultra-establishment Committee for Economic Development now warns that "a fiscal crisis threatens our future standard of living" - investors still can't believe that the leaders of the United States are acting like the rulers of a banana republic."

          The U.S. as a "banana republic?" Really?

          pgl -> Paul Mathis...

          "Dubya's deficits never exceeded 3.5% of GDP". But debt/GDP started another upward path even during a period of prosperity. Oh yea - they would have solved that by Social Security cuts. You and Paine are not worried about this but you don't get their agenda.

          Paul Mathis -> pgl...

          Wrong pgl

          "But debt/GDP started another upward path even during a period of prosperity."

          Dubya's debt/GDP peaked at 3.4% in 2004 as did his real GDP. Both then declined for the next 3 years.

          I'm not worried about the debt at all and I am still waiting for your explanation of why I should be. Perhaps you can also explain why the surpluses during the entire decade of the 1920s were good in light of what happened immediately thereafter.

          pgl -> Paul Mathis...

          "Dubya's debt/GDP peaked at 3.4% in 2004 as did his real GDP."

          You are clueless. Debt and deficits are not the same thing. Learn basic definitions.

          pgl -> pgl...

          Federal debt/GDP. It was not a mere 3.4% in 2004 and it did continue to rise:

          https://research.stlouisfed.org/fred2/series/GFDEGDQ188S

          I think Paul Mathis needs to get his definitions right before he says anyone else is wrong.

          Paul Mathis -> pgl...
          You might want to check our OMB's historical table 1.2 before you lecture me.
          https://www.whitehouse.gov/omb/budget/historicals
          Paine -> pgl...
          Pedantic loop holing again eh pgl. You know what he's saying you have no answer beyond bluster

          Mr bluster !

          Paul Mathis -> pgl...

          "Debt and deficits are not the same thing." Well duh! I never said they were. Learn to read.

          half-mast tailgate streamlining -> pgl...

          "Debt and deficits are not the same thing. Learn"
          ~~pgl~

          Not identical but vitally intertwined. Deficits can lead to debt, but debt service can lead to deficits. Do you see the recursion? The retroflexive self-reinforcement that can spiral upward?

          No the spiral really doesn't matter because we owe it all to ourselves, to our own wealthy folks. Hell! They actually enjoy the debt servitude that we shoulder. No! Owning it to ourselves is not the problem. The spiral upward is not a problem, unless . . .

          Unless we are also the jokers who print up the GTF, global Triffin fiat. No! We don't make big bucks from the print jobby that foreigners buy from us with their goods and services, but

          But the amount per capita is better than a kick in the butt. We don't want to lose that concession until we are independently wealthy, wealthy enough to stop burning up the resources that will morph into the kind of CO2 that will destroy the human species. Then again we definitely deserve to be trashed.

          pgl -> Paine ...

          Partisan attacks? The entire purpose of those tax cuts was to give to the rich as they tried to take for the poor. Sorry but that is CLASS WARFARE.

          Paine -> pgl...

          The class war is won with solid attacks not shoddy opportunism that appears to certify the deficit fetish

          pgl -> Paul Mathis...

          "Do the debt fear mongers ever talk about the price level? Do they talk about per capita debt? Do they talk about per capita income?"

          Not the fear mongers and I don't take their rants seriously. But those who want to do real analysis do.

          Paul Mathis -> pgl...

          Fear mongering about the debt is political and those who do it should be refuted with all available facts. Serious economic analysis has NOTHING to do with our debt discussions over the past 6 years. People who know facts should use them to stop the debt fear mongers who have no interest in serious analysis. That should be obvious by now.

          pgl -> Paul Mathis...

          Listen - I am not Chris Christie or Jeb Bush. And I have called for fiscal stimulus. So enough with this straw man nonsense.

          Paine -> pgl...

          Chris C is your bench mark ?

          Talk about a low bar

          Peter K. -> Paul Mathis...

          "Obama's 75% deficit reduction during the worst recession in 75 years is the main reason for our slow economic and wage growth. Enough of this nonsense!"

          Exactly. But the Republicans in the House helped push it.

          Paul Mathis -> Peter K....

          Obama wanted MORE cuts than Repubs had done: In his 2013 State of the Union speech, Pres. Obama noted that the deficit had decreased "more than $2.5 trillion" under his administration and the vast majority was spending cuts. Also, he wanted another $1.5 trillion of deficit reduction.

          Obama negotiated at length with Repubs to get a "Grand Bargain" only to fail because Cantor stabbed Boehner in the back at the last moment. Obama is definitely responsible for the 75% deficit reduction and he is very proud of it.

          pgl -> Paul Mathis...
          I never supported the Grand Bargain. I have consistently based this GOP austerity nonsense. So has PeterK. You are preaching to the choir.
          Paul Mathis -> pgl...
          I'm not letting Obama off the hook for our economic debacle and I am calling out Krugman too. Enough with the nonsense!

          EMichael -> Paul Mathis...

          BS

          Nothing quite like sound bytes in a political speech to "prove" a point.

          Yeah, Obama should have said I got my ass kicked by these nut jobs running our country.

          The Rage -> Paul Mathis...
          Debt is irrelevant in some respects. QE failed because it was being absorbed into a global financial system that was geared toward Asian,Commodity and domestic financial bank accounts. The real problem since 2003 triggered by the end of the cold war was the disinvestment nationally in favor of Asian development and Oil producing countries ate it up. If you really want to "improve" growth in the US, this system had to go. Don has been talking about this for years on this blog.

          Just surging public debt to keep a domestically bad system in place, is bad policy. Time for capital to diversify and bring some of that money back home. China will have to change. If they want to really challenge the US, they will need a consumer base strong enough to do so.

          Paul Mathis -> The Rage...
          "Just surging public debt to keep a domestically bad system in place, is bad policy."

          How about cutting the deficit 75% during the worst recession in 75 years? Is that good policy?

          The Rage -> Paul Mathis...
          Cutting the deficit after it surged 75% is ad hoc
          Paine -> The Rage...
          Dollar Finance is unlimited
          Forget the flight
          The fed in he peoples hands can fund everything

          We need to forget these artificial hedge rows created by and for
          Private profit driven finance capital


          We can build a giant fully automated green social production system
          All with uncles funds

          RGC said...

          The counterpart to the global savings glut is the global private debt glut.

          The giant vampire squid has sucked so much blood of the common citizenry that demand is anemic.

          The solution is to redistribute the blood from the squid to the citizenry and all will be well.

          EMichael -> RGC...

          No, that is not true.

          The squid has sucked all the income into the way upper class.

          Paine -> EMichael...

          We need a wage boom

          And we've known how to trigger one since 1940

          Paine -> Paine ...

          And I don't mean build a huge new war machine

          pgl -> Paine ...

          But 1940 was a huge new war machine. No - we need to build school buildings, infrastructure, and green technology. In contrast to Carly - let's regulate so the private sector has to innovate.

          Paine -> Paine ...

          http://www-personal.umich.edu/~shapiro/papers/labor-29jun2010-for-www.pdf


          This is worthy of Mankiw

          john c. halasz -> pgl...

          Umm... not that I would trust anything from Mankiw,(and the MA proposal that he supports from what I've read of it is crap), but an carbon tax-and-rebate scheme is an essential, though not sufficient measure, and rebating it through the FICA tax, with a progressive tilt, and building it out from there would be the most logical way to do it on the national scale.

          john c. halasz -> Paine ...

          Public investment and indicative planning are also essential, to transform infrastructure and capitals stocks are also essential. I object to the idea that any tax should be used to funding that rather than rebated. But my intuition is that the tax-and-rebate is the more readily attainable, given the current politics, and has the additional benefit of bringing in virtually the entire population into the issue, rather than being an "elite' concern, once the effects of rebates are felt, enabling further required programs and projects. (Of course, stripping away the $500 bn in annual fossil fuel subsidies would also surely help.)

          Ellis -> EMichael...

          You're right.

          Where did the supposed "savings glut" (they're just saving too much money! Ha! Ha! Ha!) come from.

          "Corporate profitability is not translating into widespread economic prosperity.

          The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings-a total of $2.4 trillion-to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees."

          "Profits Without Prosperity" HBR
          William Lazonick

          https://hbr.org/2014/09/profits-without-prosperity/ar/1

          Ellis -> Ellis...

          So rather than invest profits, companies distribute their profits right back to their shareholders in the form of dividends and stock buybacks, trillions of dollars worth. Those investors place their holdings with financial companies.

          So, the glut in savings is really a glut in uninvested capital.

          What's so disgusting is that the money could be put to work by producing the things that we need and in the process create jobs. Instead, it is simply used to blow up financial bubbles... and crises and depressions.

          And no one holds them accountable. No one even dares mention their name... capitalists.

          Dan Kervick said...

          "a huge excess of savings over investment in China and other developing nations... He worried a bit about the fact that the inflow of capital was being channeled, not into business investment, but into housing; obviously he should have worried much more. ..."

          Yes, good.

          "What's ... important now is that policy makers take seriously the possibility, I'd say probability, that excess savings and persistent global weakness is the new normal."

          But *why* is it the new normal? What is going on now? What would explain this phenomenon?

          A problem perhaps is that the people with wealth to invest, and the people who manage that wealth for them, to are dedicated to the proposition that all investors are entitled to a safe, risk-free, easy money return on their investments at a level that exceeds the growth rate.

          So what have they done? Expand the "financial sector" in desperate pursuit of these elusive real returns. That includes all of the schemes involved in squeezing, wringing, twisting and scamming returns out of the economic flows generated by the people who are actually producing the value. The financial sector isn't just

          What is to be done about it? Well one thing that must be done is more assertive action to pull more of that accumulated wealth out of the safety-and-rent-farming sector and push it into real productive activity - at the firm level, the state level, the national level and the global level.

          Use more supply side sticks instead of supply side carrots. Instead of giving concentrated wealth another tax break and begging them to, pretty-please, invest their wealth in economic expansion instead of retaining earnings and paying dividends, threaten them with an additional punitive tax if they *don't* invest a greater proportion of profits in expansion.

          Also, the public has the option of simply *taxing wealth away* from the rent-farmers and using it for smarter, more coordinated, and more strategically ambitious purposes.

          Jeff Bezos has one thing right: Amazon plows most of its profits back into growing Amazon instead of rewarding stock-holders in the short-term. (Of course he pays himself a buttload of money, which is recorded as a "labor cost" instead of profit, and stiffs his own workers, so it's not a perfect object lesson.)

          Another problem is the graying of the developed world. This is giving us a world in which a dwindling proportion of workers have to produce more and more output to provide for the consumption needs of an expanding proportion of non-producing population. The greater abundance of retirees and near-retirees has given us a greater volume of funds in desperate search of real returns from a productive sector that is struggling to supply them, and has blown up the financial sector to supply dubious nominal returns through semi-Ponzi bubblicious asset price inflations as a substitute.

          Anyway, if the market system by itself is not-generating the right balance of consumption to investment, and is not succeeding in channeling savings into productive investment and out of rent-farming and ponzi-economy fluff, then it is the job of government to do this job for us.

          Dan Kervick -> Dan Kervick...

          The paragraph that reads,

          "So what have they done? Expand the "financial sector" in desperate pursuit of these elusive real returns. That includes all of the schemes involved in squeezing, wringing, twisting and scamming returns out of the economic flows generated by the people who are actually producing the value. The financial sector isn't just"

          was supposed to be completed this way:

          "So what have they done? Expand the "financial sector" in desperate pursuit of these elusive real returns. That includes all of the schemes involved in squeezing, wringing, twisting and scamming returns out of the economic flows generated by the people who are actually producing the value. The financial sector isn't just the sector that channels savings into productive investment; it also contains the sub-sector that manufactures new ways of collecting rents."

          JF -> Dan Kervick...

          Let's see, the NY FED just released a study reporting that around 2007 the trading units of the banks were operating with leverage at 48-1.

          We need to stop using the loanable funds theory when discussing policy and the facts - yes the banks used lots of "schemes involved in squeezing, wringing, twisting and scamming" but they did not need to concern themselves about returns from the economic flows generated by the people who are actually producing the value - they created the lending accounts, out of whole cloth. That is where the new "wealth" came from, it came from account-entries used to fuel financial asset positions, huge amount 2000-2007, conspicuous years. A glut of these positions were created, divorced from those who produce real value in terms of goods and services that can profit from the test of good markets.

          We have a new generation of "investors" who have learned that financial asset trading, using leverage, is how wealth is produced - sure these financial positions are owned and traded as financial positions - but is that the production function economics of Smith, Wicksell, Bagehot, Marshal, Keynes, etc.?

          What should the FED do instead of what it is doing now (or contemplating as some are apparently, with regard to raising payments being made to banks for donig nothing with the intention of causing credit prices to rise affecting all aspects of the economy)?

          Paine -> Dan Kervick...

          The Chinese elite resists the obvious solution: Helicopter money on a grandiose scale

          Send the peasants a 30 year social dividend. In a series of pay outs and through a payment system
          that becomes the infrastructure of a vast state of the art transfer system
          Based on plastic cards with chips

          Paine -> Paine ...

          State of the art railroads are hardly as valuable as state of the art payment and depository systems

          Do it comrades DOIT Nooooooow

          pgl -> Paine ...

          The Chinese are putting us to shame on investment in infrastructure. But they save so much that they could be financing our infrastructure investment.

          Paine -> pgl...

          They need to sell more household durables

          To their vast lower middle income households
          Thru a subsidy sell off of great leap proportions

          [Aug 29, 2015] U.S. Inflation Developments

          This establishment stooge can't care less about employment. All he cares is 0.1%.
          .
          "..."and the labor market is approaching our maximum employment objective..." I stopped reading there."
          .
          "...The wealthy special interests really want a rate hike. There must be a large amount of profit riding on a rate hike."
          .
          "..."The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus." We are ruled by idiots. "
          .
          "...Idiots [pandering to those who will get a larger piece of the pie, and] who don't care that the "pie" shrinks. When the fed goes insane on rates the shorters (wall st gamblers/hedgers) and the cash hoarders will celebrate. It is not idiocy it is [class treachery] selling out the masses for the rentier class. A skirmish in the class wars, maybe Bernie would comment."
          .
          "...Industrial Deflation is what causes inflation to look "low". This was a problem in the 00's when consumer price inflation was being covered up by deflation in industrial prices. The way prices are computed and trimmed don't always reflect reality. The deflation caused by the tech revolution for industrial production needs to be outright stripped out of indices.

          The mythical "full employment" or a overheated economy doesn't imply inflation is coming either. This is where I reject most of the analysis on this board. Inflation didn't see it in 97 or especially in 05. It failed. All you have left is to guess. "
          .
          "...What Fisher and the other governors can't and won't say is that they are very worried about another major global downturn, and they are worried about the fact that if interest rates are not higher when that recession hits, they will have no room to lower them sharply when they need to."

          [A speech by Stanley Fischer at Jackson Hole turned into a pretend interview]

          Hello, and thank you for talking with us.

          Let me start by asking if you feel like it gives the Fed a bad image to have a conference in an elite place like Jackson Hole. Why not have the conference in, say, a disadvantaged area to send the signal that you care about these problems, to provide some stimulus to the area, etc.?

          I am delighted to be here in Jackson Hole in the company of such distinguished panelists and such a distinguished group of participants.

          Okay then. Let me start be asking about your view of the economy. How close are we to a full recovery?:

          Although the economy has continued to recover and the labor market is approaching our maximum employment objective, inflation has been persistently below 2 percent. That has been especially true recently, as the drop in oil prices over the past year, on the order of about 60 percent, has led directly to lower inflation as it feeds through to lower prices of gasoline and other energy items. As a result, 12-month changes in the overall personal consumption expenditure (PCE) price index have recently been only a little above zero (chart 1).

          Why are you telling us about headline inflation? What about core inflation? Isn't that what the Fed watches?

          ...measures of core inflation, which are intended to help us look through such transitory price movements, have also been relatively low (return to chart 1). The PCE index excluding food and energy is up 1.2 percent over the past year. The Dallas Fed's trimmed mean measure of the PCE price index is higher, at 1.6 percent, but still somewhat below our 2 percent objective. Moreover, these measures of core inflation have been persistently below 2 percent throughout the economic recovery. That said, as with total inflation, core inflation can be somewhat variable, especially at frequencies higher than 12-month changes. Moreover, note that core inflation does not entirely "exclude" food and energy, because changes in energy prices affect firms' costs and so can pass into prices of non-energy items.

          So are you saying you don't believe the numbers? Why bring up that core inflation is highly variable unless you are trying to de-emphasize this evidence? In any case, isn't there reason to believe these numbers are true, i.e. doesn't the slack in the labor market imply low inflation?

          Of course, ongoing economic slack is one reason core inflation has been low. Although the economy has made great progress, we started seven years ago from an unemployment rate of 10 percent, which guaranteed a lengthy period of high unemployment. Even so, with inflation expectations apparently stable, we would have expected the gradual reduction of slack to be associated with less downward price pressure. All else equal, we might therefore have expected both headline and core inflation to be moving up more noticeably toward our 2 percent objective. Yet, we have seen no clear evidence of core inflation moving higher over the past few years. This fact helps drive home an important point: While much evidence points to at least some ongoing role for slack in helping to explain movements in inflation, this influence is typically estimated to be modest in magnitude, and can easily be masked by other factors.

          If that's true, if the decline in the slack in the labor market does not translate into a notable change in inflation, why is the Fed so anxious to raise rates based upon the notion that the labor market has almost normalized? Is there more to it than just the labor market?

          ...core inflation can to some extent be influenced by oil prices. However, a larger effect comes from changes in the exchange value of the dollar, and the rise in the dollar over the past year is an important reason inflation has remained low (chart 4). A higher value of the dollar passes through to lower import prices, which hold down U.S. inflation both because imports make up part of final consumption, and because lower prices for imported components hold down business costs more generally. In addition, a rise in the dollar restrains the growth of aggregate demand and overall economic activity, and so has some effect on inflation through that more indirect channel.

          That argues against a rate increase, not for it. Anyway, I interrupted, please continue.

          Commodity prices other than oil are also of relevance for inflation in the United States. Prices of metals and other industrial commodities, and agricultural products, are affected to a considerable extent by developments outside the United States, and the softness we've seen in these commodity prices, has in part reflected a slowing of demand from China and elsewhere. These prices likely have also been a factor in holding down inflation in the United States.

          So you must believe that all of these forces holding down inflation (many of which are stripped out by core inflation measures, which are also low) that these factors are easing, and hence a spike in inflation is ahead?

          The dynamics with which all these factors affect inflation depend crucially on the behavior of inflation expectations. One striking feature of the economic environment is that longer-term inflation expectations in the United States appear to have remained generally stable since the late 1990s (chart 6). ... Expectations that are not stable, but instead follow actual inflation up or down, would allow inflation to drift persistently. In the recent period, movements in inflation have tended to be transitory.

          Let's see, lots of factors holding down inflation, longer-term inflation expectations have been stable throughout the recession and recovery, remarkably so, yet the Fed still thinks a rate raise ought to come fairly soon?

          We should however be cautious in our assessment that inflation expectations are remaining stable. One reason is that measures of inflation compensation in the market for Treasury securities have moved down somewhat since last summer (chart 7). But these movements can be hard to interpret, as at times they may reflect factors other than inflation expectations, such as changes in demand for the unparalleled liquidity of nominal Treasury securities.

          I have to be honest. That sounds like the Fed is really reaching to find a reason to justify worries about inflation and a rate increase. Let me ask this a different way. In the Press Release for the July meeting of the FOMC, the committee said it can be " reasonably confident that inflation will move back to its 2 percent objective over the medium term." Can you explain this please? Why are you "reasonably confident" in light of recent history?

          Can the Committee be "reasonably confident that inflation will move back to its 2 percent objective over the medium term"? As I have discussed, given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further. While some effects of the rise in the dollar may be spread over time, some of the effects on inflation are likely already starting to fade. The same is true for last year's sharp fall in oil prices, though the further declines we have seen this summer have yet to fully show through to the consumer level. And slack in the labor market has continued to diminish, so the downward pressure on inflation from that channel should be diminishing as well.

          Yet when these forces were absent -- they weren't there throughout the crisis -- inflation was still stable. But this time will be different? I guess falling slack in the labor market will make all the difference? More on labor markets in a moment, but let me ask if you have more to say about inflation expectations first.

          ...with regard to expectations of inflation, it is possible to consult the results of the SEP, the Survey of Economic Projections, which FOMC participants complete shortly before the March, June, September, and December meetings. In the June SEP, the central tendency of FOMC participants' projections for core PCE inflation was 1.3 percent to 1.4 percent this year, 1.6 percent to 1.9 percent next year, and 1.9 percent to 2.0 percent in 2017. There will be a new SEP for the forthcoming September meeting of the FOMC.
          Reflecting all these factors, the Committee has indicated in its post-meeting statements that it expects inflation to return to 2 percent. With regard to our degree of confidence in this expectation, we will need to consider all the available information and assess its implications for the economic outlook before coming to a judgment.

          You will need to consider all the available information, I agree wholeheartedly with that. I just hope that information includes how poor forecasts like those just cited have been in the past, and the Fed's own eagerness to see "green shoots" again and again, far before it was time for such declarations.

          What might deter the Fed from it's intention to raise rates sooner rather than later?

          Of course, the FOMC's monetary policy decision is not a mechanical one, based purely on the set of numbers reported in the payroll survey and in our judgment on the degree of confidence members of the committee have about future inflation. We are interested also in aspects of the labor market beyond the simple U-3 measure of unemployment, including for example the rates of unemployment of older workers and of those working part-time for economic reasons; we are interested also in the participation rate. And in the case of the inflation rate we look beyond the rate of increase of PCE prices and define the concept of the core rate of inflation.

          I find these kinds of statement difficult to square with the statement that labor markets are almost back to normal. Anyway, what, in particular, will you look at?

          While thinking of different aspects of unemployment, we are concerned mainly with trying to find the right measure of the difficulties caused to current and potential participants in the labor force by their unemployment. In the case of the core rate of inflation, we are mainly looking for a good indicator of future inflation, and for better indicators than we have at present.

          How do recent events in China change the outlook for policy?

          In making our monetary policy decisions, we are interested more in where the U.S. economy is heading than in knowing whence it has come. That is why we need to consider the overall state of the U.S. economy as well as the influence of foreign economies on the U.S. economy as we reach our judgment on whether and how to change monetary policy. That is why we follow economic developments in the rest of the world as well as the United States in reaching our interest rate decisions. At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual.

          I know you won't answer this directly, but let me try anyway. When will rates go up?

          The Fed has, appropriately, responded to the weak economy and low inflation in recent years by taking a highly accommodative policy stance. By committing to foster the movement of inflation toward our 2 percent objective, we are enhancing the credibility of monetary policy and supporting the continued stability of inflation expectations. To do what monetary policy can do towards meeting our goals of maximum employment and price stability, and to ensure that these goals will continue to be met as we move ahead, we will most likely need to proceed cautiously in normalizing the stance of monetary policy. For the purpose of meeting our goals, the entire path of interest rates matters more than the particular timing of the first increase.

          As expected, that was pretty boilerplate. When rates do go up, how fast will they rise?

          With inflation low, we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening. Should we judge at some point in time that the economy is threatening to overheat, we will have to move appropriately rapidly to deal with that threat. The same is true should the economy unexpectedly weaken.

          The Fed has said again and again that it's 2 percent inflation target is symmetric with respect to errors, i.e. it will get no more worried or upset about, say, a .5 percent overshoot of the target than it will an undershoot of the same magnitude (2.5 percent versus 1.5 percent). However, many of us suspect that the 2 percent target is actually a ceiling, not a central tendency, or that at the very least the errors are not treated symmetrically, and statements such as this do nothing to change that view.

          I have quite a few more questions, and I wish we had time to hear your response to the charge that the 2 percent target is functionally a ceiling, but I know you are out of time and need to go, so let me just thank you for talking with us today. Thank you.

          bakho said...

          The wealthy special interests really want a rate hike. There must be a large amount of profit riding on a rate hike.

          The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus. Wealthy special interests would like the economy to be less good by this time next year to tilt the presidential election their way.

          ilsm -> pgl...

          The fed (Cossacks) works for the .1% (Tsar).

          Sandwichman

          "and the labor market is approaching our maximum employment objective..."

          I stopped reading there.

          Peter K. -> Sandwichman...

          Yeah. Nice appointment, thanks Obama....

          ilsm -> Sandwichman...

          Mc Donald's may have to start paying $7.75!!

          pgl -> ilsm...

          Actually some are paying $9. Oh my - a Big Mac might actually cost something.

          ilsm -> pgl...

          The big mac is helping out your embalmer.

          Joke is most of us cannot afford anything more than a cremator.

          Cardiologists follow Mickey D sales!

          anne -> Sandwichman...

          "and the labor market is approaching our maximum employment objective..." I stopped reading there.

          [ Really, really awful comment but limiting employment is what Stanley Fischer is all about so the only surprise is in the saying so. ]

          pgl -> Sandwichman...

          But later he admitted there was ongoing economic slack. He sounded very confused.

          Peter K. -> pgl...

          On the one hand he's trying to inspire confidence in the economy, cheerlead, and clap his hands to conjure the confidence fairy.

          On the other he's being more realistic which hopefully is their frame of mind when making interest rate decisions.

          One is public relations, one is where the rubber hits the road.

          RC AKA Darryl, Ron -> Peter K....

          A rubber chicken in every pot :<0

          Peter K. said...

          "Although the economy has made great progress, we started seven years ago from an unemployment rate of 10 percent, which guaranteed a lengthy period of high unemployment."

          It didn't guarantee it. An insufficient monetary-fiscal mix guaranteed a lengthy period of high unemployment, wage stagnation and increasing inequality.

          But at least inflation remained low and the deficit came down!

          ilsm -> Peter K....

          If UE rate counted people out longer than 26 weeks......

          anne said...

          http://stats.oecd.org/Index.aspx?DatasetCode=LFS_SEXAGE_I_R

          January 4, 2015

          Employment-Population Ratios, 2014

          United States ( 76.7) *

          Australia ( 78.8)
          Austria ( 83.4)
          Belgium ( 79.1)
          Canada ( 81.2)

          Denmark ( 82.0)
          Finland ( 80.4)
          France ( 80.5)
          Germany ( 83.5)

          Greece ( 62.4)
          Iceland ( 85.7)
          Ireland ( 72.3)
          Israel ( 78.2)

          Italy ( 67.9)
          Japan ( 82.1)
          Korea ( 75.7)
          Luxembourg ( 83.7)

          Netherlands ( 81.7)
          New Zealand ( 81.8)
          Norway ( 83.9)
          Portugal ( 77.4)

          Spain ( 67.4)
          Sweden ( 85.4)
          Switzerland ( 86.9)
          United Kingdom ( 82.0)

          * Employment age 25-54

          anne said...

          http://stats.oecd.org/Index.aspx?DatasetCode=LFS_SEXAGE_I_R

          January 4, 2015

          Employment-Population Ratios for Women, 2014

          United States ( 70.0) *

          Australia ( 72.0)
          Austria ( 80.3)
          Belgium ( 74.9)
          Canada ( 77.4)

          Denmark ( 78.4)
          Finland ( 78.0)
          France ( 76.2)
          Germany ( 78.8)

          Greece ( 53.1)
          Iceland ( 82.1)
          Ireland ( 66.6)
          Israel ( 74.3)

          Italy ( 57.6)
          Japan ( 71.8)
          Korea ( 62.7)
          Luxembourg ( 76.8)

          Netherlands ( 76.5)
          New Zealand ( 74.9)
          Norway ( 81.4)
          Portugal ( 74.3)

          Spain ( 62.3)
          Sweden ( 82.8)
          Switzerland ( 81.8)
          United Kingdom ( 76.1)

          * Employment age 25-54

          anne -> anne...

          As in the child's game, one of these things is not like the other, the United States employment-population ratio for men and women, and for women, from 25 to 54 was remarkably lower than 19 of 24 developed countries in 2014. The exceptions were the austerity beset countries Ireland, Spain, Italy and Greece as well as Korea in which women are just entering the workforce in significant numbers.


          pgl -> bakho...

          "The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus."

          We are ruled by idiots.

          ilsm -> pgl...

          Idiots [pandering to those who will get a larger piece of the pie, and] who don't care that the "pie" shrinks. When the fed goes insane on rates the shorters (wall st gamblers/hedgers) and the cash hoarders will celebrate. It is not idiocy it is [class treachery] selling out the masses for the rentier class.

          A skirmish in the class wars, maybe Bernie would comment.

          Mike Sparrow said...

          Industrial Deflation is what causes inflation to look "low". This was a problem in the 00's when consumer price inflation was being covered up by deflation in industrial prices. The way prices are computed and trimmed don't always reflect reality. The deflation caused by the tech revolution for industrial production needs to be outright stripped out of indices.

          The mythical "full employment" or a overheated economy doesn't imply inflation is coming either. This is where I reject most of the analysis on this board. Inflation didn't see it in 97 or especially in 05. It failed. All you have left is to guess.

          Peter K. said...

          Scroll, scroll, scroll:

          Thoma:

          "I just hope that information includes how poor forecasts like those just cited have been in the past, and the Fed's own eagerness to see "green shoots" again and again, far before it was time for such declarations."

          Well put. This is probably why markets don't fear an uptick in inflation anytime soon. Quite the contrary. It's probably partly why longterm inflation expectations are "stable."

          anne said...

          http://www.project-syndicate.org/commentary/fed-monetary-policy-tightening-risks-by-j--bradford-delong-2015-08

          August 28, 2015

          A Cautionary History of US Monetary Tightening
          By J. Bradford DeLong

          BERKELEY – The US Federal Reserve has embarked on an effort to tighten monetary policy four times in the past four decades. On every one of these occasions, the effort triggered processes that reduced employment and output far more than the Fed's staff had anticipated. As the Fed prepares to tighten monetary policy once again, an examination of this history – and of the current state of the economy – suggests that the United States is about to enter dangerous territory.

          Between 1979 and 1982, then-Fed Chair Paul Volcker changed the authorities' approach to monetary policy. His expectation was that by controlling the amount of money in circulation, the Fed could bring about larger reductions in inflation with smaller increases in idle capacity and unemployment than what traditional Keynesian models predicted.

          Unfortunately for the Fed – and for the American economy – the Keynesian models turned out to be accurate; their forecasts of the costs of disinflation were dead on. Furthermore, this period of monetary tightening had unexpected consequences; financial institutions like Citicorp found that only regulatory forbearance saved them from having to declare bankruptcy, and much of Latin America was plunged into a depression that lasted more than five years.

          Then, between 1988 and 1990, another round of monetary tightening under Alan Greenspan ravaged the balance sheets of the country's savings and loan associations, which were overleveraged, undercapitalized, and already struggling to survive. To prevent the subsequent recession from worsening, the federal government was forced to bail out insolvent institutions. State governments were on the hook, too: Texas spent the equivalent of three months of total state income to rescue its S&Ls and their depositors.

          Between 1993 and 1994, Greenspan once again reined in monetary policy, only to be surprised by the impact that small amounts of tightening could have on the prices of long-term assets and companies' borrowing costs. Fortunately, he was willing to reverse his decision and cut the tightening cycle short (over the protests of many on the policy-setting Federal Open Markets Committee) – a move that prevented the US economy from slipping back into recession.

          The most recent episode – between 2004 and 2007 – was the most devastating of the four. Neither Greenspan nor his successor, Ben Bernanke, understood how fragile the housing market and the financial system had become after a long period of under-regulation. These twin mistakes – deregulation, followed by misguided monetary-policy tightening – continue to gnaw at the US economy today.

          The tightening cycle upon which the Fed now seems set to embark comes at a delicate time for the economy. The US unemployment rate may seem to hint at the risk of rising inflation, but the employment-to-population ratio continues to signal an economy in deep distress. Indeed, wage patterns suggest that this ratio, not the unemployment rate, is the better indicator of slack in the economy – and nobody ten years ago would have interpreted today's employment-to-population ratio as a justification for monetary tightening.

          Indeed, not even the Fed seems convinced that the economy faces imminent danger of overheating. Inflation in the US is not just lower than the Fed's long-term target; it is expected to stay that way for at least the next three years. And the Fed's change in policy comes at a time when its own economists believe that US fiscal policy is inappropriately restrictive.

          Meanwhile, given the fragility – and interconnectedness – of the global economy, tightening monetary policy in the US could have negative impacts abroad (with consequent blowback at home), especially given the instability in China and economic malaise in Europe....

          Dan Kervick said...

          "At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual."

          I think this is probably the most important sentence in the entire speech.

          What Fisher and the other governors can't and won't say is that they are very worried about another major global downturn, and they are worried about the fact that if interest rates are not higher when that recession hits, they will have no room to lower them sharply when they need to.

          Richard H. Serlin said...

          But what about asymmetric loss Dr. Fischer?!

          You have to know what that is.

          Why don't you think the loss and overall risk is much bigger from pulling the trigger too early than from pulling the trigger too late?

          How is inflation that gets up to 3%, 4%, even higher single digits more of a danger than a lost decade, severe unemployment (low labor force participation) and underemployment? Especially when overly high inflation is far easier to remedy?

          I really really wonder what you're really thinking.

          Richard H. Serlin -> Richard H. Serlin...

          And I also seriously wonder how much of it has to do with the fact that no one ever making these decisions ever has any risk of ever being unemployed without means and with a family to support.

          [Aug 29, 2015] Leveraged Financial Speculation to GDP in the US at a Familiar Peak, Once Again

          Aug 29, 2015 | jessescrossroadscafe.blogspot.com
          "I believe myriad global "carry trades" – speculative leveraging of securities – are the unappreciated prevailing source of finance behind interlinked global securities market Bubbles. They amount to this cycle's government-directed finance unleashed to jump-start a global reflationary cycle.

          I'm convinced that perhaps Trillions worth of speculative leverage have accumulated throughout global currency and securities markets at least partially based on the perception that policymakers condone this leverage as integral (as mortgage finance was previously) in the fight against mounting global deflationary forces."

          Doug Noland, Carry Trades and Trend-Following Strategies

          The basic diagnosis is correct. But the nature of the disease, and the appropriate remedies, may not be so easily apprehended, except through simple common sense. And that is a rare commodity these days.

          Like a dog returns to its vomit, the Fed's speculative bubble policy enables the one percent to once again feast on the carcass of the real economy.

          'And no one could have ever seen it coming.'

          Once is an accident.

          Twice is no coincidence.

          Remind yourself what has changed since then. Banks have gotten bigger. Schemes and fraud continue.

          What will the third time be like? And the fourth?

          Do you think that Jamie bet Lloyd a dollar that they couldn't do it again?

          Should we ask them to please behave, levy some token fines, watch the politicans yell and posture in some toothless public hearings, let all of them keep their jobs and their bonuses? And then bail them out, wind up the old Victrola, and have another go at the same old thing again?

          Maybe we can vote for one of their hired servants, or skip the middlemen and vote for one of the arrogant hustlers themselves, and hope they get tired of taking us for a ride before we all go broke.

          This policy we have now is the trickle down stimulus that the wealthy financiers have been sucking on with every opportunity that they have made for themselves since the days of Andrew Jackson. Whenever the ability to create and distribute money has been handed over by a craven Congress to private corporations and banking cartels without sufficient oversight and regulation, excessive speculation, financial recklessness, and moral hazard have acted like a plague of misery and stagnation on the real economy.

          "Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank.

          You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!

          You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out."

          From the original minutes of the Philadelphia bankers sent to meet with President Jackson February 1834, from Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels

          I believe all of the above is entirely possible. Because we still have an unashamed cadre of quack economists and their ideologically blind followers blaming the victims, prescribing harsh punishments for the weak, laying all the blame on 'government' and not corrupt officials on the payrolls of Big Money, and giving the gods of the market and their masters of the universe a big kiss on the head, and expecting them to just do the right thing the next time out of the natural goodness of their unrestrained natures the next time. What could go wrong with that?

          Genuine reform. It's too much work, and too much trouble.


          Related: Comprehensive Tally of Banker Fraud

          h/t Jesse Felder for the chart

          [Aug 29, 2015] Maintaining Confidence - Keep On Dancing

          Aug 29, 2015 | Jesse's Café Américain

          The action was a bit heavy in the metals today, as the Powers-That-Be quietly attempted to restore confidence and a sense of well-being and recovery after the somewhat disconcerting equity market plunge of Monday.

          There was intraday commentary here about some interesting Goldman Sachs activity in an otherwise exceptionally sleepy week at The Bucket Shop.

          People often ask me for a possible motive as to why central banks might care about gold and silver. Willem Middelkoop does a decent job of briefly explaining why in the first pictorial below. It is all a part of the confidence game, when a series of bad decisions place a strain on one's full faith and credit.

          The goal of the financial class is to keep the music going, and the public out there on the floor dancing so they don't have time to think.

          Still out there bottom watching.

          Have a pleasant weekend.

          [Aug 29, 2015] Fly Me To the Moon

          Qualis dominus talis est servus.
          As is the master, so is the servant.

          Titus Petronius

          Stocks came in weakly, but managed to rally in the last hour to closely largely unchanged.

          The GDP revision for 2Q yesterday was a bit much.

          The conversation on financial tv today was replete with interviews from that moveable feast of finance, from the rarified world at Jackson Hole, where the black swans of monetary policy return every so often to molt old forecasts and acquire new ones that are certain to work better than the last seven years of the same old thing.

          Mostly it is just the usual nonsense. Alan Blinder had some interesting and surprisingly realistic things to say. Most of the others were just mouth breathing the talking points about our exceptional and improving economy which will allow the Fed to raise interest rates.

          The research paper from the Fed asserting that the US is relatively immune (ok they said insulated) from global currency and economic shocks because of the position of the dollar as the settling currency of choice for international invoices was-- interesting. Why is it that so many economic, and especially monetary, theories feel so comfortable inhabiting an alternate universe where trees are blue and pigs can fly?

          And as a particularly astute reader observed, if this is actually true, is there any wonder why the rest of the world would resent the dollar hegemony if it grants that sort of power to the single nation that controls it? That they are able to wreak havoc on the rest of the world, exporting malinvestment and willfully fraudulent financial instruments, without having to endure any consequences?

          Well it doesn't work so nicely as that, but yes they do resent it for other reasons, and they have been doing more than resenting it for some time now. And that is the basis for the 'currency war' that these jokers still do not understand. They think it is only 'currency devaluations' which, along with tariffs, was the tactic of choice in the last currency war in the 1930's.

          But the one that left me gaping was the tendentious conversation this afternoon on Bloomberg about how fragile China and its markets are. And as evidence they cited the 'obvious interventions' in their stock market this week, wherein the Chinese markets slump, but then miraculously recover in the last hours of trading. They are obviously doing this so the leadership will not be embarrassed for their 70th commemoration of the end of WWII next week. Which by the way, the US is gracelessly boycotting.

          Knock, knock, hello? Is self-awareness or unintentional irony at home?

          Is there any doubt that we have been seeing the exact types of intervention by a powerful unseen hand in our own stock markets this week, on steroids, after the Monday flash crash? Does that mean that our economy is fragile and doomed as well?

          Do these people actually believe what they are saying, or is this just some clumsy attempt to try to reassure our public that if their public gets into trouble there is no need to panic because, wait for it, we are so much better, more wisely and so much more virtuously blessed to be led by those archangels of benevolent wisdom in Washington and New York.

          One can only wonder.

          Have a pleasant weekend.

          [Aug 29, 2015] Here's Why The Markets Have Suddenly Become So Turbulent

          Aug 29, 2015 | Zero Hedge
          Submitted by Charles Hugh-Smith via PeakProsperity.com,

          When stock markets are free-falling 10+% in a matter of days, it's natural to seek some answers to the question "why now?"

          Some are saying it was all the result of high-frequency trading (HFT), while others point to China's modest devaluation of its currency the renminbi (a.k.a. yuan) as the trigger.

          Trying to finger the proximate cause of the mini-crash is an interesting parlor game, but does it really help us identify the trends that will shape markets going forward?

          We might do better to look for trends that will eventually drag markets up or down, regardless of HFT, currency revaluations, etc.

          Five Interconnected Trends

          At the risk of stating the obvious, let's list the major trends that are already visible.

          1. The China Story is Over

          And I don't mean the high growth forever fantasy tale, I mean the entire China narrative is over:

          1. That export-dependent China can seamlessly transition to a self-supporting consumer economy.
          2. That China can become a value story now that the growth story is done.
          3. That central planning will ably guide the Chinese economy through every rough patch.
          4. That corruption is being excised from the system.
          5. That the asset bubbles inflated by a quadrupling of debt from $7 trillion in 2007 to $28 trillion can all be deflated without harming the wealth effect or future debt expansion.
          6. That development-dependent local governments will effortlessly find new funding sources when land development slows.
          7. That workers displaced by declining exports and automation will quickly find high-paying employment elsewhere in the economy.

          I could go on, but you get the point: the entire Story is over. (I explained why in a previous essay, Is China's "Black Box" Economy About to Come Apart? )

          This is entirely predictable. Every fast-growing economy starting with near-zero debt and huge untapped reserves of cheap labor experiences an explosive rise as the low-hanging fruit is plucked and the same abrupt stall and stagnation when the low-hanging fruit has all been harvested, leaving only the unavoidable results of debt-fueled speculation: an enormous overhang of bad debt, malinvestment (a.k.a. bridges to nowhere and ghost cities) and policies that seemed brilliant in the good old days that are now yielding negative returns.

          2. The Emerging Market Story Is Also Done

          Emerging currencies and markets have soared on the back of the China Story, as China's insatiable demand for oil, iron ore, copper, soy beans, etc. drove global demand to unparalleled heights.

          This demand pushed prices higher, which then pushed production (supply) higher, as the low cost of capital globally enabled marginal resources to be put into production with borrowed money.

          Now that China's demand has fallen off-by some accounts, China's GDP is actually in negative territory, despite official claims that it's still growing at 7% annually-commodity prices have crashed, taking the emerging markets' stock and currency markets down. (Source)

          Here is a chart of Doctor Copper, a bellwether for industrial and construction demand:

          Here is Brazil's stock market, which has declined 54% in the past 12 months:

          These are catastrophic declines, and with China's growth story over, there is absolutely nothing on the global horizon to push demand back up.

          3. Diminishing Returns on Additional Debt

          The simple truth is that expanding debt has fueled global growth. Though people identify China as the driver of global demand for commodities, China's growth is debt-driven. As noted above, China quadrupled its officially tracked debt from $7 trillion in 2007 to $28 trillion as of mid-2014-an astonishing 282 percent of gross domestic product (GDP). If we add the estimated $5 trillion of shadow-banking system debt and another year's expansion of borrowing, China's total debt of $35+ trillion is in excess of 300% of GDP-levels associated with doomed to default states such as Greece and Spain.

          While China has moved to open the debt spigot in recent days by lowering interest rates and reserve requirements, this doesn't make over-indebted borrowers good credit risks or more empty high-rises productive investments.

          Borrowed money that poured into ramping up production in emerging nations is now stranded as prices have plummeted, rendering marginal production intensely unprofitable.

          In sum: greatly expanding debt boosted growth virtually everywhere after the Global Financial Meltdown of 2008-2009. That fix is a one-off: not even China can quadruple its $35+ trillion debt to $140 trillion to reignite growth.

          Here is a sobering chart of global debt growth:

          4. Limits on Deficit-Spending (Borrowed) Fiscal Stimulus

          When the global economy rolled over into recession in 2008, governments borrowed money by selling sovereign bonds to fund increased state spending. In the U.S., federal borrowing soared to over $1 trillion per year as the government sought to replace declining private spending with public spending.

          Governments around the world have continued to run large deficits, piling up immense debts since 2008. The global move to near-zero yields has enabled governments to support these monumental debt loads, but even at near-zero yields, the interest payments are non-trivial. These enormous sovereign debts place some limits on how much governments can borrow in the next global recession-a slowdown many think has already started.

          Here is a chart of U.S. sovereign debt, which has almost doubled since 2008:

          As noted on the chart: what structural inadequacies or problems did governments fix by borrowing gargantuan sums to fund state spending? The basic answer is: none. All the same structural problems facing governments in 2008 remain untouched in 2015. These include: over-indebtedness, bad debts that haven't been written down, insolvent banks, soaring social spending as the worker-retiree ratio slips below 2-to-1, externalized environmental damage that has yet to be remediated, and so on.

          5. Central Bank Stimulus (Quantitative Easing) as Social Policy Has Been Discredited

          In the wake of the Global Financial Meltdown of 2008-2009, central banks launched monetary stimulus programs aimed at pumping money into the economy via bank lending. The stated goals of these stimulus programs were 1) boost employment (i.e. lower unemployment) and 2) generate enough inflation to stave off deflation, which is generally viewed as the cause of financial depressions.

          While it can be argued that these unprecedented monetary stimulus programs achieved modest successes in terms of lowering unemployment and pushing inflation above the zero line, they also widened wealth and income inequality.

          Even as these programs made modest dents in unemployment and deflation, they pushed asset valuations to the moon-assets largely owned by the few at the top of the wealth pyramid.

          Here is a chart of selected developed economies' income/wealth skew:

          The widespread recognition that the benefits of central bank stimulus mostly flowed to the top of the pyramid places political limits on future central bank stimulus programs.

          The 2008-09 Fixes Are No Longer Available

          In summary, the fixes for the 2008-09 recession are no longer available in the same scale or effectiveness. Expanding debt to push up demand and investment, rising state deficit spending, massive monetary stimulus programs-all of these now face limitations. This means the central banks and states have very limited tools to reignite growth as global recession trims borrowing, investment, hiring, sales and profits.

          What Ultimately Matters: Capital Flows

          In Part 2: What Happens Next Will Be Determined By One Thing: Capital Flows, we'll look at the one dynamic that ultimately establishes assets prices: capital flows.

          I personally don't think the world has experienced a period in which capital preservation has become more important than capital appreciation since the last few months of 2008 and the first few months of 2009. Other than these five months, the focus has been on speculating to obtain the highest possible yield/appreciation.

          This suggests to me that the next period of risk-off capital preservation will last a lot longer than five months, and perhaps deepen as time rewards those who adopted risk-off strategies early on.

          Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

          A_MacLaren

          Sure would be nice if the the Tylers would post up a real discussion about the Markets vs the Real Economy, policy failures and problems aren't resolved with the same thinking that created them.

          Except the Central Wankers aren't really interested in the real economy, only the fictious one that wears the mask of financial markets.

          https://www.youtube.com/watch?v=lA0BbDe2RL4

          Are we experiencing the Great Recession of 2015 or merely a painful paradigm shift in how the global economy is run? Many in the West quickly blame China for mismanagement of its economy and currency. This may or may not be true, but this is only a small fraction of a much bigger story. Has anything been learned since the financial crisis of 2008?

          CrossTalking with Mitch Feierstein, Stephen Keen, and Mark Weisbrot.

          thunderchief

          Last week, 28 billion pulled out of the Market.

          28 billion pumped in by the PPT, to keep the market from accelerating into margin calls and panic.

          Ready, set, go on Monday. .Anyone else want out while the fed props this crap up a little longer?

          junction

          The markets are turbulent because people with insight are pulling their money out of the market, flight capital in the face of a fast spreading global war. Obama's ISIS is now out of control, there is a mass migration from war zones in the Middle East and North Africa and, worse of all, jihadists are pouring into Western Europe and America. Smiling, friendly jihadists like the guy who wanted to kill everyone on that French train. I wonder if, behind that smile, Obama also is a jihadist? Nah, he is a NWO follower through and through.

          Stroke

          What Ultimately Matters: Capital Flows.....


          Sounds like somebody's been reading Martin Armstron's blog

          B2u

          "We will not have any more crashes in our time."
          - John Maynard Keynes in 1927

          novictim

          ...he said, assuming that his sound policies would be followed to the letter.

          That the fiscal policies of Keyenes have been ingored in favor of monetary policy that just feeds asset bubbles lets Keynes off the hook.

          I might add that Keynes believed in cutting deficits and increasing taxes in prosperious years and the opposite in down years. No one can say that his policies have been followed in the least.

          polo007

          http://www.barrons.com/articles/quantitative-easing-redux-1440826605

          Quantitative Easing Redux?

          Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference.

          By Vito J. Racanelli

          August 29, 2015

          If a "rate hike" is Wall Street's obsession this year, the effective opposite, "quantitative easing," gets much less mention after three mammoth rounds of central-bank asset buying, or quantitative easing, in the past few years. But what's that we hear? Another thing the Fed's Dudley said last Wednesday was, "I'm a long way from quantitative easing. The U.S. economy is performing quite well."

          Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference. "It will take less than a 20% decline in U.S. stock prices for the Fed to begin discussing a new round of quantitative easing," says Darren Pollock, a portfolio manager with Cheviot Value Management.

          On several occasions in recent years, a Fed official has stepped in with easing statements following market routs. The Fed knows it can't let the stock market fall without backpedaling on its tough monetary talk, Pollock says. It must try to keep stock prices from plummeting and pulling down consumer confidence, which could affect the economy.

          Stocks recovered big-time last week, but remain vulnerable. Should the market fall some more, Pollock says, "It may force the Fed to do a U-turn and speak of a willingness to provide more stimulus-like QE."

          The Fed won't let all the effort and money invested in propping up the economy since 2008 go to waste. It won't stand at the plate and strike out looking. The Yellen put lives.

          Temerity Trader

          If the Fed bankers are so f***ing omnipotent, then they would NEVER let the markets drop at all. Why should they? It just makes the highly trained and obedient lemmings, get fearful and panic. The Dow tumbled almost 3,000 points from its recent Fed-enabled all time-high. Why did they not stop it, and stop EVERY fall, at -250 or so? Why did they not stop the last big decline to below 7K? Everyone would remain blissfully ignorant and living happily ever after in their personal 'Matrix'. If the Fed wound up owning 50% of the entire market float, who cares so long as millions of 401K's go up?

          Or, are these falls engineered conspiracies only designed to allow the wealthy to put billions in cash to work, before the next Fed pump begins? Maybe. At any rate, if the "growth" story is really dead and millions more immigrants just accelerate the decline of America, than more debt to hide the mess will fail. Entitlements will have to be cut, sowing the seeds of more anger in the entitled masses.

          In the end, Mr. Market will tame and humble even the arrogant Fed bankers and the multitudes who worship them.

          I Write Code

          CHS swings, and misses.

          QE as social policy was never more than an academic's vaporous apparition, like the succubus scene in Ghostbusters.

          Here's my take on the "China Story", which is they've now stolen all the manufacturing they can and now, for the first time in twenty years, can no longer grow by mere theft (of course I mean "theft" in a good way, they work smart and hard to "steal" manufacturing from the US and Europe, it's the vulture capitalists at *our* end who are the criminals).

          And, maybe their vaunted central planners didn't see this coming and they smashed through the wall and over the cliff. Oops.

          But y'know, it's not a disaster for all that, just an overshoot that requires a correction. It's not like China is about to dry up and blow away.

          TeethVillage88s

          Charles Hugh Smith has done twice as well as I could have done here.

          I like what he explained about China for instance. I'm still reading through it, think this would be great to forward to the DNC, RNC, and Congressmen.

          The Federal Reserve Created our Banking System.

          I think it is fair to place the blame on the FED and to end the FED on this basis... while stressing the S&L Crisis, the Deregulation, and the 2008 Global Financial Collapse which surely might have triggered a war with Europe. And the fact that the US TBTF Banks are much bigger than European Banks since the crisis even though the are responsible for poor stewardship of the World Reserve Currency and for Toxic Paper spread to pension funds world wide.

          Of course the solutions will be more controversial than this article that lays out part of the problem or symptoms.

          Solutions are like the Third Rail.

          tall sarah

          The multiple rounds of QE and ZIRP put the markets and the economy on a course for failure. There were four trends in place before the Great Depresion and FED POLICIES cemented those trends in place for this time period.

          1. the rich got richer- thanks to QE/ZIRP

          2. investing turned to speculation- on steroids thanks to QE/ZIRP

          3. soaring market credit- thanks to QE and ZIRP

          4. lagging business investment- stock buybacks are at all time highs since tracking began in 1990. Stock buy backs are not a business investmet. They are a disinvestment. A stock buy back is a loud and clear signal that there is no reason to invest in the business because economic conditions are not present that would allow the business to recoup those monies.

          The FED is the ultimate cause of all our woes as everyone at this site knows. Spread the word to those who do not. Preaching to the choir will not bring the end to the FED.

          Berspankme

          Don't forget to mention that US and EU enables China's corruption to continue by providing a safe place for money laundering. Asset prices in US are dramatically effected by China and other EM's corrupt practices


          [Aug 28, 2015] Q2 GDP Revised up to 3.7%

          Aug 28, 2015 | Economist's View

          anon

          The Fed wants to raise interest rates:

          - in the hope of preserving there institutional economic significance,

          - out of a sense of loyalty to the Fed's history of financial influence using interest rates,

          - because using rates to influence economic events increases their professional comfort,

          - and because their economic grad school training was to fear wage push inflation above all else (they seem to believe that if inflation exceeds 2% it is a harbinger of hyper inflation).

          Economists are post-industrial shamans whose witch doctor modeling impedes macro economic understanding. The precision of models is ersatz, more or less inversely proportional to its real world relevance. The delusion of being a scientist is critical to their professional self-respect.

          Dan Kervick -> lower middle class...

          A 3.7% quarter with several hands tied behind our backs by a don-nothing government. Think about what we could do if we were really trying.

          pgl -> Dan Kervick...

          YEA! Let's build that Mexican wall. Let's wage war on China. Lord - the stupidity here is multiplying!

          Dan Kervick -> pgl...

          This is an area in which you seem to be persistently incapable of avoiding lies.

          You know very well that are a large number of ambitious long-term projects the US could do that are non-military, have nothing to do with immigration and could boost output tremendously.

          You're becoming part of the LPTS crew: "liberal pundits terrified of socialism."

          That's why Brad DeLong has an embargo on any talk about Bernie Sanders and his ideas.

          That's why Paul Krugman is also avoiding Sanders like the plague and using daily red meet partisan servings to keep Democrats' attention riveted on the foibles of the Republicans.

          That's why Brendan Nyhan has yet another column warning us all about the dangers of "Green Lanternism".

          You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake.

          40% of this country has household income of under $40,000 per year. If we remove the plutocratic capitalist stranglehold on this economy, use government to more efficiently distribute and invest our national wealth, and demote private enterprise to its proper subordinate place, we could double that rapidly and drive a wave of high-growth social transformation with all of the liberated economic energy.

          This is going to happen. Take your pick: we're either going to get the somewhat fascistic and racist Trump version on strong government or democratic socialist version. The Ivy League twits hanging on for dear life to their established networks, revolving doors, tit-for-tatting, sinecures and don't-rock-the-boat regime of stagnant managerialism are going to butts handed to them by history.

          pgl -> Dan Kervick...

          Blah, blah, blah. I guess we could employ more economists at the BEA to do what they are already doing at Census.

          Dan Kervick -> pgl...

          The Census doesn't and can't combine income distribution numbers with growth numbers on a monthly and quarterly basis. The BEA could collect this data, but doesn't, because it is part of their mission to pretend class conflict doesn't exist.

          The top quintile in the US pulls down about 50% percent of the income. That means we could get 3.7% annualized growth if their income grew by 6% while everybody else's income grew by less than 1/2 a percent.

          Is that what's happening? Inquiring minds want to know. It seems like a natural mission for the BEA to track this. But they don't.

          pgl -> Dan Kervick...

          You have no clue what these people do or the task you are whining about. With all you incessant babbling and whining - your keyboard is likely ready to just rot away.

          Me? I'm headed down to the Starbucks to whine that they don't make tacos. Duh.

          Dan Kervick -> pgl...

          I know what they do, and I know what they don't do. Their mission should be expanded.

          likbez -> Dan Kervick...

          Dan,

          I think you are mistaken about "a natural mission for the BEA to track this". Our elected officials and Wall Street executives all have a vested interest in keeping the perception of a robust economy alive. The economy growth numbers and the employment data announced are critical to this perception, but a thorough analysis of the data suggests something quite different that what we are told.

          Statistics now became more and more "number racket" performed, like in the USSR, in the interest of the powers that be.

          • Think about "substitution" games in measuring consumer inflation.
          • Think about "Birth/Death adjustment" in employment data.
          • Think about tricks they play with GDP measurement.

          The net result of this tricks is that the error margin of government statistics is pretty high. And nobody in economic profession is taking into account those error margins.

          So in no way we can accept this 3.7% annualized growth figure. This is a fuzzy number, a distribution from probably 2.7% to 3.7%. Only upper bound is reported. And if you delve into the methodology deeper this range might be even wider. What is actually the assumption of quarterly inflation in the USA used in calculation of this number?

          Which is another factor that makes neoliberal economics a pseudoscience, a branch of Lysenkoism.

          JohnH -> Dan Kervick...

          This is very revealing...nobody provides regular statistics on distribution. That lack of interest makes it blatantly obvious that policy makers only care about the top number--GDP--and are totally uninterested in knowing whether most Americans are prospering or not.

          There is one source that updates Census data on a monthly basis. It shows that real median household income is still 3.8% below where it was in 2008 or in 2001. In fact, it's back where it was in the 1980s.

          Of course, the 'recovery' has trickled down a bit, just as you would expect from trickle down monetary policy. Real median household incomes are no longer 9.6% below where they were in 2008...they're now only 3.8% below.
          http://www.advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php

          Meanwhile, Saez and Montecino have pointed out that the 1% got 58% of the gains from the 'recovery,' while the 99% got 42%.

          Of course, pgl doesn't even care enough about this to know where the data is...and, apparently, most 'liberal' economists are just as indifferent to distribution as he is.

          Dan Kervick -> JohnH...

          If it weren't for Piketty and Saez, we'd still be fumbling around in the dark on income and wealth distribution.

          JohnH -> JohnH...

          There's more here: real median household income by quintile 1967-2013
          http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php

          It shows the dramatic the separation between the top quintile and the bottom 80% during the Clinton years. Separation was even greater for the top 5%.

          Yet the only thing that most economists ever notice is GDP growth...

          pgl -> JohnH...

          "Yet the only thing that most economists ever notice is GDP growth".

          There you go again. Clueless as can be and lying your ass off.

          likbez -> pgl...

          And what you actually know about methodology of calculation of this GDP number. Inquiring minds want to know.

          Correct calculation of nominal GDP depends on correct calculation of inflation, which is the most politicized of economic metrics and as such subject to tremendous level of manipulation.

          Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements":

          === Start of quote ====
          The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

          All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

          JohnH -> JohnH...

          Another look at the ineffectiveness of trickle down monetary policy: all but the top decile have suffered decreases in wages and compensation since 2007.
          http://www.epi.org/publication/pay-is-stagnant-for-vast-majority-even-when-you-include-benefits/

          [Aug 27, 2015] Smoke and Mirrors of Corporate Buybacks Behind the Market Crash

          "...What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term."
          .
          "...Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation."
          .
          "...HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.
          .
          So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring.
          "
          .
          "...What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce."

          Michael Hudson, the author of Killing the Host: How Financial Parasites and Debt Destroy Global Economy, says the stock market crash on Monday has very little to do with China and all to do with shortermism and buybacks of corporations inflating their own stocks - August 25, 2015

          ... ... ...

          And this is what most of the commentators don't get, that all this market runoff we've seen in the last year or two has been by the Federal Reserve making credit available to banks at about one-tenth of 1 percent. The banks have lent out to brokers who have lent out to big institutional traders and speculators thinking, well gee, if we can borrow at 1 percent and buy stocks that yield maybe 5 or 6 percent, then we can make the arbitrage. So they've made a 5 percent arbitrage by buying, but they've also now lost 10 percent, maybe 20 percent on the capital.

          What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term.

          Now, it's amazing how today's press doesn't get it. For instance, in the New York Times Paul Krugman, who you can almost always depend to be wrong, said the problem is there's a savings glut. People have too many savings. Well, we know that they don't in America have too many savings. We're in a debt deflation now. The 99 percent of the people are so busy paying off their debt that what is counted as savings here is just paying down the debt. That's why they don't have enough money to buy goods and services, and so sales are falling. That means that profits are falling. And people finally realize that wait a minute, with companies not making more profits they're not going to be able to pay the dividends.

          Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation.

          PERIES: Michael, explain how buybacks are actually causing this. I don't think ordinary people quite understand that.

          HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.

          So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring.

          PERIES: Michael, Lawrence Summers is tweeting, he writes, as in August 1997, 1998, 2007 and 2008, we could be in the early stages of a very serious situation, which I think we can attribute some of the blame to him. What do you make of that comment, and is that so? Is this the beginnings of a bigger problem?

          HUDSON: I wish he would have said what he means by 'situation'. What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce.

          So the real situation is in the real economy, not the financial economy. But Lawrence Summers and the Federal Reserve all of a sudden say look, we're not really trying–we don't care about the real economy. We care about the stock market. And what you've seen in the last few years, two years I'd say, of the stock runup, is something unique. For the first time the stock, the central banks of America, even Switzerland and Europe, are talking about the role of the central bank is to inflate asset prices. Well, the traditional reason for central banks that they gave is to stop inflation. And yet now they don't want, they're trying to inflate the stock market. And the Federal Reserve has been trying to push up the stock market purely by financial reasons, by making this low interest rate and quantitative easing.

          Now, the Wall Street Journal gets it wrong, too, on its editorial page. You have an op-ed by Gerald [incompr.], who used to be on the board of the Dallas Federal Reserve, saying gee, the problem with low interest rates is it encourages long-term investment because people can take their time. Well, that's crazy Austrian theory. The real problem is that low interest rates provide money to short-term speculators. And all of this credit has been used not for the long term, not for investment at all, but just speculation. And when you have speculation, a little bit of a drop in the market can wipe out all of the capital that's invested.

          So what you had this morning in the stock market was a huge wipeout of borrowed money on which people thought the market would go up, and the Federal Reserve would be able to inflate prices. The job of the Federal Reserve is to increase the price of wealth and stocks and real estate relative to labor. The Federal Reserve is sort of waging class war. It wants to increase the assets of the 1 percent relative to the earnings of the 99 percent, and we're seeing the fact that this, the effect of this class war is so successful it's plunged the economy into debt, slowed the economy, and led to the crisis we have today.

          PERIES: Michael, just one last question. Most ordinary people are sitting back saying well, it's a stock market crash. I don't have anything in the market. And so I don't have to really worry about it. What do you say to them, and how are they going to feel the impact of this?

          HUDSON: It's not going to affect them all that much. The fact is that so much of the money in the market was speculative capital that it really isn't going to affect them much. And it certainly isn't going to affect China all that much. China is trying to develop an internal market. It has other problems, and the market is not going to affect either China's economy or this. But when the 1 percent lose money, they scream like anything, and they say it's the job of the 99 percent to bail them out.

          PERIES: What about your retirement savings, and so on?

          HUDSON: Well, if the savings are invested in the stock market in speculative hedge funds they'd lose, but very few savings are. The savings have already gone way, way up from the market. And the market is only down to what it was earlier this year. So the people have not really suffered very much at all. They've only not made as big of gains as they would have hoped for, but they're not affected.
          ... ... ...

          Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and Finance Capitalism and its Discontents. His most recent book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

          [Aug 26, 2015] What If The Crash Is As Rigged As Everything Else

          "...Oh yeah... EVERYTHING is rigged now. So we can't blame ourselves for any of it. Duhhhh. It's the fucking greed of all the Muppets to blame as well."
          .
          "...The reason why I know this was no engineered event is the damage control I have seen due to it. Even the lowliest podunk local talk show host was able to have on some talking head who was talking about why this was just an over reaction and macro is golden and our economy is the cat's meow."
          .
          "...Most of the actions taken by government are taken to increase debt. In the USA, the housing bubble was blown because of the dumb thought of "everyone should own a home" or, as the bankers like to think of it "Everyone should have a mortgage". Same shit with subprime auto loans, student loans. All these things involve creating massive new conduits for debt creation. If you don't exponentially grow, you blow. But, when these bubbles get blown, the extra $$ created has to go somewhere. And it chases yield that is greater than the inflation the debt creation creates. Before you know it BOOM."
          Aug 26, 2015 | Zero Hedge
          Submitted by Charles Hugh-Smith of OfTwoMinds blog,

          Take your pick--here's three good reasons to engineer a "crash" that benefits the few at the expense of the many.

          ... ... ...

          3. Settling conflicts within the Deep State. I have covered the Deep State for years, in a variety of contexts--for example:

          Is the Deep State Fracturing into Disunity? (March 14, 2014)

          The Dollar and the Deep State (February 24, 2014)

          Surplus Repression and the Self-Defeating Deep State (May 26, 2015)

          Without going into details that deserve a separate essay, we can speculate that key power centers with the Deep State have profoundly different views about Imperial priorities.

          One nexus of power engineers a trumped-up financial crisis (i.e. a convenient "crash") to force the hand of opposing power centers. As I have speculated here before, the rising U.S. dollar is anathema to Wall Street and its apparatchiks, while a rising USD is the cat's meow to those with a longer and more strategic view of dollar hegemony.

          Take your pick--here's three good reasons to engineer a "crash" that benefits the few at the expense of the many.

          remain calm

          Everything is managed for control. They think they have control and can manage everything. They can't and then they lose control. They will lose control again. But the loss of control is not staged. Again, they think they can manage eveything. Their models fail. We are about to see a big failure. Some of you need to add another layer of tin foil added to your head. They will manage after the failure, again, because they think they know what they are doing.

          Captain Debtcrash

          I wrote on the "planned crash" scenario several months ago. Why would the fed raise rates into poor macro economic conditions, officially no inflation, with bubbles popping throughout the world, if not to cause or exacerbate a crash, all to allow them to try some new policy tools. After all the st Louis fed did come out and say QE is ineffective. I think they really want to ban cash and push rates significantly negative. Not possible under current statute, but that's easy enough to change with the politicians shitting themselves.

          Crash N. Burn

          "They will manage after the failure, again, because they think they know what they are doing."

          Could be because "they" have done it before. People should be taught who "they" are

          "The Rothschilds were universally acknowledged as the wealthiest clan on the planet in the 19th century. They never lost that wealth. We simply lost all knowledge of it. The House of Rothschild has effectively erased itself from our (so-called) history books. That takes power.

          Are children taught in our classrooms that most of the (endless) wars between European powers during the 19th century were examples of House Rothschild already "playing" the governments of Europe against each other, like puppets? Are the children taught that a basically unknown cabal of bankers created the Bank for International Settlements in the early part of the 20th century, so that these Western bankers could do the money-laundering necessary to allow Western industrialists to supply armaments to the Third Reich?

          They certainly aren't taught that one of those "industrialists" – Prescott Bush – was convicted of "trading with the Enemy". Because if they had been, clearly it would not have been possible for both his son and grandson to be elected as presidents of the United States, where they could serve the bankers.

          Postulating a group of ringleaders for this banking crime syndicate other than House Rothschild is problematic. It involves manufacturing an entire mythology around such hypothetical ringleaders, whereas with this clan of megalomaniacs, the historical, financial, and political context is already in place.

          Their wealth is undeniable. Their intentions are unequivocal. The amoral malice they hold toward the rest of humanity is documented, historical fact."

          How Western Governments Will Steal Your Land, Part III

          "They" are Rothschild!

          "People without homes will not quarrel with their leaders."

          - The Bankers Manifesto of 1892

          "Simply put, there was/is no other clan on the planet that already possessed the wealth and power to make the pledges contained in The Bankers Manifesto of 1892, in 1892 – and then to (finally) pursue that crime-against-humanity to (near) fruition, in 2015."

          pods

          They aren't that powerful. Why give them the benefit of the doubt? They (if there really is a they that has control) would like nothing more than for you to sit home whimpering, worried about how much control "they" have.

          Macro has been in the shitter for years. China was bubblicious and bound to crack.

          The reason why I know this was no engineered event is the damage control I have seen due to it. Even the lowliest podunk local talk show host was able to have on some talking head who was talking about why this was just an over reaction and macro is golden and our economy is the cat's meow.

          Don't buy into it.

          And fuck numerology too. The only way where they can set the closing price is if we are all stuck in a damn powerplant with tubes coming out of our body.

          If that is the case, where the fuck are you Morpheus?

          Beam Me Up Scotty

          I'm not so sure. This article might be spot on. Consider this:

          Federal Reserve can print and create INFINITE digital and physical dollars. With infinite dollars, they can control EVERYTHING. Both UP and DOWN. We can't audit the Fed, how do you know their balance sheet is really 4 trillion? Because they say so? They could literally decide the prices of every single thing in dollar terms with unlimited dollars at their disposal.

          messymerry

          Yo pods, next time you get a bag of M&Ms, eat the red ones first,,,

          ;-D

          I don't think the Skxawng in charge have the organizational capability to pull off an event of this magnitude with any reasonable expectation of success. They manipulate where they can and surf the waves just like the rest of us...

          pods

          Most of the actions taken by government are taken to increase debt. In the USA, the housing bubble was blown because of the dumb thought of "everyone should own a home" or, as the bankers like to think of it "Everyone should have a mortgage". Same shit with subprime auto loans, student loans. All these things involve creating massive new conduits for debt creation. If you don't exponentially grow, you blow. But, when these bubbles get blown, the extra $$ created has to go somewhere. And it chases yield that is greater than the inflation the debt creation creates. Before you know it BOOM.

          tc06rtw

          I truly wish it were all rigged… There could be some comprehensible intelligence behind all this disaster

          Oh, no -- They were smart enough to wreck the machine in stripping out all its wealth, but THEY ARE NOT SMART ENOUGH TO UN-WRECK IT!

          pods

          You blow a bubble.

          As the bubble gets bigger, you know it is getting weaker. But a crowd cheers you to keep going cause they love the bubble. So you keep blowing.

          Can someone step in and buy some futures to sway the futures market, sure. But the problem is that the price of credit is below market. When that happens, you get too much credit. Too much credit sloshes around wreaking havoc on all things of substance or fancy that might increase your worth (in your mind).

          Now, crashes are a known side effect of the system, and they do take advantage of it, but they are not planned.

          Payne

          The horrible secret is that no one is manipulating the system. Instead it is run by the Greedy self interest of multiple parties a conspiracy of sorts with no real organization. The TARP program is an excellent example of bubblegum and bandaid repairs.

          Usurious

          the system was designed to crash............all debt money systems are.....they knew in 1913 and they know it now

          DeadFred

          The UN will be meeting up next month to figure out how to replace the worthless Agenda 21 with the next step, what a wonderful time to have the markets in turmoil. Maybe we should schedule the Pope to talk to them and Congress about his vision of replacing evil capitalism with a benevolent world-wide central control, oops they already have him scheduled?

          My question is what happens if you hold a 'fake' meltdown and something real happens when volatility is already really high? Nothing like people playing Russian roulette only they point the gun at your head, not theirs.

          PTR

          PTR's picture

          Russian roulette only they point the gun at your head, not theirs.

          That, sir, is an awesome quote and should be used repeatedly.

          Wed, 08/26/2015 - 09:33 | 6472428 ThroxxOfVron

          IF it is possible to move specific securites higher via HFT/deliberate buying/spoofing/etc. and concerted buying by institutions and/or the fabled PPT, then it is only logical to assume that the same activities and entities can move those same securites lower via HFT/spoofing/deliberate selling/naked shorting/etc...

          I believe that the desks sell what they do not have and buy with funds that do not exist/re-hypothecated client funds ( 'MF Global-ation' ) interbank and/or inter-affiliate leverage.

          NON DELIVERY? WHAT DOES THAT MEAN?

          "This Act (the Federal Reserve Act, Dec. 23rd 1913) establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed. The trusts will soon realize that they have gone too far even for their own good. The people must make a declaration of independence to relieve themselves from the Monetary Power. This they will be able to do by taking control of Congress. Wall Streeters could not cheat us if you Senators and Representatives did not make a humbug of Congress... The greatest crime of Congress is its currency system. The worst legislative crime of the ages is perpetrated by this banking bill. The caucus and the party bosses have again operated and prevented the people from getting the benefit of their own government."

          "The new law will create inflation whenever the trusts want inflation...they can unload the stocks on the people at high prices during the excitement and then bring on a panic and buy them back at low prices...the day of reckoning is only a few years removed."

          "When the President signs this act [Federal Reserve Act of 1913],
          the invisible government by the money power -- proven to exist
          by the Monetary Trust Investigation -- will be legalized.
          The new law will create inflation whenever the trusts want inflation.

          *** From now on, depressions will be scientifically created. ***"

          -Senator Charles A. Lindbergh

          [Aug 25, 2015] It Feels Like 1997 Warns Art Cashin, Watch High Yield

          "... The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up. "

          Aug 25, 2015 | Zero Hedge

          Another scary development is the crash in energy markets. On Monday, the price of WTI oil dropped temporarily below 38 $. How does that affect the stock market?
          People keep talking that cheap oil means more money to spend. But we're not seeing that at all. I think that the weakening of the oil price is counter-beneficial: Here in the United States, a lot of the employment that we picked up after the recession came from energy related areas like fracking. And now they're certainly not employing any extra people and in some cases they're laying off. Also, as oil is going down it is putting more pressure on stocks. You see the big oil companies trading lower and they're all prominently represented in different stock market averages.

          ... ... ....

          ready to raise interest rates.

          What are the signals you are looking for to stay on top in such a market?
          I continue to monitor the high yield market and see where that goes. The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up.

          [Aug 24, 2015] Black Monday Brings Global Market Rout, Investors Mourn The Death Of Central Bank Omnipotence

          Aug 24, 2015 | Zero Hedge
          NoDebt

          My central premise since joining ZH was that we were all going to turn into Japan. As I always pointed out, the only thing not lining up with that theory was a persistent bear market in equities.

          What's that? 1200 Dow points in two days? On NO NEW NEWS.

          Hey, if you've enjoyed the crash so far you're really going to like the multi-year slow grind lower that follows it.

          Bay of Pigs

          Its been a long wait for some of us NoDebt.

          To see the bulls utterly crucified will be heartwarming to me.

          Oldwood

          Delusion's greatest enemy is truthiness. Truth is becoming more popular if not also more hated, and this will let the air out. People know its all fake but they choose to ignore that fact as long as they think everyone else will do the same. After all, why not when their economic gains are at stake. Reality always wins however and that inevitability is what people hear ringing in their ears.

          Not My Real Name

          Multi-year slow grind to be preempted this time by a currency crisis -- and then reset.

          gatorengineer

          I cannot see how this is possibly going to go slow. Another day or so and Hedgies will start blowing up.

          [Aug 24, 2015] Advice After Stock Market Drop Take Some Deep Breaths, and Don't Do a Thing

          "...I think low bank interest is a scam to force people into the markets. That's one result of banking deregulation."
          "...Whenever the stock market falls sharply the "professionals" advise the "amateurs" not to do a thing, to stick with their long term goals. Then the professionals sell and the amateurs take the loss."
          "... If you are near retirement or in retirement, think twice about the advice here to not adjust your portfolio. Can you sustain a 30 to 40 percent drop in the value of your retirement account and wait, perhaps, years for it to recover? If not, question the advice here and act accordingly. One strategy: Lighten up your equity position, but stay invested. The middle ground, safer approach."
          "...Consider this: In 1929 your portfolio (i.e. life savings) disappeared - down 86% overnight. So you held on - for 26 years, until 1955. Now, you are even! Then, ten years later (1965), the market stalled for 17 years…"
          "...My question is - why does the average American who isn't a financial expert have to risk his/her money in the stock market at all?... I have no interest in spending all of my spare time educating myself about the market and what it may or may not do. I do have a financial advisor, but if the bank gave a much better rate on savings accounts I wouldn't need one. Me thinks this is a grand conspiracy to steal people's money. "
          Aug 24, 2015 | The New York Times
          Rutger Fitz, Sweden, 2015/08/22
          On your 4th point: Are you seriously comparing selling off at (probably) almost the pinnacle of a seven year fantastic bull market to selling off at the low point of an 18 month crash in 2009?

          Of course it's a good idea to get rid of everything you've got now and investing in something extremely stable, if you're 70 years old. Don't be stupid with your money.

          jeffgs, home
          The Times has, on a number of occasions, printed such articles as this. It may be good advice. It may also be that the Times is part of the corporate body that would loose if more people sold, and so the Times' encouragement to hold is to protect itself, and Capitalism in general. And that it would be in many peoples' advantage to sell now.

          I trust that you read me to say I don't know...and it well could be possible. Certainly those who have sold, and so have moved so many markets so far, most of whom [with the big accounts, who effect the prices] think its in their best interest to sell.

          Which raises the question: why would it be that so many of those who are paid so much to be 'right', and can make arguments that they are likely to be so, have sold so much? They, and others who care about such things, certainly think that it was right to sell. Why would it be in their best interest, and not in yours or mine?

          mancuroc, is a trusted commenter Rochester, NY

          The market is perfect for people with money. You can afford the losses, then buy cheap and make a bundle when the market goes up. Meanwhile, the rest of us are at the mercy of the market, depending on its timing.

          I think low bank interest is a scam to force people into the markets. That's one result of banking deregulation.

          And if some politician seeking your vote proposes converting Social Security to private account, vote the other way.

          Kenneth Ranson, Salt Lake City 2 hours ago

          Whenever the stock market falls sharply the "professionals" advise the "amateurs" not to do a thing, to stick with their long term goals. Then the professionals sell and the amateurs take the loss.

          My advice, sell, sell everything, and when the Dow goes to 4,000 the professionals will have to rethink their investment strategies since they can no longer count on long term investors to stabilize the markets.

          wmeyerhofer, New York 2 hours ago

          I hate to brag, but I shifted everything to bonds - and insisted my husband shift everything to bonds - about 2 months ago. It was starting to feel downright greedy to expect anything more out of the equity markets. So I'm sitting pretty and I'll put a toe back into equities in, say, a year or two. Meanwhile, I'm whistling a happy tune. Don't hate me. I put everything into bonds in Autumn of 2007 too, so I have a perfect record so far of knowing when I've made too much money and it's time to calm down and batten down the hatches and not get greedy.

          treabeton, new hartford, ny

          If you are near retirement or in retirement, think twice about the advice here to not adjust your portfolio. Can you sustain a 30 to 40 percent drop in the value of your retirement account and wait, perhaps, years for it to recover?

          If not, question the advice here and act accordingly. One strategy: Lighten up your equity position, but stay invested. The middle ground, safer approach.

          Fourteen, Boston 2 hours ago

          Majortrout and Ron Lieber. Neither of you have it right. Anyone who still believes in buy and hold as a viable investment strategy is a person who will never sleep well at night.

          Consider this: In 1929 your portfolio (i.e. life savings) disappeared - down 86% overnight. So you held on - for 26 years, until 1955. Now, you are even! Then, ten years later (1965), the market stalled for 17 years…

          Remember 2008? You lost 50%! How did that feel? Now, your life savings are teetering again, so how well are you sleeping, Mr. Buy and Hold?

          Buy and hold has been dead for at least ten years, when globalization and algo trading took over. Note that the big money does not "buy and hold".

          Don't listen to the big money shills, journalists, or neophyte day-traders....

          Jake, Pittsburgh

          Famous quote from JP Morgan, when asked what the stock market will do: "It will fluctuate".

          Angela, Elk Grove, Ca

          My question is - why does the average American who isn't a financial expert have to risk his/her money in the stock market at all? Why can't we get better rates for pass book savings accounts and other safer, government protected investments? Yes, I know that interest rates are set by the Fed, however, many banks and quite a few credit unions seem to have a lot of money for some pretty frivolous things. Are they allowed to set a higher savings rate? Or are they required by law to set their rates at a certain amount. You are lucky if you can get 1% on a passbook savings account. Banks have many sources of interest income and should be able to increase what they pay on their savings accounts.

          A case in point, Golden 1 Credit Union in California just recently spent over a million dollars for the naming rights to the new Kings stadium in downtown Sacramento, yet, I am getting about 1% on my passbook account. First of all NO credit union should have that kind of slush fund, second, if they can spend that kind of money on naming rights, then they should be able to give me a much better ROI on my passbook account as well as other savings instruments. Not being a financial person, I have no interest in spending all of my spare time educating myself about the market and what it may or may not do. I do have a financial advisor, but if the bank gave a much better rate on savings accounts I wouldn't need one. Me thinks this is a grand conspiracy to steal people's money.

          Ignatius Pug, NYC 59 minutes ago

          Yes indeed. There seems to be a periodic sucking sound that pulls the meager profits out of my 401k into the accounts of those who are better off financially. Surely some big players will be profiting from this plunge at the expense of the retirement accounts of the masses. Meanwhile those of us who do something more socially constructive for a living-- as opposed to playing elaborate slot machines-- are forced to fritter away our time and money in support of the "financial industry." I'm sure that members of congress all know this and also have very healthy portfolios.

          'Did Socialism Keep Capitalism Equal?'

          "...The basic fact is that there is no question that when the Soviet system fell, and the USSR fell apart, and the Warsaw Pact and COMECON all ceased to exist, and communist parties fell out of power, the upshot was that Gini coefficients in all of these nations, as well as in China as well. What is not always talked about, although I have authored some papers with coauthors on this, now out of date, is that the rate of increase in inequality in these transition (really formerly transition) economies has varied enormously."
          "...So, my speculation that one reason why we have seen higher price/earnings ratios in many western stock markets since 1990 has simply been indeed that the risk of nationalization has been removed. It was never that serious in the US, but it was still there in the background. But after the fall of Soviet communism, this perceived risk really went to basically zero. Upshot, a permanent jump in those price/earnings ratios, although maybe in some nations this will change. "

          economistsview.typepad.com

          Branko Milanovic:

          Did socialism keep capitalism equal?: This is an interesting idea and I think that it will gradually become more popular. The idea is simple: the presence of the ideology of socialism (abolition of private property) and its embodiment in the Soviet Union and other Communist states made capitalists careful: they knew that if they tried to push workers too hard, the workers might retaliate and capitalists might end up by losing all.

          Now, this idea comes from the fact that rich capitalist countries experienced an extraordinary period of decreasing inequality from around 1920s to 1980s, and then since the 1980s, contradicting what a simple Kuznets curve would imply, inequality went up. It so happens that the turning point in 1980s coincides with (1) acceleration of skill-biased technological progress, (2) increased globalization and entry of Chinese workers into the global labor market, (3) pro-rich policy changes (lower taxes), (4) decline of the trade unions, and (5) end of Communism as an ideology. So each of these five factors can be used to explain the increase in inequality in rich capitalist countries.

          The socialist story recently received a boost from two papers.

          I am not sure that this particular story can alone explain the decline in inequality in the West, and certainly it is a story that one hears less often in the US than in Europe, as the United States believed itself to be sufficiently protected from the Communist virus (although when you look at the repression in the 1920s and McCarthyism in the 1950s, one is not so sure). But even Solow's recent mention of the changing power relations between capitalists and workers (the end of the Detroit treaty) as ushering in the period of rising inequality is not inconsistent with this view. In a recent conversation, and totally unaware of the literature, an Italian high-level diplomat explained to me why inequality in Italy increased recently: "in then 1970s, capitalists were afraid of the Italian Communist Party". So there is, I think, something in the story.

          The implication is of course rather unpleasant: left to itself, without any countervailing powers, capitalism will keep on generating high inequality and so the US may soon look like South Africa. That's where I think differently: I think there are, in the longer-term, forces that would lead toward reduction in inequality (and that would not be the return of Communism).

          Posted by Mark Thoma on Saturday, August 22, 2015 at 11:52 AM in Economics, Income Distribution | Permalink Comments (65)

          doug

          Is the implication unpleasant? Inequality will remain high unless the forces that aim to curb it reclaim some amount of social power; discursively, this will look like "socialism becoming more popular again," but put in these broader terms, the argument is almost tautological-- power will remain unequal if power remains unequal.
          mulp -> doug
          Socialism is based on a free lunch economic theory...

          What we have today in the US is basically free lunch economics that idiots call capitalism, but that is really pillage and plunder, monopoly rent seeking, with capital asset destruction to create monopoly power, and most important, government crony lending to consumers to pay for profits while trying to eliminate all workers to eliminate all labor costs.

          The ideology is pervasive in the optimism that everyone else that works will be replaced by robots and the authors will be one of the elites getting paid to explain how great it is that there are no workers and how fantastic wealth has produced massive growth in consumer spending to generate Jeb!'s 4% GDP growth forever.

          In free lunch economics, the ideal economy has profit equal consumer spending equal GDP and labor cost equal zero.

          This replaced the dismal science economics of the era which created the middle class American Dream.

          What was dismal is GDP was limited to the wages paid all the workers.

          What was dismal was profits were pretty much zero every where and capitalists were rewarded with returns on their money they paid workers to build productive capital assets which came from paying workers enough to buy what the capital assets plus labor produced.

          What was dismal was needing to have savings, steady income, to get a loan to buy an asset that cost more to build than the loan amount.

          What was dismal was having to pay taxes to have the educated workers corporations needed, having to pay taxes to have the roads, rail, water, energy, air travel, etc workers and corporations needed for a growing economy.

          Free lunch economics calls for replacing everything dismal with the invisible hand full of cash which will pay whatever price you charge for the stuff you produce without paying workers.

          Workers might be suffering with low incomes, but if they can't or won't borrow and spend, the capitalist rent seekers suffer.

          Mitt Romney, Jeb!, and Trump promise a free lunch - they will produce lots of paying customers buying a lot more GDP to produce high growth WITHOUT PAYING WORKERS A PENNY MORE by getting the dismal Obama out of the way who is blocking tax cuts that will put money in your pocket to spend, and blocking loans to buy the food and vacation you want on the stupid requirement you have income and assets.

          DrDick -> mulp

          Obviously you have no understanding of communism or socialism, but that is just a small part of a much longer list. Capitalism is the embodiment of "free lunch economics", at least for the rich. Communism/socialism just rewards productive workers, not capitalist parasites. Reply Saturday, August 22, 2015 at 04:36 PM
          Procopius -> mulp
          Actually, socialism is based on a "just deserts" social theory. Under capitalism, the owner of capital has power to distribute gains from an enterprise that employs both capital and labor. Under socialism, the owner of capital is the government, which is supposed to be more responsive to the needs of the people. In practice than hasn't worked out well, but that doesn't prove it couldn't. Capitalism works a lot better when there's some government intervention as a countervailing power, especially when they adopt policies permitting the organization of laborers, which has been seriously eroded since Reagan and Volcker.

          ilsm -> mulp

          Socialism received only violent answers, because socialist free lunch for the masses is always better than the hoarding endemic to cappitalism as practiced by the fasicsts.

          Violence breed violence and dictators.

          The billionaires started it.

          Bounader Lahcen

          Hello,
          I find your idea very interesting, but it is hard to generalize this story. In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism. Firstly, in a socialist economy there is no motivation to work hard and progress and this fact involves a huge gap between workers and the leadership of ,say, a state-owned firms. Secondly, when there is no motivation no progress, the stagnation would be in place and in this particularly case we can't talk about inequality because all people are in a bad situation (poverty). Finaly, socialism in my view is not efficient and the history said his word by the abolition of socialism.
          Carol -> Bounader Lahcen
          Yep, we see all those lazy Scandinavians and French etc swanning around lacking motivation to work which is why they are more productive than US workers

          anne -> Bounader Lahcen

          In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism...

          [ What country would serve as a specific example and in what way would there be more inequality in that more socialist country than in the United States? The United Kingdom, Australia, Canada, Germany, France, Netherlands, Japan

          anne -> anne

          In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism

          [ I still cannot think of an example. ]

          Procopius -> anne

          I suspect he's thinking of the former Soviet Union and such Eastern European countries as Albania. I don't know how we could compare the inequality in those places with the current U.S. Certainly there was great inequality, but it was based on family connections, party connections, and personal ability to bullshit. I don't see how that's different from what we're living with now, and the capitalist system uses government power to deflect wealth to the elite as much as the former "socialist" countries did. Reply Saturday, August 22, 2015 at 07:15 PM
          Ben Groves -> Bounader Lahcen
          It depends on whether liberal or conservatives run socialism. Liberals would try to make it universal Christian melting pot. Conservatives would make it Pagan tribal and war against other tribes.

          Many leftists over the years have a very conservative streak.

          ilsm -> Ben Groves

          Logical fallacies.
          DrDick -> Bounader Lahcen
          Another refugee from the John Birch chapter of the Chamber of Commerce. Do you have any idea what you are talking about?

          Ben Groves -> DrDick

          I am the anti-Bircher. Birchers are rich, wall street scum trying to destroy the country. I despise Propertarianism. Lets remember, the split between the Democrats wasn't just necessarily the low income religious people, but from the elitist, secular types who saw the Democratic turn toward Affirmative Action and Forced Buses as racial treason. They may have been even ones that turned a blind eye toward years of Civil Rights, saying the time to move on had come. The 70's "reforms" were just to much. They saw the party backing away from Populism and instead, using special interest to keep their seat of power in the 70's to cultural groups. Hubert Humphrey very much warned us against that, yet, they did. I always saw the people attracted to AA and forced busing as "Progressive Republicans" hiding as Democrats. It is the deep injury in the Democratic Party that has never been shown to the public or healed. Their mentality and cheap parlor tricks were very Republican historically(which modern Republicans still use to support neo-conism, propertarianism and other wealthy schemes). Reply Saturday, August 22, 2015 at 09:38 PM
          DrDick -> Ben Groves
          WTF? Do you have any idea what you are talking about? Having you been taking history lessons at Stormfront?

          ilsm -> Bounader Lahcen

          Actually, basic science thrived in Soviet sphere. Reply Sunday, August 23, 2015 at 04:53 AM
          ilsm -> Bounader Lahcen
          Start with fallacy and go down from there. Reply Sunday, August 23, 2015 at 04:55 AM

          anne

          https://twitter.com/vijayprashad

          Vijay Prashad ‏@vijayprashad

          The links between @jeremycorbyn and Genghiz Khan. Be very afraid. https://markfiddaman.wordpress.com/2015/08/21/6-links-jeremy-corbyn-doesnt-want-you-to-know-about/

          anne -> anne

          http://krugman.blogs.nytimes.com/2015/08/04/corbyn-and-the-cringe-caucus/

          August 4, 2015

          Corbyn and the Cringe Caucus
          By Paul Krugman

          I haven't been closely following developments in UK politics since the election, but people have been asking me to comment on the emergence of Jeremy Corbyn as a serious contender for Labour leadership. * And I do have a few thoughts.

          First, it's really important to understand that the austerity policies of the current government are not, as much of the British press portrays them, the only responsible answer to a fiscal crisis. There is no fiscal crisis, except in the imagination of Britain's Very Serious People; the policies had large costs; the economic upturn when the UK fiscal tightening was put on hold does not justify the previous costs. More than that, the whole austerian ideology is based on fantasy economics, while it's actually the anti-austerians who are basing their views on the best evidence from modern macroeconomic theory and evidence.

          Nonetheless, all the contenders for Labour leadership other than Mr. Corbyn have chosen to accept the austerian ideology in full, including accepting false claims that Labour was fiscally irresponsible and that this irresponsibility caused the crisis. As Simon Wren-Lewis says, ** when Labour supporters reject this move, they aren't "moving left", they're refusing to follow a party elite that has decided to move sharply to the right.

          What's been going on within Labour reminds me of what went on within the Democratic Party under Reagan and again for a while under Bush: many leading figures in the party fell into what Josh Marshall used to call the "cringe", basically accepting the right's worldview but trying to win office by being a bit milder. There was a Stamaty cartoon during the Reagan years that, as I remember it, showed Democrats laying out their platform: big military spending, tax cuts for the rich, benefit cuts for the poor. "But how does that make you different from Republicans?" "Compassion - we care about the victims of our policies."

          I don't fully understand the apparent moral collapse of New Labour after an election that was not, if you look at the numbers, actually an overwhelming public endorsement of the Tories. But should we really be surprised if many Labour supporters still believe in what their party used to stand for, and are unwilling to support the Cringe Caucus in its flight to the right?

          * http://www.theguardian.com/commentisfree/2015/aug/03/jeremy-corbyn-new-labour-centre-left

          ** http://mainly macro.blogspot.com/2015/07/corbyns-popularity-and-relativistic.html Reply Saturday, August 22, 2015 at 12:09 PM

          anne -> anne

          http://www.independent.co.uk/voices/comment/with-hundreds-of-thousands-of-new-supporters-labour-is-on-the-verge-of-something-big--what-a-complete-disaster-10454504.html

          August 14, 2015

          With hundreds of thousands of new supporters, Labour is on the verge of something big – what a complete disaster!
          Having loads of young voters engage with your party must be terrifying
          By MARK STEEL

          It's easy to see why those in charge of the Labour Party are so depressed. They must sit in their office crying: "Hundreds of thousands of people want to join us. It's a disaster. And loads of them are young, and full of energy, and they're really enthusiastic. Oh my God, why has it all gone so miserably wrong?"

          Every organisation would be the same. If a local brass band is down to its last five members, unsure whether it can ever put on another performance, the last thing it needs is young excited people arriving with trombones to boost numbers and raise money and attract large audiences. The sensible response is to tell them they're idiots, and announce to the press that they are infiltrators from the Workers' Revolutionary Party

          anne -> anne

          The sheer nuttiness of the Labour elite's fear of Labour's Jeremy Corbyn, tells me that from conservative to so-called liberal political parties through the West the operating ideas and policies are startlingly similar and actually conservative. How nice to have alternative social-economic ideas in political play to limit conservatism.
          anne -> anne
          https://twitter.com/ggreenwald

          Glenn Greenwald ‏@ggreenwald

          Lady Boothroyd joins Lord Falconer in warning about the gauche leftist hordes regrettably allowed to vote for Corbyn http://www.theguardian.com/politics/2015/aug/23/labour-heading-scrapheap-if-elects-jeremy-corbyn-betty-boothroyd

          anne -> anne

          http://www.theguardian.com/politics/2015/aug/23/labour-heading-scrapheap-if-elects-jeremy-corbyn-betty-boothroyd

          August 23, 2015

          Labour heading for scrapheap if it elects Jeremy Corbyn, says Betty Boothroyd
          Former Speaker of the Commons claims the leadership frontrunner's hard-left supporters are peddling same 'claptrap' that gripped the party in the 1980s
          By Rajeev Syal - Guardian

          lilnev

          Capitalism conquered socialism. Now it's in the process of conquering democracy.
          ilsm -> lilnev
          Violent capitalism

          DrDick -> ilsm

          Is there any other kind? Henry Ford mounted .50 caliber machine guns on the roof of the Rouge plant.
          Carolyn Kay
          From the book I'd write, if I could ever find a publisher:

          "Human greed can, and often does, go too far by treading on the needs and rights of others. In addition, the human need for security and the illusion of certainty tends to encourage the leaders of businesses to collude to set prices, carve up markets, and combine forces by merging their companies. Totally unfettered, the end result of capitalism would be one big company that made and sold everything everywhere, and that kept competitive businesses from existing-by force, if necessary. If you were to want something not made by this master conglomerate, named something like MicroMax, perhaps, you would not be able to get it."
          http://bit.ly/Q3zdMU
          Reply Saturday, August 22, 2015 at 12:41 PM

          paine

          The corporate titans won the kold war with the nixon-mao pact. Soon social democracy became a nuisance not a bulwark

          Niq

          no motivation to work in socialism?

          This comes I think from an argument about alienation but really makes no sense at all. After all, the vast majority of the workforce in modern capitalist societies have no meaningful ownership over their companies or what they produce.

          Incentives are an issue of policy (whether it be corporate policy or whatever) We don't live in a world of billions of small business owners we live in a world of huge collective organizations that use some form of centralized planning.

          If people need to have a stake to have a work ethic, then support collectivization of private industry (which is communism). Reply Saturday, August 22, 2015 at 01:37 PM

          Procopius -> Niq

          I think you're misunderstanding. The people who say that there's no motivation to work under socialism are thinking of CEOs of massive international corporations, who claim that the only reason they work is because they are paid millions of dollars a year.

          They think that if people weren't forced into the "vast reserve army of the unemployed" on the verge of starvation, they's spend all their time watching reality shows on the electric teevee machine.

          ilsm -> Niq
          Only greed motivates!

          ilsm -> ilsm

          Keeping your country from third world status is not a motivator.

          The billionaires are fuill of it, but better comply or the US police equipped with MRAPs will take it out on you. Reply Sunday, August 23, 2015 at 05:00 AM

          Dan Kervick

          It's not just that socialism made capitalism more equal. Its presence in the intellectual-political mix produced a variety of mixed economy alternatives to capitalism which were adopted throughout the developed world. A large number of everyday and widely supported economic institutions and innovations originated in the thought of the socialists.

          In many countries, everyone seems to understand that the economic system they live under reflects a fusion of capitalist and socialist ideas, and so they call it "social democracy", "democratic socialism" or what have you. Americans have traditionally insisted for deep-seated ideological reasons on using the term "capitalism", come what may, and are in permanent denial about the socialist elements of their own system.

          One thing the arrival of socialist ideas helped do was prevent the pre-capitalist or nascent capitalist societies of early modern Christian Europe from evolving into full-blown total capitalist barbarisms under the pressure of industrialization. Socialism and other, older forms of religious and humanitarian thought worked together to prevent the infernal machinery of capitalism from devouring everything. Reply Saturday, August 22, 2015 at 01:41 PM

          anne

          Brank Milanovic adds:

          http://glineq.blogspot.com/2015/08/did-socialism-keep-capitalism-equal_52.html

          August 22, 2015

          Did socialism keep capitalism equal?

          I think the fundamental question that these and similar papers ask is the following: does capitalism contain "automatic stabilizers" that would curb the rise of inequality before it goes over the top; or do "stabilizers" always have to be revolutions, wars and economic crises? I do not think that we have an empirical answer to it. Reply Saturday, August 22, 2015 at 01:48 PM

          anne -> anne

          Naomi Klein, I suspect, would argue that conservatives have a purpose in and have become adept at using social upheavals to force movement away from social-democratic institutions. Reply Saturday, August 22, 2015 at 01:51 PM
          Second Best
          Eminent domain powers of the ruling oligarchy, deeply embedded inseparably in markets and government, also eliminate private property. Predatory socialism is disguised as capitalism, otherwise known as privatized gains and socialized losses.

          The top 1% has accumulated assets over $60 trillion including 49,000 families with assets over a billion dollars. Corporations contribute the lowest percentage of tax revenue in history, 1% of GDP.

          The socialist-capitalist dichotomy is naive at best, anything but countervailing forces. Reply Saturday, August 22, 2015 at 01:54 PM

          ilsm -> Second Best

          The new Dudes.

          Naziism: "privatized gains and socialized losses."

          No Krugge or "civil" Nazi was brought to Nuremburg.

          Krugges abide! Reply Sunday, August 23, 2015 at 05:03 AM

          Jim Harrison

          It wasn't just communism. There were many countervailing forces: populism, the social gospel, democratic socialism of various kinds, labor movements, and political progressivism, not to mention the conservatism of older economic elites whose status was based primarily on land. What's novel about our situation is the scarcity of organized opposition to unfettered capitalism. Obviously that may change, but I'm impressed with the ability of the system to quickly co-opt its enemies. Reply Saturday, August 22, 2015 at 02:18 PM
          Richard Lee Bruce Econ PhC
          The turn around in income distribution for the United States was in 1973, long before the fall of communism. The percentage of income going to the top one percent was declining until 72 or 73.

          The percentage falling below the poverty threshold was falling until 1973, and has not gotten back to the 73 level in the 42 years since then.

          So 1973 was the inflection point. Of course 1973 was also the year that Roe was decided.

          Abortion, Roe, the sexual revolution, and other social issues drove a wedge between religious voters and the Democratic Party. The Religious vote had been liberal, progressively it became conservative and Republican.

          Religious voters have high voter turn out. Voting is a religious duty. So we particularly see the results in off year elections.

          The religious are also far more fertile, so there influence grows, as they and their numbers grow.

          On the other hand many factors are important and the article has mentioned one of them. Reply Saturday, August 22, 2015 at 03:30 PM

          Paine -> Richard Lee Bruce Econ PhC

          But after the Nixon Mao pact

          The turning point of no return

          Eric377 -> Paine

          Thanks. I think determining what happened would be very difficult. The increase in competition from non-Detroit manufacturers was pressuring the dollar value of the added value. It is only value to the limit that customers buy the product. When GM and Chrysler sought protection about 40 years after 1970, the claims on the value of these firms by the UAW members and retirees were a very large contributor to the unsustainable situations they found themselves in. The Detroit treaty effects lasted much longer than the 1970s, but there was a lot less value to share relative to expectations.
          Ellis -> Eric377
          In other words, the workings of capitalism drives down wages.

          Redwood Rhiadra

          "I think there are, in the longer-term, forces that would lead toward reduction in inequality (and that would not be the return of Communism)."

          There is such a long term force, of course. It is called climate change, which will make everyone equal by either killing them all, or, at best, what few survivors remain will be reduced to a Stone Age subsistence lifestyle.

          Not exactly a rosy scenario. I'd like a solution that leads to more equality *without* the complete collapse of human civilization. Unfortunately, I don't actually see one. Reply Saturday, August 22, 2015 at 05:33 PM

          Paine -> Redwood Rhiadra

          Quietism till the rapture then ? Reply Saturday, August 22, 2015 at 06:00 PM

          Robert Waldmann

          I think there are four bits of information which support the socialism kept capitalism equal hypothesis. They are massive land reforms in Japan, Taiwan, South Korea and Italy. In each case the reform was enacted by conservatives ranging from center right to far right. In the cases of S. Korea, Taiwan and Italy there were very strong communist threats to the current government. In Japan there was a strong communist party and a militant socialist party.

          I think few doubted that the aim of the reformers was mainly to settle the issue. In fact, I think the pattern is that anti-communist egalitarianism actually works
          http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.html

          This lead to the, to me, shocking fact that, while leftists (such as myself) hated Chiang Kai-Shek, Taiwan achieved rapid growth with an anomalously equal income distribution (compared to other countries with similar per capita incomes).

          Notably sincere socialists didn't always manage so well. I think (as argued in the linked post) that an eagerness to settle the class conflict permanently tends to promote effective policy. Reply Saturday, August 22, 2015 at 06:56 PM

          ilsm -> Robert Waldmann

          Gimo?

          He was Mao's supply officer while the Birchers legislated huge arms support.

          Once Mao got to the Yantgze Chiang's mask fell away.

          Taiwan is about equally split today between Chiang fasicst, Formosans who see Chinese no better than Japanese and leftists favoring union.

          Someday the enough fascists will be jailed for corruption

          anne -> Robert Waldmann

          I think there are four bits of information which support the socialism kept capitalism equal hypothesis. They are massive land reforms in Japan, Taiwan, South Korea and Italy. In each case the reform was enacted by conservatives ranging from center right to far right. In the cases of S. Korea, Taiwan and Italy there were very strong communist threats to the current government. In Japan there was a strong communist party and a militant socialist party

          [ Important argument, with which I would agree. Worth further writing about.

          anne -> Robert Waldmann

          https://research.stlouisfed.org/fred2/graph/?g=1APt

          August 4, 2014

          Real Gross Domestic Product for China, Japan, Korea and Taiwan, 1954-2011

          (Percent change)


          https://research.stlouisfed.org/fred2/graph/?g=1APw

          August 4, 2014

          Real Gross Domestic Product for China, Japan, Korea and Taiwan, 1954-2011

          (Indexed to 1954) Reply Sunday, August 23, 2015 at 05:33 AM

          anne -> Robert Waldmann

          https://research.stlouisfed.org/fred2/graph/?g=1FXy

          August 4, 2014

          Real Gross Domestic Product for China, Italy and Spain, 1953-2011

          (Percent change)


          https://research.stlouisfed.org/fred2/graph/?g=1FXz

          August 4, 2014

          Real Gross Domestic Product for China, Italy and Spain, 1953-2011

          (Indexed to 1953) Reply Sunday, August 23, 2015 at 05:42 AM

          anne -> Robert Waldmann

          In fact, I think the pattern is that anti-communist egalitarianism actually works:

          http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.html .

          This lead to the, to me, shocking fact that, while leftists (such as myself) hated Chiang Kai-Shek, Taiwan achieved rapid growth with an anomalously equal income distribution (compared to other countries with similar per capita incomes)

          [ Do write more on this matter. ]

          anne -> Robert Waldmann

          http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.html

          May 17, 2007

          Land Reform in Venezuela
          By Robert Waldmann

          My personal thought is that it's about time. This article is interesting but I think it is slanted against the land reform which is described as "brutal and legal" because

          "The violence has gone both ways in the struggle, with more than 160 peasants killed by hired gunmen in Venezuela, including several here in northwestern Yaracuy State, an epicenter of the land reform project, in recent years. Eight landowners have also been killed here."

          Sounds to me that the resistance to land reform is roughly 20 times as brutal as the land reform effort. The disproportion between quotes of supporters and opponents is much less extreme.

          The part that irritated me (and makes an alternative title "why do people hate economists") is that "economists" appear to be all opposed to land reform.

          "Economists say the land reform may have the opposite effect of what Mr. Chavez intends, and make the country more dependent on imported food than before

          . Agricultural economists say the government bureaucracy, which runs a chain of food stores, is also rife with inefficiencies." Finally economists get a name:

          "Carlos Machado Allison, an agricultural economist at the Institute for Higher Administrative Studies in Caracas."

          anne -> anne

          http://www.nytimes.com/2007/05/17/world/americas/17venezuela.html

          May 17, 2007

          Clash of Hope and Fear as Venezuela Seizes Land
          By SIMON ROMERO Reply Sunday, August 23, 2015 at 06:34 AM

          Barkley Rosser

          One basic fact and one speculation.

          The basic fact is that there is no question that when the Soviet system fell, and the USSR fell apart, and the Warsaw Pact and COMECON all ceased to exist, and communist parties fell out of power, the upshot was that Gini coefficients in all of these nations, as well as in China as well. What is not always talked about, although I have authored some papers with coauthors on this, now out of date, is that the rate of increase in inequality in these transition (really formerly transition) economies has varied enormously.

          So, the last measured Gini in the Soviet Union was .26, with Czechoslovakia around .20, and Maoist China at .16. Yes, these were probably too low due to non-counting of in-kind perks to nomenklatura elites, but, frankly, these generally were not all that great, and there were not that many privately held fortunes, given the lack of private ownership of capital. And if anybody does not think that Ginis in the US and other maraket capitalist nations are not understated, well, think about how much high income people hide their incomes and their wealth.

          So, today US and China and Russia all have Ginis around .40. Much of western Europe and East Asia are in the upper 20s to mid-30s. But certain eastern European nations have maintained quite low Ginis, such as the Czech and Slovak Republics and Slovenia, and some other reasonably democratic and not overly corrupt of those nations, with Ginis still holding in the mid 20s. Big surprise that those that have maintained more equality have also generally done much better on many measures than those that have had their Ginis soar as corrupt new elites have seized control of the means of production.

          So, my speculation that one reason why we have seen higher price/earnings ratios in many western stock markets since 1990 has simply been indeed that the risk of nationalization has been removed. It was never that serious in the US, but it was still there in the background. But after the fall of Soviet communism, this perceived risk really went to basically zero. Upshot, a permanent jump in those price/earnings ratios, although maybe in some nations this will change.

          Ben Groves -> Barkley Rosser

          Capitalism can continue on as long as the government bails it out. When it doesn't bail it out, you get depressions, collapse into socialism and tribalism. When there is nothing left for you, you bare arms and slaughter the decadent.
          ilsm -> Ben Groves
          As long as greed exceed charity in the popular view.

          anne -> Barkley Rosser

          So, today US and China and Russia all have Ginis around .40. Much of western Europe and East Asia are in the upper 20s to mid-30s

          [ When possible set down the reference link to the database being used:

          http://data.worldbank.org/indicator/SI.POV.GINI ?

          http://www.lisdatacenter.org/lis-ikf-webapp/app/search-ikf-figures ? ]

          Ben Groves

          The US for example was a moderate fascist country from 1933-80 when the government ran investment cycles through public investment and using high marginal tax rates to literally force the wealthy to invest nationally. Then it became a Oligopoly slowly over time from 1983 onward, when the state began to disinvest and capital concentration took off by the 90's.

          Another big part that went into that was the end of military spending and north sea oil findings. In 1979, everybody was bleak. The Soviet Union was going to last for the foreseeable future, keeping spending high. The world was running out of oil. That all changed by 1981. The Soviet empire was turning into a joke and its Afgan follies were looking bad. The North Sea oil finds helped spur the cheap economy oil onward. The "rich" became cool again. So the political theme was to allow them more latitude. Lets don't forget, businesses were pumping assets into foreign countries even in the 60's. One of them was China well before 1997. The final end of the cold war tripe pushed that on steroids.

          So we live in a world without any real military threats outside "terrorists" (which itself is suspicious in their financing) and global capital flows. No longer is investment seen as the path toward happiness, but consumption. Real PCE replaced industrial production as "the" bean counter boosting valuations for the wealthy with credit expansion its chariot.

          ilsm -> Ben Groves

          Today the US spends more on war in real $ than when it had 500K engaged in Vietnam blowing up nationalists at decent profit per body count, with a good number a tripwire against the 40000 tanks the soviets had parked facing west.

          [Aug 23, 2015] This Wasnt Supposed To Happen Crashing Inflation Expectations Suggest Imminent Launch Of QE4

          "...They have to raise rates if only to appear to be doing anything more than pushing on a string."
          .
          "...What does credibility matter when the sheeple can't remember further back than the last commercial and will tout the wonders of the apparel of the emperor because that's what their TV tells them to do, despite their fair emperor standing right in front of them naked as the day they were born?"
          Aug 23, 2015 | Zero Hedge/The New York Times

          Here is a better way of summarizing it: the last three times inflation expectations tumbled this low, the Fed was about to launch QE1, QE2, Operation Twist and QE3.

          And the Fed is now expected to hike rates in less than a month even as inflation expectations are the lowest since Lehman?

          Good luck. The Fed - which is damned if it hikes rates (and crushes financial conditions by tightening, sending deflationary signals surging even higher and undoing 7 years of stock market levitation), and damned if it launches QE4 (as it loses all verbal jawboning credibility it worked so hard to establish in the past year ) - is now truly boxed in.

          James_Cole

          The Fed - which is damned if it hikes rates (and crushes financial conditions by tightening, sending deflationary signals surging even higher and undoing 7 years of stock market levitation), and damned if it launches QE4 (as it loses all verbal jawboning credibility it worked so hard to establish in the past year )

          Talk is cheap. Unexpected china, unexpected greece, unexpected weather... qe4eva.

          NihilistZero

          WHAT THE FUCK ARE THEY GONNA BUY WITH A QE4???

          There's no big increase in government spending coming with a GOP congress and a Dem President. Mortgage originations are at historic lows because Housing Bubble 2.0 has made real-estate MORE UNAFFORDABLE than during Bubble 1.0. The FED is in a complete liquidity trap.

          They have to raise rates if only to appear to be doing anything more than pushing on a string. Unless equities continue to crash and the recession actually starts there's no way to get the government spending going to support another round of QE. And there sure as fuck aren't going to be enough MBS for them to purchase without a return to 2012 RE prices at least.

          NorthernPike

          $5.00 on Biflation for next 36 months @ .05%/month average both lines.

          Line 1 = LIfe support items = Inflate

          Line 2 = Non life support = Deflate

          Winston Smith 2009

          "as it loses all verbal jawboning credibility it worked so hard to establish in the past year"

          Bullshit. It should have lost credibility so many times before and didn't. Extend and pretend can easily continue but will fix nothing, of course, just delay the eventual crash as it has done so far.

          Question Reality

          What does credibility matter when the sheeple can't remember further back than the last commercial and will tout the wonders of the apparel of the emperor because that's what their tele tells them to do, despite their fair emperor standing right in front of them naked as the day they were born?

          cougar_w

          There is a lot of virtue in delaying the crash. Every one wants the crash delayed including you. And in this case whoever crashes last might crash best, I'm pretty sure the Chinese were betting on it anyway.

          El Vaquero

          I'd rather get it over with. If I survive, it'll be like taking a giant shit after being constipated for a week. An extremely painful process that needs to be done with, and delaying it only makes it worse.

          cougar_w

          The metaphor is not a good one. Taking a shit is a normal thing.

          The Crash will be more like; having a diseased limb removed with a bone saw without anesthesia, by a guy who never cut off a limb before, and who frankly doesn't like you much because you married his ex.

          Yeah extremely painful but also potentially lethal, probably crippling too so that even should you survive it you'll be disfigured for the rest of your life.

          We need to get our framing down here folks. And I don't think you really want your wife's ex hacking off your limbs.

          Temerity Trader

          <"...The Fed - which is damned if it hikes rates (and crushes financial conditions by tightening, sending deflationary signals surging even higher and undoing 7 years of stock market levitation), and damned if it launches QE4 (as it loses all verbal jawboning credibility it worked so hard to establish in the past year ) - is now truly boxed in...">

          Couldn't agree more, and I think most everyone can see it now. To even hint at QE4 is to admit total failure and, most importantly, that more QE is worthless except to create another momentary algo-driven pop. Just to not go through with the tiny rate hike will be further evidence the Fed is f***ed. We are so close to the final collapse that nothing can stop it. The markets are now 98% based upon Fed worship and hope.

          I will be a lonely voice that says more QE is likely impossible to do. Behind the scenes Janet may have to push back and tell the oligarchs quietly, it just won't work. Mr Market is about to exact punishment for the intervention that should never have happened. The spiral down will be self-reinforcing and very ugly...

          Young Economists Feel They Have to be Very Cautious'

          August 23, 2015 |

          From an interview of Paul Romer in the WSJ:

          ...Q: What kind of feedback have you received from colleagues in the profession?

          A: I tried these ideas on a few people, and the reaction I basically got was "don't make waves." As people have had time to react, I've been hearing a bit more from people who appreciate me bringing these issues to the forefront. The most interesting feedback is from young economists who say that they feel that they have to be very cautious, and they don't want to get somebody cross at them. There's a concern by young economists that if they deviate from what's acceptable, they'll get in trouble. That also seemed to me to be a sign of something that is really wrong. Young people are the ones who often come in and say, "You all have been thinking about this the wrong way, here's a better way to think about it."

          ... ... ...

          Posted by Mark Thoma on Sunday, August 23, 2015 at 12:27 AM in Economics, Macroeconomics, Methodology | Permalink Comments (7)

          pgl said...

          Very interesting interview on many fronts. What you highlighted - "The most interesting feedback is from young economists who say that they feel that they have to be very cautious, and they don't want to get somebody cross at them. There's a concern by young economists that if they deviate from what's acceptable, they'll get in trouble." - is itself troubling. Young scholars should dare to be different. Fama and Shiller viewed financial economics from very different perspectives and we are all the better for it as the Nobel Prize committee recognized.

          djb said...

          For young economists caution is a rational approach

          Preferably get an advisor whose work you agree with or encourages your intellectual explorations

          But the formula: Get on, get honored, get honest is probably the best approach

          tom said...

          The story is true for young academics in general. As in many areas, the rules don't apply to the superstars, or to those expressing the views held by the establishment....

          Peter K. said in reply to tom...

          "The story is true for young academics in general."

          Or many jobs or careers in general? It's a nice by-product of loose labor markets where employers hold all of the cards.

          Go along to get along. Don't make waves.

          DeDude said...

          This is one of the unfortunate side-effects of human tribalism. When you challenge the tribe you belong to (or say something in support of a competing tribe), you are viewed as "one of them" rather than "one of us". That will inevitably make you less likely to gain support from the tribe you belong to and in early stage careers that could be detrimental to your success. Tribalism is a basic human character flaw that we cannot get rid of no matter how much we would like. Maybe we could try to create a "tribe of truth" where the thing that will get you "one of them'ed" is a failure to seek the truths, regardless. I know -99% of scientist will claim that this is exactly what they are doing (just like they will claim they are above average). But how about holding their feet to the fire on that.

          Benedict@Large said...

          When I first heard the expression "dismal science", I thought, what is so dismal about economics? Now that I've learned economics however, whenever i hear the the expression "dismal economics", I think, what is so science about it?

          Lafayette said...

          {There's a concern by young economists that if they deviate from what's acceptable, they'll get in trouble.}

          Sad, very sad. Whatever happened to Intellectual Freedom in the US?

          It's hidden in a blog behind a pseudonym?

          1984! Group Think!

          I submit this trend started with the Rabid Right and Reckless Ronnie in the 1980s. Let's hope it is coming to its well-deserved end.

          But, maybe not ...

          [Aug 23, 2015] IMF official says 'premature' to speak of Chinese crisis

          Aug 23, 2015 | Reuters

          China's economic slowdown and a sharp fall in its stock market herald not a crisis but a "necessary" adjustment for the world's second biggest economy, a senior International Monetary Fund official said on Saturday.

          Fresh evidence of easing growth in China hammered global stock markets on Friday, driving Wall Street to its steepest one-day drop in nearly four years.

          "Monetary policies have been very expansive in recent years and an adjustment is necessary," said Carlo Cottarelli, an IMF executive director representing countries such as Italy and Greece on its board.

          "It's totally premature to speak of a crisis in China," he told a press conference.

          [Aug 23, 2015] Are Stock Markets Setting Up For A New 'Black Monday'

          Aug 23, 2015 | Zero Hedge

          atthelake

          Depends on how long tptb want to keep this Ponzi floating. If they're not ready for a crash, they'll do something to stop it. If they're ready for a crash, this will be it. If they've lost control of it, hold on to your hats. It's going to be a memorable ride.

          Jungle Jim

          But what I'm afraid of is that nothing much will happen tomorrow. Just another Big Nothing. No fireworks. No walls come tumbling down. No heads roll.
          Instead, the Nice Government Men will just push a few buttons and pull a few strings and click a few mouse clicks and the stock market will soar right back up to its all-time highs again.
          Or they may even dump 24.7 Billion ounces of "gold" in a nanosecond in the wee hours of the morning, strictly to move the price. Move it *down*, that is. I don't think there even *are* 24.7 Billion ounces of physical gold, actual physical three-dimensional metal, on this planet. But that never stopped them before.
          Honestly, I'm not psychic, but something just tells me tomorrow's going be a dud, just another non-happening.

          farmboy

          Who knows, one thing is for sure :

          1. Margin requirements will rise that is not good with margin debt at all time high.

          2. Option expiration on Friday will mean a lot of people get a call to cover this "free put premium"

          3. Momo player must switch sides.

          But he expect also tap dancing FED members singing with Krugman for "Fly me to the moon" Frank sinatra.


          ebworthen

          Take away, the bailouts, 7 years of ZIRP, and Trillions in QE slathered on Wall Street and what do you get?

          Dow 6,000 and S&P 666!

          silverer

          I was thinking about 8,500. But you know what? I don't think I'd bet against your #. The only thing we have to look forward to now is how many people Trump will fire in the first two months if he's elected Prez. Best entertainment ever!

          Hope Copy

          Don't count earning, as the company still controls the money... they can hold for a crash and do a stock buyback at the bottom and the remaining stock holders get no income.. You guys need to get off the mythical earnings horse as it can break a leg at anytime and you are dumped having gone no where (still on the race track and not in the real world)... gambling without a clue but the horse's name...

          In a crash, cash is king, as margins have to be covered. The tals will ose some also and will be bought by those that have cash and want a safe haven, but only at a discount. It is when Bonds also dive and liquidity is provided, the metals will rise.

          The FED will buy gold and all refinable metals that are easily transportable. This I suggest to them if they are to do another QE.. at least get omething of value for the release of cash.

          the grateful un...

          nirvana in the stock buyback game is when you have almost all your float, you buy it back (from yourself) and you go private. the problem with buybacks is when you start losing share value jsut because the indexes are crashing, the only shares being traded are being sold, as bob prechter says it only take two a buyer and seller to make a market, buying up your own stock only works on the upside, with low volume. at the bottom there is no easy money to buyback stock and theres a good chance you held on and still have most of the float, worth less than half what you paid for it with borrowed money. a crash is the one thing the share buyback program is not going to like

          the grateful unemployed

          the 87 drop included a pretty good snapback rally before we got to monday, (this is august and the crash came in october) then the USG pledged money (we will outdo the Chinese on buying back our stock market I wager) more to the question is this the 2000 nasdaq selloff, which was steady and relentless. that crash came about because of a RATE HIKE. greenspan wanted to pop the tech bubble. the 87 event was as nearly as postiive a crash as you could hope for, most stock had their precrash value back within a year, and the market went bullish, from 2500 precrash to 1500 to 12000 by 2000. it was classic bubble reflating. the nasdaq crash wiped out some really big names, MS never came back instead there were new faces, apple and google. the Nasdaq victims had no earnings, while the current DOW companies have financially engineered earnings (pretty similar on that account) the BTFD crowd was amply rewared on black monday and punished in 2000. currently commodities are in the L shaped recovery, which will confound the BTFD crowd this time, down and flat for a long long time. if the government owns the stock market what should it be worth?

          [Aug 22, 2015] Why Is Market Fundamentalism So Tenacious

          The analogy with Trotskyism, which is also a secular religion here are so evident, that they can't be missed. And that explains why it is so tenacious: all cults are extremely tenacious and very difficult to eradiate.
          Notable quotes:
          "... As the neoliberal revolution instigated by Reagan and Thatcher in the 1980 has spread, however, Polanyi has been rediscovered. His great book – now republished with a foreword by Joseph Stiglitz – has attracted a new generation of readers. ..."
          "... The cult of free market fundamentalism has become so normative in our times, and economics as a discipline so hidebound and insular, that reading Polanyi today is akin to walking into a stiff gust of fresh air. We can suddenly see clear, sweeping vistas of social reality. Instead of the mandarin, quantitative and faux-scientific presumptions of standard economics – an orthodoxy of complex illusions about "autonomous" markets – Polanyi explains how markets are in fact embedded in a complex web of social, cultural and historical realities. ..."
          "... Markets can only work, for example, if political and legal institutions contrive to transform people, land and money into assets that can be bought and sold. Polanyi calls these "fictional commodities" because people, land and money are not in fact commodities. People and land have their own existence and purposes apart from the market – and money is a social institution, even if many pretend that gold is a self-evident medium of value. ..."
          "... Block and Somers point to a closed and coherent ideational scheme that knits together several key belief systems. The first is the idea that the laws of nature govern human society, and thus the workings of the economy are seen as a biological and evolutionary inevitability. A second theme is the idea of "theoretical realism," a belief that the theoretical schema is more true and enduring than any single piece of empirical evidence, and thus one can argue from the claims of theory and not from facts. ..."
          "... Finally, a "conversion narrative" enables free marketeers tell to neutralize and delegitimate any contrary arguments, and enabling them to introduce its alternative story. This approach is routinely used to re-cast the reasons (and blame) for poverty. ..."
          "... What makes The Power of Market Fundamentalism so illuminating is its patient, careful reconstruction of these recurring and deceptive polemical patterns. The wealthy invoke the same rhetorical strategies again and again over the course of hundreds of years in extremely different contexts. With their mastery of an enormous contemporary literature, Block and Somers document the remarkable parallels and show just how deep and durable Polanyi's analysis truly is ..."
          www.resilience.org

          One of the great economists of the twentieth century had the misfortune of publishing his magnum opus, The Great Transformation, in 1944, months before the inauguration of a new era of postwar economic growth and consumer culture. Few people in the 1940s or 1950s wanted to hear piercing criticisms of "free markets," let alone consider the devastating impacts that markets tend to have on social solidarity and the foundational institutions of civil society. And so for decades Polanyi remained something of a curiosity, not least because he was an unconventional academic with a keen interest in the historical and anthropological dimensions of economics.

          As the neoliberal revolution instigated by Reagan and Thatcher in the 1980 has spread, however, Polanyi has been rediscovered. His great book – now republished with a foreword by Joseph Stiglitz – has attracted a new generation of readers.

          But how to make sense of Polanyi's work with all that has happened in the past 70 years? Why does he still speak so eloquently to our contemporary problems? For answers, we can be grateful that we have The Power of Market Fundamentalism: Karl Polanyi's Critique, written by Fred Block and Margaret R. Somers, and published last year. The book is a first-rate reinterpretation of Polanyi's work, giving it a rich context and commentary. Polanyi focused on the deep fallacies of economistic thinking and its failures to understand society and people as they really are. What could be more timely?

          The cult of free market fundamentalism has become so normative in our times, and economics as a discipline so hidebound and insular, that reading Polanyi today is akin to walking into a stiff gust of fresh air. We can suddenly see clear, sweeping vistas of social reality. Instead of the mandarin, quantitative and faux-scientific presumptions of standard economics – an orthodoxy of complex illusions about "autonomous" markets – Polanyi explains how markets are in fact embedded in a complex web of social, cultural and historical realities.

          Markets can only work, for example, if political and legal institutions contrive to transform people, land and money into assets that can be bought and sold. Polanyi calls these "fictional commodities" because people, land and money are not in fact commodities. People and land have their own existence and purposes apart from the market – and money is a social institution, even if many pretend that gold is a self-evident medium of value.

          Notwithstanding these realities, capitalist societies ahve created these fictional commodities. People have in effect been transformed into units of "labor" that can be bought and sold in the market, and discarded when their value is depleted. Land, too, is treated as a market asset that has no connection to a larger, living ecosystem or human community. Inevitably, people and users of land (and ecosystems themselves) rebel against their treatment as raw commodities. The result is a permanent counter-movement against those who insist upon treating people and land as commodities.

          Unlike Keynes, who was willing to accept some of these economic illusions in order to have political impact, Polanyi rejected them as a recipe for a dangerous and unachievable utopianism. That is in fact what has emerged over the past several generations as business ideologues have advanced quasi-religious visions of free market fundamentalism. The planet's natural systems and our communities simply cannot fulfill these utopian dreams of endless economic growth, vast consumption of resources and the massive social engineering. And yet it continues.

          Polanyi was courageous enough to strip away the pretenses that the economy is a "force of nature" that cannot be stopped. The economy, he said, is an "instituted process," not a natural one, and it can only survive through massive governmental interventions and cultural regimentation. The free market system is hardly autonomous and self-executing. It requires enormous amounts of government purchasing, research subsidies, legal privileges, regulatory agencies to enhance fairness and public trust, military interventions to secure access to resources and markets, and the sabotage of democratic processes that might threaten investments and market growth. The 2008 financial crisis revealed in outrageous detail how financial markets are anything but autonomous.

          So what accounts for the insidious power of market fundamentalism and its illusions? Why do its premises remain intact and influential in the face of so much contrary evidence?

          Block and Somers point to a closed and coherent ideational scheme that knits together several key belief systems. The first is the idea that the laws of nature govern human society, and thus the workings of the economy are seen as a biological and evolutionary inevitability. A second theme is the idea of "theoretical realism," a belief that the theoretical schema is more true and enduring than any single piece of empirical evidence, and thus one can argue from the claims of theory and not from facts. Free market narratives assert their own self-validating claims to what is true; epistemological categories trump all empirical challenges.

          Finally, a "conversion narrative" enables free marketeers tell to neutralize and delegitimate any contrary arguments, and enabling them to introduce its alternative story. This approach is routinely used to re-cast the reasons (and blame) for poverty. Instead of acknowledging institutional or structural explanations for why many people are poor, the free market narrative boldly attacks government for making people poor through aid programs. Government programs supposedly have a perverse effect, aggravating, not aleviating poverty. The poor are cast as morally responsible – along with government – for their own sorry circumstances. Thus, a higher minimum wage is perverse, say free market champions, because it will hurt the poor rather than help them.

          What makes The Power of Market Fundamentalism so illuminating is its patient, careful reconstruction of these recurring and deceptive polemical patterns. The wealthy invoke the same rhetorical strategies again and again over the course of hundreds of years in extremely different contexts. With their mastery of an enormous contemporary literature, Block and Somers document the remarkable parallels and show just how deep and durable Polanyi's analysis truly is .

          [Aug 22, 2015] Scientists Do Not Demonize Dissenters. Nor Do They Worship Heroes.

          Paul Romer's latest entry on "mathiness" in economics ends with:
          Reactions to Solow's Choice: ...Politics maps directly onto our innate moral machinery. Faced with any disagreement, our moral systems respond by classifying people into our in-group and the out-group. They encourage us to be loyal to members of the in-group and hostile to members of the out-group. The leaders of an in-group demand deference and respect. In selecting leaders, we prize unwavering conviction.

          Science can't function with the personalization of disagreement that these reactions encourage. The question of whether Joan Robinson is someone who is admired and respected as a scientist has to be separated from the question about whether she was right that economists could reason about rates of return in a model that does not have an explicit time dimension.

          The only in-group versus out-group distinction that matters in science is the one that distinguishes people who can live by the norms of science from those who cannot. Feynman integrity is the marker of an insider.

          In this group, it is flexibility that commands respect, not unwavering conviction. Clearly articulated disagreement is encouraged. Anyone's claim is subject to challenge. Someone who is right about A can be wrong about B.

          Scientists do not demonize dissenters. Nor do they worship heroes.

          [The reference to Joan Robinson is clarified in the full text.]

          Adam Eran said...

          Max Planck would disagree: "The truth never triumphs. Its opponents simply die out. Science advances one funeral at a time."

          Friday, August 21, 2015 at 04:02 PM

          anne said in reply to Adam Eran...

          https://en.wikiquote.org/wiki/Max_Planck

          1948

          A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.

          -- Max Planck

          [ Thomas Kuhn would later write of this. ]

          likbez said...

          Now science became highly political occupation. This is especially true about economics.

          So dismal behavior of scientists and flourishing of pseudoscience are to be expected. Rewards offered to conformists are just too great not to seduce people.

          Actually it looks like Lysenkoism is the mark of the present and the future, not so much of the past.

          [Aug 22, 2015] Paul Krugman Debt Is Good

          But debt slavery is not...
          August 21, 2015 | Economist's View

          JF said in reply to reason...

          Good. I made a similar point last night on another thread when talking about a 1996 Vickery paper surfaced by Paine. There is a myopia in economics, in my opinion, focused only on annual flows (GDP) and completely disregarding the importance of wealth and as you call it, "economic resilience."

          If Piketty has any influence, I am hoping that economic discourse and public finance no longer just focuses on annual flows and that it always also discusses Net Worth (as economic capacity of the individual and in the aggregate is also constituted by using wealth and any new income you get too).

          anne said in reply to JF...
          I made a similar point last night on another thread when talking about a 1996 William Vickrey paper surfaced by Paine....

          [ Would there be a reference to the paper? ]

          JF said in reply to anne...
          Actually, it was Dan Kervick who added the link, in response to a recommendation from Paine (who apparently also went to Columbia, so can spell Vickrey's name):

          http://www.columbia.edu/dlc/wp/econ/vickrey.html

          For what it is worth, last night late, I then said this, and had to chuckle to my wife when I say Krugman's blog article this am:

          JF - "Paine and Dan Kervick - I would prefer that this paper be re-written in light of the Piketty remonstrance that you need to look at economics and society not just in terms of income and flow but also in Net Worth terms. Plainly, a very wealthy society can raise taxes with little harm to aggregate demand if the new taxes fall on those with a lower/lowering propensity to spend, at least to some degree (see Saez and others who comment on the taxation of income tax bases).

          I am one who will always make note that the public should not cut taxes on the already wealthy so that the subsequent borrowing of the cash comes from the same class of people. Clearly, we need to think in more balanced ways here. Borrow for long term assets to spread the costs to those who benefit over time, especially when interest rates are low. Borrow from foreign sources as this brings money into the US economy for the trade of a piece of paper and cash management dollops of principal and interest. But otherwise a wealthy society should tax, otherwise it is transferring wealth upward by foregoing taxation in trade for giving the wealthy class a tradeable asset.

          Ouch, I'd prefer we just helicopter the money over to Treasury than the tax-cut and borrow scheme of the republican party.

          Oh wait, as we redeem the public debt purchased by the FED and they offset the principal with the Treasury, we will be doing helicoptering, just had to wait six years or so.

          Anyway, rambling point: public debt is not always better than taxation, and for the most part in a wealthy society like the US where we have a deep financial system with all kinds of instruments of trading efficiency, including trillions of debt products, I suspect it seldom is right to borrow anew when you can tax and target the taxation so it does not harm aggregate demand.

          I think in 1996 when this was written almost everyone was myopically focused solely on flows (GDP/income)."

          JF said in reply to JF...
          When a new Congress comes in 2017, perhaps we can change the finance law of the US to permit the FED and Treasury to sell US public debt direct to foreigners without having to go into the open market and dealer-community.

          Alas, if we can only get through this next national election with heads screwed on straight! Good to hear that Mrs. Clinton at least is saying that economic policy is the centerpiece of her campaign. We will see our well she does from a strategic communications perspective.

          Perhaps some economists can help here too.

          reason said...
          P.S. One thing that PK doesn't say, that I think needs to mentioned is that for countries with their own currencies, they can print money rather than issuing bonds. The distributional implications are important. Even at low interest rates, government bonds are a promise of a stream of income to the already rich (and taking money out of circulation, which selling bonds does is a deflationary thing to do - increasing the real value of financial wealth). Printing money, and spending it or giving it to the poor, on the other hand does not make the government the supporter of existing wealth. This should not be forgotten.
          Paine said in reply to JF...
          Beware the false value the scheinvert the bubble value

          The better notion is the inter temporal payments grid

          We need a way other then inflation deflation to adjust this grid to on going production value and wage value. Stiglitz is very keen on wealth v productive capital

          And he's on to something deep that seems to be in large part invisible to most model builders

          Welcome To The World Of ZIRP Zombies Zero Hedge

          Bay of Pigs

          It is amazing that most people don't realize the last time the FED actually raised rates.

          June 2006

          RaceToTheBottom

          Central Banksters are afraid, because they have nowhere to backtrack to.

          Economics profession is also scared because they have been acting like a one religion Religious Studies department for over 50 years. They only now just realized that their livelihood has become tied to that one religion and that one religion is a religion based on having a Spaghetti strainer on your head.

          MagicMoney

          What Mises means by:

          falling value of money = rising interest rate is that people prefer to buy goods versus saving money. They prefer goods over money. Higher interest rates is a regulatory price that prevents over consumption of loan-able funds.

          Rising value of money = falling interest rate, because people prefer to save more money versus spending their money on goods. Interest rates can be lower, because there is less demand for present goods, which means funds are cheaper for entrepreneur can engage in new types of production today to bring about consumption in the future.

          I will repeat..

          When people prefer goods over money, there is high demand for funds to buy it, thus like any supply and demand law, prices rise for those funds. When people prefer money over goods, it's inverse. Demand for funds is lower, means consumers are not spending as much, and this allows room for capital investment, because funds are not competing for consumption. Consumption levels have subsided, and the investment period can began today to bring about new goods for consumers tommorrow.

          I don't know how you missed that.

          withglee

          I don't know how you missed that.

          My concern is with anyone who thinks they got it!

          When people prefer goods over money, there is high demand for funds to buy it, thus like any supply and demand law, prices rise for those funds.

          A properly managed Medium of Exchange (MOE) does not respond to a supply/demand relationship for the MOE. It responds to the default/interest collection relationship. But with proper management, the process "guarantees" both these ratios are unity ... all the time and everywhere. And such proper management is trivial. How? Monitor defaults. When there is one, immediately collect an equal amount of interest.

          Money is "a promise to complete a trade". It is an efficiency that allows simple barter trades to proceed over time and space. Money is created by traders making trading promises and getting them certified. The certificates are destroyed when the trader delivers. If the trader defaults, the orphaned certificates are recovered with interest collections. During the delivery process, the certificates circulate as the most desired object of simple barter. This is because, under a properly managed MOE process, they never lose their value. Thus they are universally accepted.

          Supply and demand for these certificates (money) is in perpetual perfect balance ... it's the nature of trade.

          Demand for funds is lower, means consumers are not spending as much, and this allows room for capital investment, because funds are not competing for consumption.

          This is a "capitalists" notion and was imposed by capitalists. It gives capitalists control over traders and their desire and ability to trade where no such natural control exists.

          It is ridiculous to require that someone first save before he, or someone else using money, can trade. In the beginning there was "no" capital. Yet trade got started and has continued ever since.

          Consumption levels have subsided, and the investment period can began today to bring about new goods for consumers tommorrow.

          Consumption and savings have nothing to do with proper management of an MOE process. Under a properly operating MOE process, reliable traders (those who don't default) enjoy zero interest load. Thus, in time value of money calculations (i.e. (1+i)^n) the zero "i" term makes all these "buy it now with future money or save present money for a future purchase" considerations go away. With inflation guaranteed to be zero, a consideration to trade is governed only by the traders desire to do so and ability to deliver.

          Without some capitalist jacking the system with their farming operation (i.e. diddling interest rates and restricting traders ability to get their promises certified) traders are far less likely to default ... and there is no cascading effect if they do.

          A properly managed MOE process "automatically" increases interest collections in the face of defaults. This is what the capitalists claim to be doing with all the nonsense described in this article.

          So again... if you "get that", you are putty in the capitalists hands and you are a major part of the problem.

          NoWayJose

          We had the chance in 2007-2009 to re-set everything and come out with a stable growing economy and severe limitations on banks. It did not happen. We will get another chance, but the pain threshold will be much higher!

          [Aug 16, 2015] And Quiet Flows the Con

          "As flies to wanton boys are we to the gods.
          They kill us for their sport."

          William Shakespeare, King Lear

          That disruption was caused by the China currency devaluations which reminded those who have not been paying attention that

          a) there is a currency war underway,

          b) there is no sustainable economic recovery despite rosy reassurances and the facade of statistical growth, and

          c) there are a number of bubbles in financial assets that have been functioning primarily as wealth transfer mechanisms, and are wobbling in a manner that could bring the economy back to the brink once again.

          [Aug 16, 2015] You Don't Need to Hire Rapacious Private Equity Firms to Get Their Returns by

          August 14, 2015 | naked capitalism

          A myth that has allowed private equity to persist in its predatory ways is that private equity delivers returns that investors can't obtain through other investment strategies.

          We've described the large body of research that demonstrates otherwise. Private equity has conditioned investors to use IRR, a return metric that exaggerates their performance. Average private equity industry performance does not beat the S&P 500, which is a much more flattering metric than smaller-cap indicies that would make for better comparables. Moreover, investors need to be compensated for the illiquidity of private equity and most investors use a rule of thumb of 300 to 400 additional basis points. Even the mighty CalPERS, which has better access to private equity funds than just about any market participant, has failed to meet its private equity performance benchmarks for the last 10, 5, 3, and one years. If CalPERS can't eke out an adequate risk-adjusted return out of private equity, pray tell who can?

          The justification for investing in private equity has rested almost entirely on the idea that investors could gain access to the best funds. If they could invest only in top quartile funds, private equity looks like a winner. But that notion has also been roundly debunked. It was once true that top quartile firms stayed in the top quartile, so investors could in theory target them. But top quartile outperistence no longer holds, so investors might as well throw darts at a list of private equity fund managers. Moreover, even in the days when top funds were able to maintain a performance lead over their peers, the also-rans were able to muddy the selection waters. One study found that 77% of the funds were able to claim top quartile status. Oops.

          As we wrote last year:

          Rather than question the logic of investing in private equity at all, everyone in the industry has convinced themselves that it is reasonable to believe that they can be the Warren Buffett of private equity. The investment consultants go through the shooting-fish-in-a-barrel exercise of convincing their institutional clients that each of them is prettier, smarter, and more charming than average, and therefore capable of achieving sparking results. Needless to say, flattery is an easy sell….

          Fundamentally, this is an intellectually dishonest exercise, and diametrically opposed to the way many public pension funds construct other parts of their investment portfolios. With public equity in particular, it's almost certain that a significant majority of U.S. pension fund assets are invested in index funds. That's because pension funds have recognized that, collectively, they cannot do better than average, and that after paying active management fees, actively managed public equity portfolios typically perform worse than the market average.

          So it's not as if these investors are so clueless that they can't grasp the point that all of them cannot achieve above average results, let alone significantly above average results. Instead, with private equity, there is a desperate desire to be in the asset class for reasons that probably reflect a combination of intellectual capture by the PE managers, political corruption in legislatures that control public fund board appointees, and the need to have a strategy that could conceivably solve the pension underfunding problem over time.

          In other words, the very long term, illiquid nature of private equity investments allows limited partners to fool themselves about how realistic it is for them to achieve their desired returns, and there's a well-honed industry of private equity professionals and consultants who stoke those illusions.

          But it's going to be hard to keep those fantasies alive when academics show how to beat private equity returns with much cheaper public equity strategies. Matthew Klein of FT Alphaville summarizes a new paper by Brian Chingono and Dan Rasmussen that shows how to exceed the average private equity fund's return by a solid margin. We've embedded the article at the end of the post. Klein does a fine job of recapping it, so we'll quote liberally from his post.

          The Chingono/Rasmussen strategy, in simple form, seeks to replicate what private equity funds do with a portfolio of public stocks by creating a portfolio of leveraged but low-priced yet solid cash flow generating firms. They focus on midsized stocks, in the 25th to 75th percentile of market capitalization, that are cheap (bottom 25% in enterprise value to EBITDA terms) and are leveraged more than average. The academics then tested several ways for selecting the best performers from this bunch. They found the best measures to be sales growth relative to assets and debt repayment ability (as in cash flow relative to debt levels). The only anomaly seems to be that rejiggering the portfolio annually in the 4th quarter produces sub-par returns; all the other variants produced impressive results of an average of 9.1% to 11.7% outperformance. That puts private equity to shame.

          From Klein's post:

          It's well known among finance academics that the performance of the average private equity fund is overwhelmingly determined by 1) junk bond spreads and 2) the amount of capital invested in PE funds. General partners overpay for their target companies when they have too much money to play with, which kills returns. But when credit is tight and few investors are willing to commit to private equity, general partners can get better deals and deliver the massive gains that underfunded pension plans salivate over.

          In other words, returns are cyclical and can be predicted by the purchase multiples being paid, which in turn can be predicted by macro factors. (That's not surprising, since basically all asset returns are inversely related to how much you pay.) You may want to have some exposure to this kind of thing, but you shouldn't be paying pay 2 and 20 for it. Plus, there's no telling that the particular funds you invest in generate returns representative of the strategy.

          And get a load of the margin of outperformance over time:

          Looking at US data going back to the early 1960s, they found that if you'd bought a portfolio consisting of companies in the top quartile according to each of these filters, you would have made around 23 per cent per year between 1965 and 2013. You would have done slightly better with an equal-weighted portfolio and slightly worse with a value-weighted portfolio.) Compare that to the roughly 10 per cent annual returns you would have gotten over the same period if you invested in the S&P 500 index and reinvested all dividends, or the long-run net of fees returns of the Cambridge Private Equity Index of around 13 per cent per year.

          So what's the fly in the ointment? Public stocks are more volatile than private equity funds. But that in large degree is a fallacy, by virtue of turning the defect of private equity, its illiquidity and infrequent valuations, into a trumped-up virtue. Moreover, PE firms flat out lie about what their portfolios would be worth in a bad market, like the fall of 2008. The authors mention the importance of this fibbing to private equity's perceived superiority:

          The key advantage of private ownership of leveraged businesses, however, is that the private equity investor can mask volatility because the equity securities are not publicly listed.

          This truncating the bottoms of the worst of market cycles gives private equity the illusion of lower price volatility than it really has. Or put it another way, the valuation consultants haven't adequately priced the fact that the investors have handed over the option as to when they get their money back to the general partners, which is not the same as "illiquidity". That option is a very long-dated option, and long dated options are extremely expensive. It's a virtual certainty that if this option were properly priced, limited partners would need to seek a far higher premium than the 300 to 400 basis point the industry has agreed upon as a heuristic.

          But even handicapping the higher volatility using conventional metrics, this levered public equity strategy still beats private equity. As Klein sums up:

          True, you would have endured extreme volatility to go along with your leverage-fueled returns, but the risk to return ratio would still have been somewhat better than the market as a whole…

          But we can easily imagine investment committees lacking the stomach for this kind of strategy even if it is far more liquid than the private-market equivalent. Some may prefer to take comfort in the apparent stability of made-up numbers generated from appraisals of untraded assets even if that means leaving money on the table.

          Yet we see CalPERS, which is better run than any other public pension fund, assuming more risks to eke out mere single-digit basis point improvements in performance, while ignoring what amounts to free money opportunities by getting out of the high-fee private equity regime, either by moving to cut out the middleman, as Canadian pension funds are doing, or by employing public market strategies to achieve equity like returns (Chingono/Rasmussen isn't the only approach we've heard about, but it appears to be the most rigorously tested one). But until investors feel more pressure, either due to evidence of more private equity chicanery or faltering private equity returns, they aren't likely to kick their private equity bad habit.

          [Aug 15, 2015] Paul Krugman Bungling g's Stock Markets

          Aug 14, 2015 | Economist's View

          kthomas said in reply to Mitch...

          ...As for this particular article from PK, its garbage. Completely subjective, and repeating much of what most of us know. He does it rarely, thank God, but nobody is perfect and he can be allowed an occasiional rant.

          Im far more interested in his opinions on Fed response.

          sanjait said...

          This is concerning, because it's amateurish behavior for a national government. China is essentially acting like the London Whale - throwing money at the market in a vain attempt to avoid having asset prices shift, hoping beyond reason that the market will just favorably make it's own adjustments sometime in the future.

          Paine said in reply to sanjait...

          What ? Amateurish ? How can you know the underlying plan here? I certainly don't

          And I made my living for a while analyzing currency markets

          Sanjait said in reply to Paine ...

          They are trying to arrest market movements, and it's amateurish because it's a strategy doomed to fail.

          I suppose it's always possible that someone's apparently dumb actions are actually part of an intelligent 12-dimensional chess strategy that is not apparent to outsiders ... but I'm pretty comfortable that's not the case when we are talking about China's attempts to prop up the stock market.

          nikbez said in reply to Sanjait ...

          You are incredibly naďve if you think there was no geopolitical play in using the bubble Chinese created to crash Chinese market.

          I wonder what was the role in all this of vampire squid and friends

          anne said in reply to sanjait...

          There is no reason to think Chinese policy makers are trying to set stock market prices as opposed to dampen market movements. Hong Kong authorities were able to dampen market movements during the Asian currency crisis by buying shares in the Hong Kong index. Similarly, Malaysia employed capital controls limiting flows of money from stock sales from be taken out of the country.

          sanjait said in reply to anne...

          Even if it's merely dampening market movements, which is totally plausible, its an extremely stupid thing to do.

          It tells every investor in the market that the national government is providing a backstop on their losses. In the very short term this reduces market volatility but in the less short run it just encourages leveraging up and reduced risk premia, which increase market volatility. Even on that measure it's a dumb and amateurish move.

          And that's putting aside the fairly obvious fact that the state is covering the losses of wealthy private investors with this move, enacting a form of post facto lemon socialism.

          If Hong Kong did the same thing, it was dumb for them too.

          Malaysia (or any other country) implementing capital controls is definitively *not* the same thing.

          Eric Blair said in reply to sanjait...

          PK himself does not take this position. In fact the 1998 Malaysia currency controls were imposed after Malaysia's leader read a Krugman column in Fortune suggesting exactly that. So far as I know, though, he has never spelled out exactly where "slap in the face" ends and "post facto lemon socialism" begins.

          nikbez said in reply to Eric Blair...

          Eric,

          all free market fundamentalists are "true believers". They can't be influenced by arguments.

          Eric Blair said in reply to sanjait...

          PK himself does not take this position. In fact the 1998 Malaysia currency controls were imposed after Malaysia's leader read a Krugman column in Fortune suggesting exactly that. So far as I know, though, he has never spelled out exactly where "slap in the face" ends and "post facto lemon socialism" begins.

          RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

          Wealth breeds greed. Greed breeds elitism. Elitism breeds isolation. Isolation breeds ignorance.

          "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men." Lord Acton

          anne said in reply to sanjait...

          Suggested by Branko Milanovic:

          http://www.marketwatch.com/story/heres-the-map-of-the-world-if-size-was-determined-by-market-cap-2015-08-12?link=MW_home_latest_news

          August 14, 2015

          Here's the map of the world, if size were determined by market cap
          In billions of dollars, the world according to free-float stock market capitalization.
          By STEVE GOLDSTEIN

          D.C. BUREAU CHIEF

          Bank of America Merrill Lynch this month published a report transforming many of their investment themes into maps.

          One of note is what the world would look like if sized by market capitalization.

          The U.S. is still looking like the U.S. - and Japan is pretty hefty - but where did China go? And how is Hong Kong bigger than the mainland?

          Some readers have noted that China looks unusually small - that's because the methodology here is to use MSCI's numbers. The index provider still keeps out the so-called A-shares * from inclusion in its indexes, for reasons including capital mobility. Were the A-shares included, even after the rout in that country, the market cap of China would swell by tenfold.

          Russia, on this map, is basically the size of Finland. (A country that reportedly Vladimir Putin has designs for, though that's a story for another day.)

          The U.S. market capitalization is $19.8 trillion, or 52% of world market cap, which the brokerage says is the highest since the 1980s.

          Russia, for what it's worth, is the largest country by area.

          * http://www.investopedia.com/terms/a/a-shares.asp

          Shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system.

          sanjait said in reply to anne...

          Not sure what the point is ... but ok.

          So it seems China's equities market is dominated, in market cap terms, by shares that are limited to domestic purchasers. This indicates they have significant capital restrictions on foreign ownership of companies.

          But I didn't think that fact was in dispute, nor that they have other significant capital restrictions, nor that capital restrictions themselves are necessarily stupid policy.

          Dan Kervick said...

          "The response of the Chinese authorities was remarkable: They pulled out all the stops to support the market - suspending trading in many stocks, banning short-selling, pushing large investors to buy, and instructing graduating economics students to chant "Revive A-shares, benefit the people." "

          "All of this has stabilized the market for the time being. But it is at the cost of tying China's credibility to its ability to keep stock prices from ever falling. And the Chinese economy still needs more support."

          I don't understand this. China did not act to "keep stock prices from ever falling." They acted to put a floor under a very precipitous decline.

          Clearly China has a mixed economy that relies on a heavier degree of political management than the US economy, and has a more flexible, less doctrinaire reliance on "the market thing". They also don't like political drama, and are willing to intervene when the changes underway produce more volatility than they want.

          Paine said in reply to Dan Kervick...

          Managing equity markets is relatively novel state craft

          Bonds are another matter
          And forex yet a third
          Not to mention land lots

          Socializing markets is a state activity we are learning

          China right now is operating at the knowledge frontier practically speaking

          It's amazing to watch political economist reflexes here


          Most are giddy


          The earths joblings benighted by a socially constructed black out
          Cant see what's at stake

          pgl said in reply to Paine ...

          "Managing equity markets is relatively novel state craft".

          Maybe but CEOs have been doing this in the US for decades. Yep - we mastered this game by privatizing corporate corruption.

          anne said in reply to Paine ...

          China right now is operating at the knowledge frontier practically speaking

          [ Really, really important. China has for decades used direct, specific market sector controls in generating and smoothing growth.

          A sharp increase in international oil prices is not taken as a general problem, but a problem in agricultural communities where the cost of fuel can be a significant problem during planting and harvest time, so the Chinese have at times directly lowered the price of oil for rural China. However, such market interference should not work since a low price for oil in rural China should mean oil flowing to urban China. China has made price discrimination work however, work without bottlenecks. ]

          Paine said in reply to anne...

          It's interesting and pgl gets this nicely

          It's okay tautly to manipulate markets if you're an oligopoly corporation

          God forbid if you're the sovereign

          Dan Kervick said in reply to Paine ...

          "Managing equity markets is relatively novel state craft."

          Agreed, but the principle isn't that much different. China recently began encouraging ordinary households to invest in their smallish stock market. That's part of the plan for long-term "capital deepening" and development that doesn't rely so much on state-fostered credit and bubbles. Perhaps they concluded now is not the time for some kind of Chinese Black Friday.

          Paine said in reply to Dan Kervick...

          Agreed

          However I'd prefer the state just keep relying on its own credit mill
          And yuan mine

          It's cost less

          As to households

          Private Savings give them a limited extra freedom

          Fine

          In fact a universal comprehensive social transfer system cradle to grave
          Could make private savings a luxury product
          Which it ought to be
          Providing a safe place to store purchasing power is enough once the state creates a complete transfer system .

          Paine said in reply to Paine ...

          This private holding of equities is vey dangerous if it becomes wide spread enough
          And horns into pensions etc


          pgl said in reply to Dan Kervick...

          So you think all this fuss is an overreaction. OK. I said the fuss over that tiny change in the exchange rate peg was much ado about nothing.

          Dan Kervick said in reply to pgl...

          Yes, I think it's probably an overreaction. The issue is, what if the devaluation doesn't stop, but China continues to expose the exchange to market forces, and market forces push the yuan down?

          This will make confused capitalist heads explode across the United States! The devaluation will be bad for the US, but will be a result of the Chinese practicing US-beloved market principles.

          The politicians and pundits will then have to come up with some conspiracy theory to explain how the commies are manipulating the markets that are driving down the currency, so that they can keep calling the Chinese "manipulators".

          pgl said in reply to Dan Kervick...

          "This will make confused capitalist heads explode across the United States! The devaluation will be bad for the US, but will be a result of the Chinese practicing US-beloved market principles."

          I'm all for heads exploding. But is the yuan really overvalued. Krugman's latest says maybe not. If it is not overvalued, maybe their devaluation is on the same order of the devaluation of the Euro. In fact, Bernanke noted that the German trade surplus is much more of a problem than the shrinking Chinese trade surplus.


          Paine said in reply to pgl...

          PK countered that that peg shift pre staged more peg shifts and the regime change in policy would change expectations of forex marketeers

          Gist

          The market players now expect major moves down and will validate any such plan. On his other hand the marketeers will hammer at any floor

          pgl said in reply to Paine ...

          He is Dornbusch's student so the overshooting model rules his brain. Which in my view is a good thing.

          Dan Kervick said in reply to EMichael...

          Well, this criticism would make sense coming from some Austrian defender of pure free markets. But it's coming from people who don't think interest rates in the credit market should be set by the market, but should be guided and targeted by deliberate central bank policy that prevents them from going where the market otherwise wants to push them.

          Paine said in reply to Dan Kervick...

          Dan god bless u

          You think past the paper barriers . Exactly. The present progressive mind is only slightly liberated from the iron dictatorship
          Of capitalist dominated markets

          ... ... ...

          EMichael said in reply to Paine ...

          Gotta' tell you, I can't figure out how you think it is possible that China is not being run by "an iron dictatorship Of capitalist dominated markets"

          Only difference is in the number of people in that "special" group.

          The average Chinese citizen has not seen a whole lot of the impressive Chinese gains these past decades.

          Paine said in reply to EMichael...

          You might want to look into gains at the level of Chinese wage workers since Deng reforms in 1979-80

          EMichael said in reply to Dan Kervick...

          Yeah, setting FED rates is almost exactly the same thing as what the Chinese are doing.

          Meanwhile, I believe I can go into the archives here and find examples where you thought it made sense to let speculators have a "hard landing".

          Dan Kervick said in reply to EMichael...

          Speculators, yes. The general public, no.

          Paine said in reply to EMichael...

          Interesting you bring up speculators. Rough housing them is just what the PBC needs to do over the yuan

          Will they ? What if he bastards have personal skin in the game ?

          pgl said in reply to Dan Kervick...

          "should be guided and targeted by deliberate central bank policy that prevents them from going where the market otherwise wants to push them".

          WTF? Unless you are advocating having interest rates rise - this makes no sense. Interest rates are near zero. Letting them rise but invite another recession. Is that what you want?

          Dan Kervick said in reply to pgl...

          No. What I am saying is it is somewhat inconsistent for people who have no problem with US government price-setting in credit markets - which are a vast share of the US economy - to criticize the Chinese for interfering in the price mechanisms in other markets.

          Paine said in reply to pgl...

          You are suggesting the PBC run around plugging holes
          When a comprehensive strategy for asset markets and land lot markets is in order here

          Taxation your favorite gig
          Must play a huge strategic role here

          Paine said in reply to Paine ...

          Or perhaps you feel like Mitterrand in the mid 80's
          And maybe Syriza now
          ---I hope not ---

          The Chinese communist politbureau should simply bow to he marketeers will
          Abdicate power over asset markets.
          And call for open elections

          Paine said in reply to Paine ...

          Castro brothers oughta cave similarly right

          Julio said in reply to EMichael...

          No, what's "more flexible" is being willing to try different methods not allowed by "the market thing".
          If they stick to only one method, applied rigidly, then your criticism will apply.

          Paine said in reply to Julio...

          Excellent

          pgl said in reply to EMichael...

          Go over to DeLong's place where he was mocking Jeb! 4% and DONALD! 10% read Kervick's attack on the Solow growth model. About the dumbest rant I have ever seen in my life. And as Kervick tried to school Solow, I offered what I would suspect Solow would fire back.

          Looking at changes in real GDP during the Great Depression as a measure of changes in potential GDP. Really stupid.

          Dan Kervick said in reply to pgl...

          I didn't really attack the Solow model. I implied that economists can't predict the impact of political decisions on growth rates or growth ceilings by using that model, since the predictions come from pumping numbers into the model that are extrapolations from current conditions.

          The model contains an exogenous variable for "multifactor productivity". If multifactor productivity changes, then the steady state equilibrium changes along with the calculated growth path for getting there. And multifactor productivity is a factor that, while unpredictable, changes in response to innovation and investment in human capital.

          It also treats the savings rate as an exogenous variable. But clearly states can increase the savings rate of their societies.

          Clearly societies have experienced periods of dramatic economic progress in the past because of technological innovations or political interventions that would not have been predictable ahead of time from the Solow model.

          The model has limited use in predicting growth paths for societies in which some important basic parameters stay the same (or change according to some simple quantitative rule). It loses applicability when applied to situations in which either private or public sector developments result in dramatic changes in the values of variables the model treats as exogenous.

          Dan Kervick said in reply to pgl...

          Right. But the Chinese did not at all prevent stock prices from "ever falling." Nor did they announce or commit to such a crazy policy. They announced a temporary measure to prevent them only from falling below a certain level. They applied some brakes - that's all.

          It's not that much different than what we do in the US to prevent a automated trading "flash crash" from turning into a Black Friday market rout.

          Paine said in reply to Dan Kervick...

          Exactly. Except here the various market players ..inside players call the shots. Not the state

          Sanjait said in reply to Dan Kervick...

          It's not at all the same. A temporary trading halt is not the same as having state backed entities buy shares.

          Neither is it similar to conventional monetary policy.

          Your argument for these Chinese policies seems to consist of a long string of false equivalences such as these.

          Dan Kervick said in reply to Sanjait ...

          It's the same thing. Just two different mechanisms for getting out of a doom loop. You just think there is something evil or out of bounds about states intervening in market mechanisms. I say big deal. If a few giant market participants stepped in to buy up shares to stop a panicky selloff, people would say, "Thank, Citizen Moneybucks and Citizen Morgan for stopping this terrible panic." The state is just another public spirited and powerful agent with a stake in preventing instability.

          As for "conventional monetary policy", I'll ask you to recall that QE is generally classified as "unconventional" monetary policy. Of course, what is conventional or unconventional depends only on what people are used to. Once upon a time, in the early 20th century, central bank open market purchases of all kinds were an unconventional emergency measure. Then people got used to them. Now large-scale asset purchases have probably moved into the conventional category. Some central banks have already been involved in buying and selling equities, and perhaps some day those interventions will be "conventional" as well.

          It really doesn't matter, though, whether they are conventional or unconventional. The questions should be what the goals are, and how well they accomplish them.

          Just because "the markets" decide they want to carry out some Mellonite liquidation of overvalued assets in a rapid, elephant stampede style doesn't mean it is good public policy to let it happen.

          Peter K. said in reply to Dan Kervick...

          I'm leaning towards John Cassidy's take, who suggests they're having a "Minsky moment."

          "Underlying all of this is the fact that China is still dealing with the consequences of an enormous credit and real-estate bubble that has accompanied, and prolonged, the latter stages of the growth miracle. Between 2007 and 2014, total private debt in China rose from about a hundred per cent of G.D.P. to about a hundred and eighty per cent-a jump even larger than those seen in countries such as Ireland and Spain, which subsequently endured deep recessions. In 2010 alone, the amount of debt taken out by Chinese businesses and households jumped by about thirty-five per cent of G.D.P.

          ...

          So far, however, the Chinese government, which enjoys the luxury of having relatively little debt of its own, plus enormous foreign currency reserves, has managed to avoid such a nasty outcome. By intervening in ways obvious and opaque, it has sought to substitute a managed deleveraging of the economy for a chaotic collapse. Until pretty recently, the consensus among economists and investors was that this policy was generally working. G.D.P. growth was falling, but not cratering. The Chinese shadow-banking system, which issued a lot of the dodgy credit, was shaky, but it hadn't collapsed. And China's stock market was soaring.

          The events of the past months have prompted a reassessment of the true state of China's economy, and of the competence of its policy makers. In the aftermath of the effort to prop up the stock market, the Times' Paul Krugman said Chinese officials were demonstrating that they "have no idea what they are doing." This week's devaluation prompted more critical comments from Krugman, while, over at Bloomberg View, Justin Fox suggested that China might not have a master plan.

          I think it probably does-the question is whether the plan will ultimately work. In seeking to deflate a huge credit bubble and rebalance the economy without subjecting China to an outright recession, the government in Beijing is seeking to defy the economic laws of gravity. That was never going to be easy."


          sanjait said in reply to Peter K....

          ^^THIS

          Peter describes the situation very well I think.

          Basically, China is attempting to dance past its Minsky moment.

          It would be like if the US decided in 2008, instead of buying MBS and its own bonds, to coerce state-backed investors into issuing more loans and buy equities. China is essentially doing what the obtuse free-market ideologues accused the US of doing with its various bailouts and monetary policy activities.

          But these things aren't the same. China is actually trying to prevent the corrections, or at the very least slow them, not through macro policy but through purchase flows.

          At best these policies will result in massive losses for the Beijing Whale. Perhaps some would argue it would be worth it to ensure macro stability, though I can think of a whole lot of other better ways to achieve that goal.

          And at worst these policies will just delay or even exacerbate the inevitable corrections, and leave the state with fewer resources and weaker credibility to deal with the aftermath.

          Dan Kervick said in reply to sanjait...

          "...or at the very least slow them."

          That's the ticket. Also, we need to remember that markets are stupid and herd-like some times, and the direction they decide to go isn't always smart. Maybe the full "correction" will never happen. Maybe it was partly based on an excessive fear that Chinese equities were overvalued that was just as irrational as the excessive exuberance that overvalued the equities in the first place.

          EMichael said...

          "The common theme in these wild policy swings is that China's leadership keeps imagining that it can order markets around, telling them what prices to reach."

          But of course this is what China's leadership has done for decades. They ordered their economy around, and it should be no surprise that this is their reaction to the changing world.

          Peter K. said...

          http://www.cepr.net/blogs/beat-the-press/the-4-trillion-that-no-one-can-see

          The $4 Trillion That No One Can See
          by Dean Baker

          Published: 14 August 2015

          Economists and people who are write about the economy are not known for being especially astute when it comes to economic issues. After all, there were almost no people in this group who were able to see the $8 trillion housing bubble whose collapse sank the economy. More recently we have a substantial clique running around yelling that the robots will take all the jobs. This is at the same time that we continue to have most of the Washington elite types fretting that the retirement of the baby boomers will leave us without any workers. These concerns are 180 degrees opposite, sort of like complaining that the soup being too hot and too cold, but that's the sort of conceptual absurdities folks have come to expect from people who write about the economy.

          The usually astute Catherine Rampell is one of the guilty parties today, telling readers that the recent drop in the value of the Chinese yuan is a response to the market, not the result of currency management by China's government. The problem in this story is that it ignores that China's central bank is holding more than $4 trillion of reserves, about $3 trillion more than would be expected for an economy of China's size. This stock of reserves has the effect of raising the value of the dollar and other reserve currencies against the yuan.

          If that is not obvious, consider the analogous situation with the Federal Reserve Board and its holding of more than $3 trillion in assets as a result of it quantitative easing (QE) policy. Under this policy, the Fed bought up large amounts of government bonds and mortgage backed securities. The idea was that the Fed's purchases would drive up the price of these bonds and thereby directly lower long-term interest rates.

          While the Fed's act of buying bonds almost certainly drove up bond prices and lowered interest rates (it is the same thing), the fact that the Fed continues to hold a huge amount of bonds means that bond prices are higher and interest rates are lower than they otherwise would be. If the Fed didn't hold this stock of $3 trillion of bonds, there would be a much greater supply in the market, which would lead to lower bond prices and higher interest rates. In other words, the Fed's QE policy is still putting downward pressure on interest rates, even though it is no longer in the process of buying bonds.

          Applying this logic to China's holding of $3 trillion in excess foreign exchange reserves, if China did not hold these reserves then we would have another $3 trillion worth of foreign exchange floating around on world markets (most of it in dollars). This would lead a lower price of the dollar against other currencies, including the yuan if it was allowed to float freely.

          So Rampell has missed the boat completely in telling readers that the downward movement in the yuan is the result of free market conditions. As long as China holds a huge amount of excess reserves it is still holding down the value of the yuan. This is just a market fluctuation, like a fall in long-term interest rates in the United States, against a backdrop of very large government intervention.

          There is another item that Rampell gets badly wrong in this piece. She tells readers:

          "There are a lot of Chinese policies that are unambiguously bad for American companies and workers, including disrespect for intellectual property rights, ..."

          No, that one is wrong. Unless you happen to own lots of stock in Pfizer or Microsoft, you have no particular stake in China's disrespect for intellectual property," in fact you might be hurt if China respected it more. "Respect" in this context means paying more money for royalties and licensing fees. If China pays our software and drug companies more money for their patents and copyrights it means that it has less money for other products from the United States. Other things equal, the more money being paid to Pfizer and Merck, the lower the value of the yuan against the dollar. This means that people who work in steel and auto factories will find it harder to compete against the goods produced in China. It's hard to see why this is a good story for them.

          In fact, since patents and copyrights are archaic and inefficient mechanisms for supporting innovation and creative work, most people in the United States might be better off if China were to ignore U.S. property claims in these areas. This could allow, for example, people suffering from cancer to get drugs in China that would cost $1,000 or even less, rather than the $100,000 plus charged for new cancer drugs protected by patent monopolies. Pushing a free market in this area would also eliminate the corruption associated with monopoly prices, such as efforts to mislead the public about the safety and effectiveness of drugs, which leads to bad health outcomes and sometimes death.

          So it is not true that most workers in the United States should want to see China have more respect for the intellectual property claims of U.S. companies.

          Peter K. said in reply to anne...

          During the East Asian crisis of the late 90s, China sidestepped it via capital controls. Other east Asian countries had to go to the IMF and suffer structural adjustment programs. Look at what happened to Greece.

          China's $4 trillion reserves means it probably won't ever have to go to the IMF.

          anne said in reply to Peter K....

          During the East Asian crisis of the late 90s, China sidestepped it via capital controls. Other east Asian countries had to go to the IMF and suffer structural adjustment programs. Look at what happened to Greece....

          [ Importantly so. China has repeatedly adopted policy to directly control markets. Of course, Alan Greenspan as Chair of the Federal Reserve designed policy to directly control stock prices immediately after a decline in the market of nearly 23% on October 17, 1987. ]

          Peter K. said in reply to anne...

          These are all guesses but I think he sees the anti-democratic Communist elite as he sees the Republican leadership - not knowing what they are doing.

          But I don't really understand the evidence for this. Like Cassidy writes, the Communist government is doing the best they can and they're in a tough position if they are having a Minsky moment.

          Compare Ireland or Spain during the European debt crisis.

          China has no public debt and trillions in foreign reserves. Spain didn't have much public debt had to follow the ECB tight monetary policy and suffer austerity in order to follow EU budgetary rules.

          But Spain and Ireland suffered bad downturns with the people enduring the suffering. The Chinese leadership are worried that a downturn would spark a revolt and a demand for democratic reforms.

          What do they have to worry about in a Minsky moment? A slowdown in growth and an outflow of capital that worsens the situation.

          How would Krugman recommend they manage the slowdown?

          Paine's system of transfers via a Social Security-like system? A better welfare state and safety net like Obamacare? Work-sharing and shorter hours like Germany which would minimize job loss?

          Peter K. said in reply to Peter K....

          Of course to be cynical one could say Krugman in insulating himself from red baiting - his opponents on the Right consider him to be a communist who loves government spending and debt - by heavily criticizing the Chinese Communists as being insufficiently pro-market.

          Dan Kervick said in reply to Peter K....

          That could be. Frankly I have had a difficult time figuring out exactly what PK has been arguing over the past few days, and his reaction seems very strong. The article in today's Links above does help clarify some of the thinks he's thinking about, economically and politically:

          http://krugman.blogs.nytimes.com/2015/08/13/china-2015-is-not-china-2010/?_r=1

          For years, US and other western economists have argued that the Chinese were artificially suppressing the value of their currency, and that this was hurting US exports and US employment. They argued that China should let the markets set the value of their currency, a policy change that would have lead to an appreciating yuan, increased domestic Chinese consumption of imports; boosted US, Japanese and European exports; decreased offshoring of production to China, etc.

          In 2010, Krugman strongly argued something must be done about the Chinese currency-fixing:

          http://www.nytimes.com/2010/03/15/opinion/15krugman.html

          But by 2012, Krugman said the situation had changed, and that the political issue the Republicans were making out of the Chinese currency was bluster:

          http://krugman.blogs.nytimes.com/2012/10/22/an-issue-whose-time-has-passed/

          Since the Chinese have allowed the yuan to appreciate over the past few years, the markets now seem to think that the currency is overvalued, not undervalued. So a move to let currency markets set the exchange rate in 2015 might actually lead to a falling yuan, a reduction of Chinese imports, increased Chinese exports, increased attractiveness of offshoring production to China, etc.

          This might tip the US back into recession. But Krugman - and many others - might be worried that people will then say, "Hey, we're having another lousy recession because the Chinese did the very thing Paul Krugman and other US economists have always said they should do: let the markets rule!"

          Krugman initially responded that China isn't really letting the market set the exchange rate. It has only taken a weak half-measure ("bite of the cherry") in that direction. This raises the question: if the Chinese actually did move suddenly to a free float, would Krugman support it, even if the move caused a major shock to the US economy?

          Krugman also points out, though, that liberals haven't been complaining about Chinese currency manipulation lately. Cynics might argue that Americans complain about currency manipulation if that manipulation happens to hurt them, and support it if that manipulation happens to help them.

          Krugman has been in a variety of different places lately on currency issues:

          The Swiss used to manipulate the franc and maintain a peg, and when they dropped it Krugman was very put out by it. In that case, he was pro-peg and anti-float.

          The Greeks are part of the EZ, so their currency is pegged to their EZ partners. Krugman argued the Greeks should leave the Eurozone. In that case he was anti-peg and pro-float.

          Now with China, it seems he was pro-float before, when floating would have helped the US, but not so much pro-float now, when floating could hurt the US.

          I don't know what all of this amounts to, other than the fat that people are often going to be torn a bit between the general principles they support, other things being equal, and the short-term national interests they are concerned about in the the here and now.

          Anyway, I think we need a lot more evidence before we can conclude the Chinese "don't know what they are doing." A country that has increased the GDP of a quarter of the world's population by 162% over ten years, while their developed world colleagues were languishing in stagnation, deserves the benefit of the doubt.

          Paine said in reply to Peter K....

          Right now the party thru the state must demonstrate the macro control of the system is in the hands of the party elite thru control of the commanding heights of the social production system

          Ie credit and forex and even asset market price levels both paper and real

          Ie land lots

          Nothing prevents this demonstration from achieving ultimate success except a failure of determination

          Paine said in reply to Paine ...

          The party leaders are in uncharted waters here

          And reflective dogma from a ivory tower new Keynesian is not of huge value

          Hey pk is great
          He's a terrier
          After the right rat none better

          But the terrier is not a useful police dog
          Let alone Shepard of a wooly flock

          kthomas said in reply to Paine ...

          How pathetically optimistic.

          Stop providing cover. They pigged out. Time to pay the piper.

          Paine said in reply to kthomas...

          You may mistake my point

          The party leaders HAVE to decide to win this struggle
          I'm certain they are not in harmony on this

          What's at stake ?

          The party abdicating control of the domestic economy

          Paine said in reply to Paine ...

          The venality of elite members of the party plays no role one way or other here

          If indeed the very hold on state power depends on the eventual outcome

          Right now the politbueau is poised either to vindicate the TINA parties of the planet

          Or demonstrate there is another way

          Paine said in reply to Paine ...

          We share a value ..we Americans

          We trust in periodic open popular elections to certify or to de certify state policy

          Directly some times most often indirectly thru our elected agents

          Here in china we have the enlightenment construct
          The despot fully in command of progressive methods and goals for
          Social development

          Hobbes leviathan

          Battle lines are drawn

          The state versus the corporations

          anne said in reply to Paine ...

          "TINA" is an intolerable term, meant to make sure a reader has no understanding of what is being written.

          Paine said in reply to anne...

          Anne

          Please
          This term is in common currency now

          Tina is
          Like neo liberal A term that sumerizes a movements mind

          There is no alternative to corporate capitalism

          You are the last one to buy this big lie


          sanjait said in reply to anne...

          That seems hyperbolic, Anne.

          Krugman was very explicitly commenting on the Communist Party ruling China, not all of its 1.4 billion people.

          Not the same thing.

          anne said in reply to sanjait...

          The government of China indeed reflects the people of China, just as does the government of Japan or Australia. Western analysts tend to write as though the government in China were illicit or there by trickery but there is every reason to think the government generally reflects the collective thinking of Chinese people.

          Issues are fought over, there are a range of dissidents but China has a stable political system. Writing as though a the Chinese government were unstable is a Western conceit that shows a lack of understanding of or possibly concern with Chinese history.

          sanjait said in reply to anne...

          "The government of China indeed reflects the people of China, just as does the government of Japan or Australia. "

          I couldn't disagree more.

          First, even in a democracy, the government is a highly imperfect reflection of the people and their will.

          And China is not a democracy. It's a one-party state. That one party has to serve the people to an extent in order to hold power, but that certainly doesn't justify a claim that any criticism of the government is a criticism of the people.

          anne said in reply to sanjait...

          I repeatedly find analysts in the New York Times and the like writing as though the Chinese leadership were continually "panicky," continually insecure about the government in general and this is completely lacking in understanding. President Xi is as secure as is Prime Minister Abe or Cameron or President Hollande.

          So when the Chinese government is criticized as though completely detached from the people of China, I know the analyst lacks understanding or simply wished the government of China gone.


          anne said in reply to Paine ...

          Imagine trying to use China as a warning about the limits on the state to regulate market outcomes
          For assets, etc

          And pretending or at least relying on tacit presumption
          That state-owned enterprise debt is the twin of private for-profit corporate debt

          kthomas said in reply to anne...

          That last statement needs clarification. If I am an analyst, debt is debt. As an investor, I rely on accuracte data, not semantics.

          Paine said in reply to kthomas...

          Look the debt is held by some player
          If it's not the State the state can buy it on the market out of its limitless mr mine

          If it's a state enterprise no private profiteers benefit
          Moral hazards exists but so do state prisons
          Plenty of room in them
          for fraudsters and looting managers of state enterprises

          This is not easy to see if you refuse to understand qualitative differences

          At the macro level
          Debt swallowed by the state
          Can vanish
          The state can be a black hole for its own debt
          And when we are talking about any real social production system
          The only cost is lost better uses

          Only arrogant fools can believe private banks in toto driven by profits
          Reach better allocations then state credit systems
          No theorem can definitively and generally prove this..or it's opposite really

          Paine said in reply to Paine ...

          China is running way below capacity

          There's hundreds of millions of underutilized hands and minds

          Any spending that adds one more shovel full of useful activity directly or indirectly
          Has no REAl zero sum type cost

          There is more likely zero crowding out of the otherwise done
          Only one project scheme selected over another
          Wise or unwise honest or corrupt
          It trumps idleness
          Policy quandary time lost is opportunity lost

          Paine said in reply to Paine ...

          This is absolutely a crucial insight
          Without it
          Keynes wrote in vain

          anne said in reply to Paine ...

          China is running way below capacity

          There's hundreds of millions of underutilized hands and minds

          Any spending that adds one more shovelful of useful activity directly or indirectly
          Has no REAL zero-sum-type cost

          anne said in reply to anne...

          China is running way below capacity

          There's hundreds of millions of underutilized hands and minds

          [ Remember the vastness of China and advances made in basic industries, especially in agriculture, there are many young men and women who are capable but "underutilized." Advances in agricultural production, for a country that was traditionally rural, allow for different uses of many, many people. ]

          kthomas said in reply to Paine ...

          Now I really disagree. All evidence points or suggests massive over capacity. And obviously, low demand internally. They need to raise wages or start flat out buying more foreign goods, besides real estate. Instead, they have done the opposite.

          The longer the Central Committee waits, the more severe the pain later on, we all know this.

          Paine said in reply to kthomas...

          The over capacity is precisely a partial result of inadequate imperfect mobilization

          There's a nice passage somewhere in Keynes about building over capacity

          Let this suffice

          Over capacity in infra structure and urbal housing and office space etc today in inland china
          Will soon be utilized as the wave of expansion radiates
          Inwards from the coast

          anne said in reply to Paine ...

          At the macro level
          Debt swallowed by the state
          Can vanish
          The state can be a black hole for its own debt
          And when we are talking about any real social production system
          The only cost is lost better uses

          [ Nice. ]

          kthomas said in reply to Paine ...

          You may be right. And I do admire your optimism.

          Paine said in reply to kthomas...

          Hey -- I wish I were optimistic. The party leadership is poised to take he plunge into private profit guided development

          The market will no longer be a mediator regulators filter and incentivized. It will be liberated. The state abdicating control to the corporations

          Most crucially abdicating control of the commanding heights. Precisely where this present struggle is centered

          BigBozat said in reply to Paine ...

          Bravissimo!

          am said...

          They appear to have been taken completely by surprise by the market's predictable reaction; namely, the initial devaluation of the renminbi was ... a sign of much bigger declines to come. Investors began fleeing China, and policy makers abruptly pivoted from promoting currency devaluation to an all-out effort to support the renminbi's value.

          Above from the Prof K post. What was this all out effort. Did it use reserves in China. Any ideas. If using reserves does that show up in reduction in US bond purchases or sales of same. Higher coupon rates to come in US. Just asking, don't know. But surely a few days this week of minor devaluations couldn't knock much of a hole in China's big cash pot.

          anne said in reply to am...

          They appear to have been taken completely by surprise by the market's predictable reaction; namely, the initial devaluation of the renminbi was ... a sign of much bigger declines to come. Investors began fleeing China, and policy makers abruptly pivoted from promoting currency devaluation to an all-out effort to support the renminbi's value....

          [ No, China is different. China has for many years limited short term capital flows. The capital that a General Motors or a Boeing or a Proctor & Gamble or an Apple has in China is long term capital and will remain.

          A critical aspect of Chinese development has been that if a company wants to sell in China, the company has to invest in China and invest in a technically advanced way.

          The Chinese central bank can manage the relative value of Yuan just as adeptly as Secretary of Treasury Robert Rubin managed the value of the dollar, though reacting according to the actions of international currency traders. ]

          Richard H. Serlin said...

          China still has tons of great high return investment it can do. It doesn't have to throw money instead into big screen TVs and vacations. It's just the investment may not be so much in the classical infrastructure. They can still really invest in education and the health and welfare of their people for future human capital and production, and absolutely Heckman-style early human development investment. These things would stimulate the economy just as much as consumption with no lasting value, and be far better for the future.

          anne said in reply to Richard H. Serlin...

          China still has tons of great high return investment it can do. It doesn't have to throw money instead into big screen TVs and vacations. It's just the investment may not be so much in the classical infrastructure. They can still really invest in education, and the health and welfare of their people for future human capital and production, and absolutely Heckman-style * early human development investment. These things would stimulate the economy just as much as consumption with no lasting value, and be far better for the future.

          * https://en.wikipedia.org/wiki/James_Heckman

          [ Agreed, but hard infrastructure investment as well is not nearly done with. ]

          pgl said in reply to Richard H. Serlin...

          "China still has tons of great high return investment it can do. It doesn't have to throw money instead into big screen TVs and vacations."

          The same could be said about the US. But then our political leaders are not that bold.

          Richard H. Serlin said in reply to pgl...

          Very very true. Heckman has a mountain of evidence, but personally, as a father, and thus constant reader on early human development and education, I see this more and more.

          And obviously it's not symmetric, the more we vote Democratic, the more of this investment we'll have, instead of trillions in tax cuts for the rich.

          chris herbert said...

          China doesn't consider infrastructure funding as deficit. It has the reserves because the central bank keeps the net foreign reserves from exports, exchanging those reserves by pegging the exchange value by fiat and paying export companies in RMB. In effect the central bank pumps RMB into the Chinese economy by doing this. They do this because you can't do any commerce in China without exchanging your currency for RMB (actually this is the same as the dollar). My confusion comes from wondering why the Communist Party allowed the private debt to balloon--and to balloon in foreign currency? They don't really need the foreign capital--they have $4 trillion in dollar reserves. Anyway, I'm a little skeptical of claims that private debt in foreign currency is so large the flight of capital could be a problem.

          chris herbert said...

          In the past China used capital controls, and required all domestic banks to slow loan growth (including central bank lending for infrastructure)to dampen any inflation tendencies. Not interest rates. If the stock market plunges, devaluing the RMB to help exports makes some sense to me. What would also make sense is to pump money into the domestic economy; to increase infrastructure spending; to raise minimum incomes.

          The real danger here, in my opinion, is the Beijing power structure most especially that of the military. China has never been shy about purging politicians and businessmen who become so rich they challenge the traditional power structure. They've done it many times, long before Communism even existed.

          If that happens then the world economy will be seriously hit, unless the purge leaves the markets alone to the central bank and the technocrats, who from my view, have been doing a remarkable job of directing economic activity.

          anne said in reply to chris herbert...

          There has been a serious campaign against economic corruption since Xi became President in November 2012, there has been no slowing of the campaign as reflected even in the type of personal spending in China or the progressive limiting of spending on luxury goods.

          sanjait said in reply to anne...

          I was looking at some statistics recently about a marked decline in whiskey sales in China, after years of relatively rapid increases. This decline was attributed to crackdowns on corruption, which often took the form of state employees going out drinking at taxpayer expense.

          This crackdown, of course, should be lauded.

          anne said in reply to sanjait...

          Gambling has been significantly reduced, especially high stakes gambling in Macao. Casino revenue has been falling for about 2 years. Purchases of cars have tended to Buicks at the high end, but away from showy models. Expensive gift giving has declined, as Tiffany and the like have reported....

          Corporate influence peddling has been a target, by domestic and international corporations in China. There have just been several executive replacements at a couple of partly state-owned energy companies....

          pgl said...

          Bonus coverage. The start of Dan Kervick's dumbest rant ever (go to DeLong's place for the rest of this long winded rant):

          ""long-run steady-state growth path"???

          Perhaps there is no such thing?

          Economists are limiting our potential with their backward Ptolemaic ideas about steady states and equilibria, dampened further with input numbers extrapolated from decades of neoliberal capitalist stagnation.

          In 1937, real GDP grew at a negative 3.3% rate. By 1939 it was plus 7.8%, and by 1941 in was 18.9%. And yet I wonder what kinds of fictional limits economists would have declared in 1937 regarding our potential if they had plugged some numbers into a Solow growth model."

          I gave what Solow might have replied to him over at DeLong's place. But measuring changes in potential GDP by the change in actual GDP for one year when one is in the middle of a prolonged large output gap. This hits a new low in ultimate stupidity.

          sanjait said in reply to pgl...

          Well ... I'm not saying it makes sense, but as Krugman has pointed out, the IMF also calculates structural deficits in such a way that a crash in output automatically implies a decline in potential.

          It's a recipe for self-fulfilling prophesy (when macro policy fails to be sufficiently stimulative, and then cyclical employment eventually turns structural...), and deeply wrong, but not unique apparently.

          anne said...

          About Chinese monetary policy, though we do not fully understand how monetary policy is employed through the country, policy changes are usually not meant to be generalized but rather are linked to specific credit and investment objectives.

          A published loosening of Chinese monetary policy can be directed just at broadening and easing construction credit, even credit construction specifically only in interior provinces. Loosening monetary policy for construction can go along with tightening credit for stock purchases.

          anne said in reply to anne...

          Good grief, I just read on article about monetary policy in Brazil and realized how decidedly and importantly different monetary policy is in China. We need to study Chinese monetary policy, but it not different than monetary policy as we understand it.

          anne said in reply to anne...

          http://www.nytimes.com/2015/08/14/business/dealbook/in-good-times-or-bad-brazil-banks-profit.html

          August 13, 2015

          In Good Times or Bad, Brazil Banks Profit
          By DAN HORCH

          SĂO PAULO, Brazil - Political parties whose symbol is a red star tend to be unfavorable for bankers, but Brazil's ruling party has been a lucrative exception.

          When the Workers' Party of former President Luiz Inácio Lula da Silva and current President Dilma Rousseff took power in 2003, it promised, and for many years delivered, a rising standard of living for the country's poor and working classes.

          Yet the gains have been much more impressive for the nation's banking industry, even as the manufacturing sector has stagnated and the broader economy has ridden the ups and downs of global commodity prices. The combined annual profits of Brazil's four biggest banks have grown more than 850 percent to just over $20 billion, from $2.1 billion, in the 12 years of Workers' Party rule.

          Even as a corruption scandal centered in the government-owned petroleum giant Petrobras has paralyzed important sectors of the economy, bank profits have kept growing.

          Bank earnings made up more than half of the total profits for companies on the Săo Paulo stock exchange in both 2013 and 2014, according to the consulting firm Economatica. While the stock market is a poor reflection of Brazil's economy - agribusiness and carmakers are barely represented - bank profits were never above a quarter of the total all through the previous decade.

          Brazil's largest and third-largest banks, Banco do Brasil and Caixa Econômica Federal, do not even have profit as their sole mandate. The government, which controls both, often obliges them to engage in less profitable operations as a public service.

          The two giant private sector banks, Itaú and Bradesco, consistently earn returns on equity - a measure of the earnings a company can squeeze out of each dollar invested - of around 20 percent. Big banks in the United States usually manage only about half as much.

          Government policies and economic trends have helped the banks here.

          One is interest rates at levels so high that they would leave borrowers in most other countries speechless.

          In the so-called non-earmarked or free credit market, which excludes government-subsidized loans for housing and infrastructure, Brazilian consumers pay on average 58.6 percent interest, and businesses pay 27.5 percent to borrow money.

          Brazilian academics argue over the reasons for such high rates, but a history of high inflation, sharp currency fluctuations and large government budget deficits mean that the government itself must pay a steep price to borrow money.

          The central bank's basic rate, which it pays on the local equivalent ofTreasury bills, is 14.25 percent.

          Since banks can make good money by just buying government bonds, to take the effort and risk of actually making loans, they need an even greater profit.

          They can often find it. The average spread - the difference between what banks pay to gain access to capital and what they charge to lend it out - is 30.7 percentage points in the free credit market.

          Not all of that is profit. Taxes and regulatory costs are high, and the government just announced a plan to further increase taxes on bank profits. And default is a serious risk. Nearly 56 million Brazilians, more than a quarter of the country's population, have missed enough debt payments to be on the blacklist of Serasa Experian, a credit reporting bureau.

          But the spreads are easily wide enough to compensate, especially when the economy is growing.

          And when times are bad, the banks can look to the government.

          Brazil's Treasury not only sells bonds that protect investors against inflation, as certain United States Treasury bonds do; it also offers bonds that increase their payouts when interest rates rise or the currency devalues.

          When banks sense that the economy is about to deteriorate, they scale back their loans and migrate into these government-backed investments....

          anne said in reply to anne...

          http://www.cepr.net/publications/op-eds-columns/brazil-will-need-to-reverse-course-in-order-to-revive-economy

          August 7, 2015

          Brazil Will Need to Reverse Course In Order to Revive Economy
          By Mark Weisbrot

          Lula da Silva won the presidency of Brazil on his fourth attempt, in an overwhelming victory in October 2002. His Workers' Party (PT) ushered in a new era for the country's previously disenfranchised majority, with the economy from 2004 to 2010 more than doubling its rate of growth of the previous 23 years. Poverty declined by 55 percent and extreme poverty by 65 percent from 2003 to 2012. Unemployment hit record lows, the real (inflation adjusted) minimum wage doubled, and the gains from growth were more equally distributed than in previous decades.

          A large majority of Brazilians are still vastly better off today than they were before the PT came to power. But the economy slowed sharply from 2011 to 2014, with GDP growth returning to the rates of the pre-PT era. Job creation in the formal sector - regular employment covered by taxes and legal benefits, as opposed to the underground economy - fell from an average of 1.46 million jobs annually for 2004 through 2010 to just 829,000 for 2011 to 2014 and just 152,000 in 2014. Economic growth was about zero last year and will turn negative this year.

          Approval ratings for Lula's successor, Dilma Rousseff, have plummeted, and most of the news about Brazil is woefully pessimistic - corruption scandals, including one involving the state-run oil company, Petrobras; Standard and Poor's lowering its outlook for the country's bond rating after downgrading it to one notch above junk; the real falling about 35 percent against the U.S. dollar over the past year.

          What went wrong? Many analysts have blamed external conditions. The growth of the world economy and trade plummeted after 2010, and the price of Brazil's commodity exports also fell. However, as Brazilian economists Franklin Serrano and Ricardo Summa explain in a new paper * on the slowdown, this is only a relatively small part of the story. Brazil's exports are not that big a part of its economy and didn't change that much - from 11.9 percent (2004 to 2010) to 11.3 percent (2011 to 2014).

          The problem is that on top of the worsening external conditions, the government piled a series of policy decisions that weakened the economy. Beginning in February 2010, the Central Bank began to raise short-term interest rates, from 8.5 to 12.5 percent the following August, just as the economy was slowing. (This rate, called the Selic rate in Brazil, is analogous to the U.S. Federal Reserve's benchmark federal funds rate, which has remained at 0 to 0.25 percent since December 2008). The government tightened consumer credit, which had expanded considerably in the previous years. Some of these measures were reversed the next year, with interest rates coming back down, to 7.5 percent in October 2012, but the changes were too little and too late.

          Then the government began another cycle of raising interest rates in April 2013, which has continued through last week, with the Selic rate at 14.25 percent - one of the highest in the world - in spite of the forecast recession for this year. Beginning in 2011, the government tightened its fiscal policy - for example, by cutting public investment by 18 percent in real terms.

          Not surprisingly, these policy changes sent private investment and consumer spending plummeting. Although the government threw a lot of money at private investors in the form of tax breaks and public-private partnerships for infrastructure, most investors aren't attracted by an economy in which the growth of disposable income and consumer spending is plummeting.

          Unfortunately, Brazil hasn't even gotten the benefit of lower inflation from the slowing economy: Its consumer price index is rising at a 9.25 percent annual rate. This is partly due to the fall in the real, which raises the price of imports, and a steep rise in government-set electricity prices. The increase in inflation has eroded real wages and has been seized on by the opposition, some of whom have called for Rousseff's impeachment - although there is no legal or constitutional basis for doing so.

          How can Brazil get out of this mess? The private sector clearly cannot lead an economic recovery at this time, any more than it can in Greece. The government is going to have to create the climate for increased private investment and consumption the way it did before 2011, by increasing its spending, especially on public investment in badly needed infrastructure.

          One way to free up money for this is to lower Brazil's debt service. The Brazilian government is spending more than 6 percent of its GDP - about 20 percent of its national budget - on net interest payments. This is one of the highest rates of debt service in the world. Even the International Monetary Fund has pointed out ** that this is "exceeding the typical volume of spending on education." There is absolutely no sane reason for this, and it is relatively easy to change by simply lowering the Selic rate to a level comparable to those of the rest of the Americas....

          * http://www.cepr.net/documents/publications/Brazil-2015-08.pdf

          ** http://www.imf.org/external/pubs/ft/scr/2015/cr15121.pdf

          anne said...

          http://www.cepr.net/blogs/beat-the-press/because-oil-is-priced-in-euros-china-will-buy-less-oil-now-that-the-value-of-the-yuan-has-fallen

          August 13, 2015

          Because Oil Is Priced in Euros, China Will Buy Less Oil Now That the Value of the Yuan Has Fallen

          Yes, I know, oil is priced in dollars, not euros, but it doesn't make one iota of difference. In an article on the meaning of the drop in the value of the yuan on people in the United States, USA Today told readers: *

          "China, the world's second largest economy, consumes a lot of oil, second only to the U.S. However, oil prices are denominated in dollars, so a gutted yuan means China's purchasing power is reduced, which could prompt the Chinese to spend less on oil-based products. That reduction in demand could lower prices, an upside for American drivers."

          Everything in this paragraph would be equally true if oil was priced in euros. The Chinese currency is now worth less measured in dollars, euros, yen, or oil. The loss of purchasing power will lead China to buy less of everything that is produced abroad, including oil. The fact that oil is priced in dollars matters not at all.

          As a practical matter, anyone hoping to get super cheap gas due to less demand from China is likely to be disappointed. If we assume that the 2 percent drop in the value of the yuan leads to 2 percent higher gas prices in China, and we assume an elasticity of demand of 0.3, then China's gas consumption will fall by roughly 0.6 percent as a result of the devaluation. This almost certainly has less impact on the demand for gas than even a one-year reduction in China's growth rate by 2 percentage points. If the devaluation and other stimulatory policies speed growth in China, then we may see increased rather than decreased demand for oil from China.

          The piece also gets the story of U.S. companies manufacturing in China somewhat confused. It tells readers:

          "Many U.S. companies do a considerable amount of their business abroad, either selling directly to Chinese consumers, manufacturing or via overseas units that produce income in the local currency. Apple, for example, relies on China to make its iPhone and iPad. A stronger dollar compared to the yuan means any income generated in China loses value as it is repatriated back to America."

          Actually the impact is the opposite. The lower valued yuan increases the profits from manufacturing in China rather than the United States. Apple will likely still sell its iPhones and iPads at the same price in the United States and other countries, even though it now costs them less money to manufacture them because of the lower price of the yuan. This means greater profits.

          This is an important point because the issue of currency values is often presented as one pitting the United States against China. That is not accurate. Many companies that manufacture in China or rely on importing low cost goods produced in China, like Walmart, have a real stake in keeping down the value of the yuan against the dollar. These powerful interests are a main reason that the United States has not made raising the value of the yuan a top priority in trade negotiations with China.

          If it really was the case that the United States government considered it a top priority to raise the value of the yuan against the dollar, and was prepared to make concessions in other areas, like enforcement of Microsoft's copyrights and Pfizer's patents, then China would almost certainly have agreed to raise the value of the yuan by more than it has.

          * http://www.usatoday.com/story/money/business/2015/08/12/yuan-and-you-how-chinas-devalued-currency-affects-us-consumers/31524925/

          -- Dean Baker

          Jesse said in reply to anne...

          I think this *might* be true if one disregards the fact that China has already negotiated major energy deals, including oil, that are settled in yuan and not dollars.

          I posted this same comment at Dean's site when he first wrote this.

          Am I the only one who is watching China closely? There are some very big changes in the world economy underway, particularly with regard to the long standing Bretton Woods II agreement as some have called it, and few are noticing them.

          anne said in reply to Jesse...

          I think this *might* be true if one disregards the fact that China has already negotiated major energy deals, including oil, that are settled in yuan and not dollars.

          [ Right, right, China has negotiated a range of important long term oil and gas, and delivery, agreements this year. ]

          Jesse said...

          China should listen to Paul, and just mint up some 'trillion dollar Platinum coins' and forsake their tinkering with the economy.

          Peter K. said in reply to Jesse...

          The Fed should mint some trillion dollar coins if the Republicans try to shut down the government again this fall over funding Planned Parenthood.

          David said...

          I hold shares in Baidu, the Chinese google. It's down this year but up from 2 years ago. I suspect it's the same for most big cap stocks in China. I don't think China is doing this cause they're stupid, as it is routine for export countries to toy with their currency in Asia.

          I think Chinese leadership is not scared, maybe, but worried. Manipulating a stock market is very risky in terms of capital flight. If you show investors the game is rigged only suckers will play that game. And eventually get burned. And that could lead to political unrest.

          So really I think this is about politics and the grip on power. That's what's scary.

          [Aug 12, 2015]The Macroeconomic Divide

          "...Too much of macro is ideologically driven conjecture, or worse. None of it rises to the level of demonstrated reliability necessary to ethically inform decision-making. Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'"
          Economist's View
          Paul Krugman:
          Trash Talk and the Macroeconomic Divide: ... In Lucas and Sargent, much is made of stagflation; the coexistence of inflation and high unemployment is their main, indeed pretty much only, piece of evidence that all of Keynesian economics is useless. That was wrong, but never mind; how did they respond in the face of strong evidence that their own approach didn't work?
          Such evidence wasn't long in coming. In the early 1980s the Federal Reserve sharply tightened monetary policy; it did so openly, with much public discussion, and anyone who opened a newspaper should have been aware of what was happening. The clear implication of Lucas-type models was that such an announced, well-understood monetary change should have had no real effect, being reflected only in the price level.
          In fact, however, there was a very severe recession - and a dramatic recovery once the Fed, again quite openly, shifted toward monetary expansion.
          These events definitely showed that Lucas-type models were wrong, and also that anticipated monetary shocks have real effects. But there was no reconsideration on the part of the freshwater economists; my guess is that they were in part trapped by their earlier trash-talking. Instead, they plunged into real business cycle theory (which had no explanation for the obvious real effects of Fed policy) and shut themselves off from outside ideas. ...

          RogerFox said...

          Both sides in this macro cat-fight have succeeded in demolishing the credibility of their opponents, at the expense of being demolished themselves - meaning none of them are left standing in the eyes of anyone except their own partisan groupies, who are well-represented on this site. That's nothing but good.

          Too much of macro is ideologically driven conjecture, or worse. None of it rises to the level of demonstrated reliability necessary to ethically inform decision-making. Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'

          RC AKA Darryl, Ron said in reply to RogerFox...

          Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'

          [That is some pretty ironic BS that you are totin' around. The profession does a very good job of NOT intervening in things that any one with half a brain should understand. How on earth do you think the 2008 financial crisis ever even happened? Economists could not intervene because they had black swans squatting on their hands, particularly those economist like Greenspan and Bernanke that were actually in a position to do something to prevent the crisis. Krugman wrote some articles warning about the risk, but undersold his case even to himself. Only Mike Stathis (an investments adviser and trader - not an economist) formally warned (in America's Financial Apocalypse: How to Profit from the Next Great Depression. 2006. ISBN 978-0-9755776-5-3) of the full scope of the coming disaster and that formal warning came a bit late and was almost entirely ignored. Nouriel Roubini (a.k.a. Doctor Doom), who is an economist, ran Stathis a close second on getting it correct. Dean Baker, also an economist, was in there too. It was entirely ignored by Greenspan and Bernanke, although I believe they knew what was going to happen but would rather clean up the mess than stop the party and get blamed for the fallout.

          After the crisis several economists recognized the scale of the necessary stimulus to get the economy back on track, but a world of idiots, some of whom you may know, precluded an adequate response to prevent prolonged high unemployment.

          Are you a market trader or just a rich man's tool? Anything else would make you just a plain ol' fool.]

          DrDick said in reply to RogerFox...

          "Both sides in this macro cat-fight have succeeded in demolishing the credibility of their opponents"

          You, on the other hand. never had any credibility to begin with.

          "Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level"

          You might take your own advice, as it is evident that you know nothing about economics or policy.

          Peter K. said in reply to RogerFox...

          Partisan groupies? Nope. We're the objective ones in this discussion.

          Mr. Fox has no criteria upon which to judge and measure things, so of course he has no basis to criticize.

          "First do no harm." How can you tell that harm has been done when you don't believe in anything?

          You automatically believe that taking no action and the sin of omission is the better choice? But you have no basis on which to make that assumption.

          "First do no harm" when it comes to government policy is conservative propaganda.

          Paine said in reply to RogerFox...

          If rog refuses to entertain any notion of macro nautic efficacy

          He. Has taken his position
          And perhaps he ought to be left to
          sit on it
          as long as he likes

          However

          If he has a test of say Lerner's
          fiscal injections model he'd like to propose
          A test that if past would change is mind

          > Paine said in reply to Paine ...

          Cockney takes over
          when I sez his
          it comes out is

          RogerFox said in reply to Paine ...

          I don't have a dog in this fight - but I do know that it's dangerously irresponsible and unprofessional to offer advice, or act on it, unless there is adequate evidence to justify the opinion that the advice will not plausibly make the situation worse than it is otherwise destined to be. The compiled track record of all theories of macro demonstrate that none of them yet meet that test - and this ongoing internecine cat-fight has done much to reinforce that view IMO.

          Academics need to understand what real economy people who give advice professionally know very well - that an idea or theory could well be right and beneficial isn't enough to justify acting on it without proper consideration to the consequences should the approach prove to be wrong. Candidly assessing down-side risks seems to be anathema to all academics - almost as if they regard the entire matter as some sort of affront to their dignity.

          The Crash of '08 and the Crash of '29 both happened, with academic macro-mavens leading us straight into both of them - eyes wide shut. Better for everyone if they'd just kept their mouths shut too.

          pgl:

          "In the early 1980s the Federal Reserve sharply tightened monetary policy; it did so openly, with much public discussion, and anyone who opened a newspaper should have been aware of what was happening. The clear implication of Lucas-type models was that such an announced, well-understood monetary change should have had no real effect, being reflected only in the price level.In fact, however, there was a very severe recession - and a dramatic recovery once the Fed, again quite openly, shifted toward monetary expansion. These events definitely showed that Lucas-type models were wrong, and also that anticipated monetary shocks have real effects."

          Note Krugman is referring to the 2nd Volcker monetary restraint which happened under Reagan's watch. Rusty needs to get his calendar out as he thinks this was all Carter. Actually Volcker was following the advise of JohnH. How did the early 1980's work out for workers?

          Back in 1982/3 I heard some economist seriously saying that this recession was due to some notion that people still had high expected inflation. When I asked them WTF - they response was the Reagan deficits.

          Yes macroeconomics confuses some people terribly. Look at a lot of the comments here for how confused some people get.

          Paine said in reply to pgl...

          Confused or partisan ?

          Egmont Kakarot-Handtke said...

          No divide
          Comment on 'The Macroeconomic Divide'

          Keynes's employment function was indeed incomplete (2012). So far, Lucas/Sargent had a point. But the NAIRU expectation-wish-wash was even worse. So far, Krugman has a point. The deeper reason is that economics not only has no valid employment theory but that it is a failed science.

          Neither the loudspeakers of the profession nor the representative economists of the various schools have a clue about how the actual economy works. What unites the camps is scientific incompetence.*

          Egmont Kakarot-Handtke

          References
          Kakarot-Handtke, E. (2012). Keynes's Employment Function and the Gratuitous Phillips Curve Desaster. SSRN Working Paper Series, 2130421: 1–19. URL http://ssrn.com/abstract=2130421

          *For details see the cross-references
          http://axecorg.blogspot.com/2015/07/incompetence-cross-references.html

          [Aug 09, 2015] Hillary Clinton State Department Emails, Mexico Energy Reform, and the Revolving Door

          Notable quotes:
          "... By Steve Horn, a Madison, WI-based Research Fellow for DeSmogBlog and a freelance investigative journalist. He previously was a reporter and researcher at the Center for Media and Democracy. Originally published at DeSmogBlog . ..."
          "... Originally stored on a private server , with Clinton and her closest advisors using the server and private accounts, the emails confirm Clinton's State Department helped to break state-owned company Pemex 's (Petroleos Mexicanos) oil and gas industry monopoly in Mexico, opening up the country to international oil and gas companies. And two of the Coordinators helping to make it happen, both of whom worked for Clinton, now work in the private sector and stand to gain financially from the energy reforms they helped create. ..."
          "... The appearance of the emails also offers a chance to tell the deeper story of the role the Clinton-led State Department and other powerful actors played in opening up Mexico for international business in the oil and gas sphere. That story begins with a trio. ..."
          "... David Goldwyn , who was the first International Energy Coordinator named by Secretary of State Hillary Clinton in 2009, sits at the center of the story. As revealed by DeSmog, the State Department redacted the entire job description document for the Coordinator role. ..."
          "... The emails show that, on at least one instance, Goldwyn also used his private " [email protected] " (Goldwyn Global Strategies) email address for State Department business. ..."
          "... It remains unclear if he used his private or State Department email address on other instances, as only his name appears on the other emails. But Cheryl Mills, a top aide to Secretary Clinton at the time, initiated the email that he responded to on his private account. ..."
          naked capitalism
          By Steve Horn, a Madison, WI-based Research Fellow for DeSmogBlog and a freelance investigative journalist. He previously was a reporter and researcher at the Center for Media and Democracy. Originally published at DeSmogBlog.

          Emails released on July 31 by the U.S. State Department reveal more about the origins of energy reform efforts in Mexico. The State Department released them as part of the once-a-month rolling release schedule for emails generated by former U.S. Secretary of State Hillary Clinton, now a Democratic presidential candidate.

          Originally stored on a private server, with Clinton and her closest advisors using the server and private accounts, the emails confirm Clinton's State Department helped to break state-owned company Pemex's (Petroleos Mexicanos) oil and gas industry monopoly in Mexico, opening up the country to international oil and gas companies. And two of the Coordinators helping to make it happen, both of whom worked for Clinton, now work in the private sector and stand to gain financially from the energy reforms they helped create.

          The appearance of the emails also offers a chance to tell the deeper story of the role the Clinton-led State Department and other powerful actors played in opening up Mexico for international business in the oil and gas sphere. That story begins with a trio.

          The Trio

          David Goldwyn, who was the first International Energy Coordinator named by Secretary of State Hillary Clinton in 2009, sits at the center of the story. As revealed by DeSmog, the State Department redacted the entire job description document for the Coordinator role.

          Goldwyn now runs an oil and gas industry consulting firm called Goldwyn Global Strategies, works of counsel as an industry attorney at the law firm Sutherland Asbill & Brennan, and works as a fellow at the industryfunded think tanks Atlantic Council and Brookings Institution.

          The emails show that, on at least one instance, Goldwyn also used his private "[email protected] " (Goldwyn Global Strategies) email address for State Department business.

          It remains unclear if he used his private or State Department email address on other instances, as only his name appears on the other emails. But Cheryl Mills, a top aide to Secretary Clinton at the time, initiated the email that he responded to on his private account.

          [Aug 09, 2015] Stephen Schork: The Commodity Crash Is A Canary In The Coal Mine For The Global Economy

          "..."this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, and that is a concern for us all.""
          .
          "...On the supply side we are still producing. Regardless of what the oil bulls will tell you about the pullback in production, or the anticipated pullback in production, we have not yet seen it, and we will not see significant pullback I believe through the end of this year. So you marry those two facts together, fall in demand, strong production, i.e. I do think oil prices are headed below $40 a barrel in the latter half of this year. "
          .
          "...That can't be, because energy prices or commodity prices in general don't drive economic growth. Economic growth drives commodity prices."
          .
          "...So we have the rout in oil prices. We have the rout in copper prices, in aluminum prices. If we look at the industrial metals complex, that's now trading at lows not seen since the recession. We're looking at bellwethers such as Caterpillar, a bellwether of industrial production. That stock is trading again at a post-great recession low.
          .
          So there are a lot of telltales out there that this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, Pimm. And that is a concern for us all. "
          Aug 09, 2015 | zerohedge.com

          The best thing about the commodity crash relapse taking place so quickly after the last swoon - recall tha we have had two oil bear markets within 8 months - is that all those hollow chatterboxes and econo-tourists who swore that tumbling oil is "unambiguously good" and "great for the economy" (first and foremost Larry Kudlow and then proceeding with every single sellside strategist and economissed), have been laughed out of even CNBC's studio, and are nowhere to be found this time around because not only did all those promises of a surge in consumer spending never materialize (for reasons, or rather one reason which we explained extensively before), but the observent public still remembers all too well how countless 'experts' confusing cause (a gobal slowdown in the economy) with effect (crashing commodities).

          Therefore, we were delighted when someone who actually understands the energy market for a change, The Schork Report's Stephen Schork, appeared on BBG's Pimm Fox yesterday to explain not only what the immediate future holds for both oil and gasoline prices, but why, when one actually gets cause and effect right, "this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, and that is a concern for us all."

          The full interview is below, here are the key spot-on highlights, first about the futures of commodity prices :

          ... from a demand perspective on the seasonal front, it's August 7. We only have four more weeks left of summer driving, then the peak gasoline season is over. Then we head into the fall where the fall turnaround; that is the refinery maintenance season begins. So refineries will scale back in their crude oil purchases. So right now we are at the peak of the demand season. Demand is only going to fall between now and the end of the year.

          On the supply side we are still producing. Regardless of what the oil bulls will tell you about the pullback in production, or the anticipated pullback in production, we have not yet seen it, and we will not see significant pullback I believe through the end of this year. So you marry those two facts together, fall in demand, strong production, i.e. I do think oil prices are headed below $40 a barrel in the latter half of this year.

          Then a repeat of what we first explained in "It's Official: Americans Spent All Their "Gas Savings" On Obamacare"

          FOX: All right. So, Stephen, let's say that gasoline ends up being around $2.00, $2.10 a gallon by the end of the year, that extra money that people are not spending on gasoline, going to go somewhere else?

          SCHORK: Yes. It's going to go to a big government health care. Look, I spend $100 -- and I'm saving $100 a week at the pump, excuse me, $25 a week, $100 a month, but my health care premium went up $160 a month for my family. So I'm still diggings $60 in.

          And so that's the big misnomer here, Pimm. People tend to think that this pullback at the pump is somehow good. No. It's a zero sum game because, yes, those dollars are being spent elsewhere, but those are not additional dollars being spent elsewhere. We're just moving the pieces around on the chessboard. We're not creating economic growth.

          Putting it all together:

          And this is the big concern because we keep on thinking that lower energy prices are somehow good for the economy. That can't be, because energy prices or commodity prices in general don't drive economic growth. Economic growth drives commodity prices.

          So we have the rout in oil prices. We have the rout in copper prices, in aluminum prices. If we look at the industrial metals complex, that's now trading at lows not seen since the recession. We're looking at bellwethers such as Caterpillar, a bellwether of industrial production. That stock is trading again at a post-great recession low.

          So there are a lot of telltales out there that this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, Pimm. And that is a concern for us all.

          Full interview with Stephen Schork after the jump:

          [Aug 09, 2015]A Cheer and a Half for Cheap Commodities

          Aug 08, 2015 | The New York Times

          The collapse in oil prices is all too evident in oil shale states like North Dakota and Oklahoma, as well as in nations like Canada, Mexico, Brazil, Russia, Norway and Saudi Arabia - but it has not intruded into the daily experience of many Americans.

          For many of us, in fact, the commodities rout hasn't been perceived as a crisis at all: It has seemed to be welcome news. That is understandable, though that view may be shortsighted.

          ... ... ...

          Declines in the commodities markets have already had a damping effect on inflation in the United States and are likely to restrain it in future data releases, said Azhar Iqbal, an econometrician with Wells Fargo Securities.

          [Aug 08, 2015]The US Economy: Explaining Stagnation and Why It Will Persist

          Aug 07, 2015 | thomaspalley.com

          This paper examines the major competing interpretations of the economic crisis in the US and explains the rebound of neoliberal orthodoxy. It shows how US policymakers acted to stabilize and save the economy, but failed to change the underlying neoliberal economic policy model. That failure explains the emergence of stagnation, which is likely to endure. Current economic conditions in the US smack of the mid-1990s. The 1990s expansion proved unsustainable and so will the current modest expansion. However, this time it is unlikely to be followed by financial crisis because of the balance sheet cleaning that took place during the last crisis. [READ MORE]

          The elites not stupid: they need a crash to justify their draconian repressive and warmaking moves

          bolasete, August 5, 2015 at 4:18 pm
          daily i review articles on zerohedge, full of doom and gloom. unfortunately they are written by ron paul types, not even socialists, let alone communists. the way i see it a crash really is coming but the ones calling the shots are not stupid: they want a crash that will demand/justify their draconian repressive and warmaking moves.

          (what i find amazing – given my slant – is the large number of smart, knowledgeable people who must understand yet go along with it, like your immortal cyborg comment: why aren't these people moving to tropical isles?) my point being that analysis of armageddon and calling to account the enemy is for the future.

          ignore the provocateurs! he's not worth the increased bp

          [Aug 08, 2015] The $12 Trillion Fat Finger How A Glitch Nearly Crashed The Global Financial System - A True Story

          Aug 08, 2015 | Zero Hedge

          For all the talk of how the financial world nearly ended in the aftermath of first the Lehman bankruptcy, then the money market freeze, and culminating with the AIG bailout, and how bubble after Fed bubble has made the entire financial system as brittle as the weakest counterparty in the collateral chain of some $100 trillion in shadow liabilities, the truth is that despite all the "macroprudential" planning and preparations, all the world's credit, housing, stock, and illiquidity bubbles may be nothing when compared to the oldest "glitch" in the book: a simple cascading error which ends up taking down the entire system.

          Like what happened in the great quant blow up August 2007.

          For those who may not recall the specific details of how the "quant crash" nearly wiped out all algo and quant trading hedge funds and strats in a matter of hours if not minutes, leading to tens of billions in capital losses, here is a reminder, and a warning that the official goalseeked crisis narrative "after" the fact is merely there to hide the embarrassment of just how close to total collapse the global financial system is at any given moment.

          The following is a true story (courtesy of b3ta) from the archives, going all the way back to 2007:

          I.T. is a minefield for expensive mistakes

          There's so many different ways to screw up. The best you can hope for in a support role is to be invisible. If anyone notices your support team at all, you can rest assured it's because someone has made a mistake. I've worked for three major investment banks, but at the first place I witnessed one of the most impressive mistakes I'm ever likely to see in my career. I was part of the sales and trading production support team, but thankfully it wasn't me who made this grave error of judgement...

          (I'll delve into obnoxious levels of detail here to add color and context if you're interested. If not, just skip to the next chunk, you impatient git)

          This bank had pioneered a process called straight-through processing (STP) which removes the normal manual processes of placement, checking, settling and clearing of trades. Trades done in the global marketplace typically have a 5-day clearing period to allow for all the paperwork and book-keeping to be done. This elaborate system allowed same-day settlement, something never previously possible. The bank had achieved this over a period of six years by developing a computer system with a degree of complexity that rivalled SkyNet. By 2006 it also probably had enough processing power to become self-aware, and the storage requirements were absolutely colossal. It consisted of hundreds of bleeding edge compute-farm blade servers, several Łmulti-million top-end database servers and the project had over 300 staff just to keep it running. To put that into perspective, the storage for this one system (one of about 500 major trading systems at the bank) represented over 80% of the total storage used within the company. The equivalent of 100 DVD's worth of raw data entered the databases each day as it handled over a million inter-bank trades, each ranging in value from a few hundred thousand dollars to multi-billion dollar equity deals. This thing was BIG.

          You'd think such a critically important and expensive system would run on the finest, fault-tolerant hardware and software. Unfortunately, it had grown somewhat organically over the years, with bits being added here, there and everywhere. There were parts of this system that no-one understood any more, as the original, lazy developers had moved company, emigrated or *died* without documenting their work. I doubt they ever predicted the monster it would eventually become.

          A colleague of mine one day decided to perform a change during the day without authorisation, which was foolish, but not uncommon. It was a trivial change to add yet more storage and he'd done it many times before so he was confident about it. The guy was only trying to be helpful to the besieged developers, who were constantly under pressure to keep the wretched thing moving as it got more bloated each day, like an electronic 'Mr Creosote'.

          As my friend applied his change that morning, he triggered a bug in a notoriously crap script responsible for bringing new data disks online. The script had been coded in-house as this saved the bank about Ł300 per year on licensing fees for the official 'storage agents' provided by the vendor. Money that, in hindsight, would perhaps have been better spent instead of pocketed. The homebrew code took one look at the new configuration and immediately spazzed out. This monged scrap of pisspoor geek-scribble had decided the best course of action was to bring down the production end of the system and bring online the disaster recovery (DR) end, which is normal behaviour when it detects a catastrophic 'failure'. It's designed to bring up the working side of the setup as quickly as possible. Sadly, what with this system being fully-replicated at both sites (to [cough] ensure seamless recovery), the exact same bug was almost instantly triggered on the DR end, so in under a minute, the hateful script had taken offline the entire system in much the same manner as chucking a spanner into a running engine might stop a car. The databases, as always, were flushing their precious data onto many different disks as this happened, so massive, irreversible data corruption occurred. That was it, the biggest computer system in the bank, maybe even the world, was down.

          And it wasn't coming back up again quickly.

          (OK, detail over. Calm down)

          At the time this failure occurred there was more than $12 TRILLION of trades at various stages of the settlement process in the system. This represented around 20% of ALL trades on the global stock market, as other banks had started to plug into this behemoth and use its capabilities themselves. If those trades were not settled within the agreed timeframe, the bank would be liable for penalties on each and every one, the resulting fines would eclipse the market capital of the company, and so it would go out of business. Just like that.

          My team dropped everything it was doing and spent 4 solid, brutal hours recovering each component of the system in a desperate effort to coax the stubborn silicon back online. After a short time, the head of the European Central Bank (ECB) was on a crisis call with our company CEO, demanding status updates as to why so many trades were failing that day. Allegedly (as we were later told), the volume of financial goodies contained within this beast was so great that failure to clear the trades would have had a significant negative effect on the value of the Euro currency. This one fuckup almost started a global economic crisis on a scale similar to the recent (and ongoing) sub-prime credit crash. With two hours to spare before the ECB would be forced to go public by adjusting the Euro exchange rate to compensate, the system was up and running, but barely. We each manned a critical sub-component and diverted all resources into the clearing engines. The developers set the system to prioritise trades on value. Everything else on those servers was switched off to ensure every available CPU cycle and disk operation could be utilised. It saturated those machines with processing while we watched in silence, unable to influence the outcome at all.

          Incredibly, the largest proportion of the high-value transactions had cleared by the close of business deadline, and disaster was averted by the most "wafer-thin" margin. Despite this, the outstanding lower-value trades still cost the bank more than $100m in fines. Amazingly, to this day only a handful of people actually understand the true source of those penalties on the end-of-year shareholder report. Reputation is king in the world of banking and all concerned --including me-- were instructed quite explicitly to keep schtum. Naturally, I *can't* identify the bank in question, but if you're still curious, gaz me and I'll point you in the right direction…

          Epilogue… The bank stumped up for proper scripts pretty quickly but the poor sap who started this ball of shit rolling was fired in a pompous ceremony of blame the next day, which was rather unfair as it was dodgy coding which had really caused the problem. The company rationale was that every blaze needs a spark to start it, and he was going to be the one they would scapegoat. That was one of the major reasons I chose to leave the company (but not before giving the global head of technology a dressing down at our Christmas party… that's another QOTW altogether). Even today my errant mate is one of the only people who properly understands most of that preposterous computer system, so he had his job back within six months -- but at a higher rate than before :-)

          Conclusion: most banks are insane and they never do anything to fix problems until *after* it costs them uber-money. Did I hear you mention length? 100 million dollar bills in fines laid end-to-end is about 9,500 miles long according to Google calculator.

          * * *

          And here is Zero Hedge's conclusion: the next time you think all those paper reps and warranties to claims on billions if not trillions of assets, are safe and sound in some massively redundant hard disk array, think again.

          exi1ed0ne

          Ha. Keep offshoring IT jobs to kraplocastan and fucking over your competent IT staff with furloughs, pay freezes, and no training you cheap cunts. I've seen this time and again over 25 years in IT and it fucks over everyone who tries to cheap out, but at least there are handy scapegoats in IT putting 18 hour days to fix it. Fucking assholes eat their seed corn all the time just to eek out quarterly numbers.

          Zoomorph

          A fat finger may cause a few days of downtime, but it's unlikely to bring the whole system to an end or cause irreparable damage. These systems are designed to survive all kinds of disaster scenarios including some amount of human error.

          [Aug 08, 2015] Peter Schiff What Kind Of Improvement Does The Fed Want

          Aug 08, 2015 |
          Zero Hedge
          ... ... ...

          So barring any further revisions to First Half 2015 GDP, (which are much more likely to be revised down not up), our economy is running at an annualized pace of just 1.45%. To even get to the 2.3% annual growth rate, which represents the extreme low end of the Fed's "central tendency" for 2015, the economy would have to grow at 3.15% annualized in the Second Half. That is looking extremely unlikely. If we fail to hit those numbers, 2015 will be the ninth consecutive year in which the economy failed to reach or exceed the low end of its forecasts.

          The weak labor market and the weakening economy may explain a couple of trends that should not be occurring in a strengthening economy: Americans' growing love for old cars, and the high rate in which young people of working age remain living with their parents.

          Recent statistics show that the average age of America's fleet of 257.9 million working light vehicles had an average age of 11.5 years, the oldest on record. The IHS Automotive survey (7/29/15) also showed that new car buyers were holding on to their vehicles for an average of 6.5 years, up from 4.5 years in 2006. When workers are doing well they tend to buy new cars more often. When things are lean they hold onto their rides longer. Interestingly, this trend has occurred while Americans are taking on more leverage in car loans.

          Similarly a recent study by Goldman Sachs, from Dept. of Commerce data, shows that the percentage of 18-34 year olds who live at home, which had shot up during the recession of 2008, finally began to decline slightly in 2014, but that declinestopped at the beginning of 2015. USA Today (8/5/15) noted that the number of Millennials living at home increased from 24% in 2010 to 26% in the first third of 2015, according to a Pew Research Center report, based on Census Data. Why would this be happening if the economy was really growing?

          Since the unemployment rate seems unlikely to drop and both wage growth and increased labor participation show no signs of life, and the percentage of those who want to work full time, but can't, is still highly elevated, should we conclude that the Fed will move forward with its rate hike plans this year? If Janet Yellen is being honest that the Fed will not raise rates until we have further improvements in the labor market and those improvements seem to be nowhere in sight, then why doesn't she just admit that the Fed will not be raising rates any time soon?

          If GDP growth only averages 2.0% in the Second Half (which I think is likely), then 2015 growth will only be about 1.7% annually. Given that the Fed didn't raise rates in 2012, 2013, and 2014, when growth was well north of 2%, why would they do so now? Yet Wall Street and the media stubbornly cling to the notion that 3% growth and rate hikes are just around the corner. Old notions die hard, and this one has taken on a life of its own.

          junction

          Forget the economy for now and just realize we are already in World War III. The proxy wars in the Middle East engineered by our Manchurian Candidate president are flames to the powder keg of World War.

          Bokkenrijder

          This article should HAVE BEEN TYPED IN CAPITAL LETTERS, as Peter Schiff always likes to shout your ears off. Lemme guess, he has many gold and silver coins to sell and YOU need to be the buyer?

          p.s. how is Jim-"my daughter is learning Mandarin"-Rogers doing these days? Still bullish on all those bubbles in China, agriculture ("farmers driving Maseratis") and commodities (oil $45) in general?

          techpreist

          Here come the downvote wars... but anyway I'll bite. Schiff's basic message for the last decade has been:

          "Economic data, read correctly, points to the US economy becoming weaker, less sound, and more and more based on ever-increasing debt load. Headline indexes that sort-of look good do not mean much once you dig deeper. Therefore, at some point in the future the bottom is going to fall out, and if you're positioned correctly you can still thrive."

          For this article, ultimately it's the same message, with a few new data points, and usually he offers products in line with what he thinks will happen next. If you agree with his assessment, buy them. If not, don't.

          baldski

          Bokken: you have that right! Peter Schiff has been absolutely wrong on all his predictions for the last 10 years. He is a fear seller. Why is he allowed to push his bullshit on this site? Tyler is he kicking back to you?

          thunderchief

          The fed will keep jawboning because it buys them time while the rest of the world goes to zero or negative.

          They may eventually raise rates to as much as 1% or so, but this is just keep the dollar strong and wait out the world's drop to zero or below, the new world order norm.

          What Peter does not address, is that the fed is not going to fight WW1 (QE) when we are now in WWII. The French tried this with the maginot line and the rest is history.

          Strong dollar policy is everything now, and destroying everything with it to be the last man standing is the new game. If the dollar fails now, we all know everything dollar based goes with it, and the Fed knows this more than anyone.

          Stocks, Bonds, Realestate, the military industrial complex and USA hegemony all go if the dollar tanks this time.

          So no overt QE, and until the world goes negative, the Fed will only then go to where it wants to be...

          Arnold

          I believe the fed is waiting for the same thing we are: the unknown unknown.

          Shemittah? Known unknown.

          Unrepayable derivative debt? Known known

          Asteroid? Unknown Known

          Psychopathic weapon wielders? Unknown Known

          Divine Intervention? Yes an Unknown Unknown , but not what they are waiting for.

          Alien Invasion? Known known

          Yellowstone Eruption? Known unknown.

          Hell, I don't know.

          Meanwhile financial products keep things churning....


          [Aug 05, 2015] Everyday stagnation

          investorschronicle.co.uk

          One of the few drawbacks of working from home is that one is bombarded with annoying phone calls from time-wasters. Not from my editor, but from cold-callers: do I want to install solar panels? Have a new conservatory? Change energy supplier? Claim compensation for PPI mis-selling? Been in a car accident? The answer to all of these is along the lines that Prince Philip might give. Such irritations, however, tell savers a lot.

          The question is: why do so many people take such thankless jobs? It's for the same reason that hundreds of thousands of others have become self-employed handymen and freelancers who spend their hours waiting for work - because they can't find anything better.

          All those cold callers give us a daily - well, hourly - reminder that the economy isn't dynamic enough to create sufficient productive and rewarding jobs. In other words, we are in an era of secular stagnation. This phrase has many meanings; it refers to the combination of slow productivity growth, weak investment and low innovation that have given us negative real interest rates. Even those who don't expect such negative rates to persist believe they will stay low. Bank of England governor Mark Carney said last week that the "equilibrium" real interest rate - the rate consistent with the economy operating at potential and inflation on target - "will continue to be lower than on average in the past".

          Stagnation, though, hasn't only given us poor returns on cash. It has also depressed equity returns. One reason why the All-Share index has fallen in real terms since the start of the century is that the fear of stagnation has depressed profit expectations.

          'Secular stagnation' might sound like high-falutin' pointy-headed economic jargon. But it is, in fact, the thing that gives us the twin irritations of cold-callers and miserable returns on our savings.

          Which poses the question: why are we in it, and could we get out of it?

          A recent paper by Gianluca Benigno at the LSE and Luca Fornaro at Barcelona's University of Pompeu Fabra points out that economies can fall in a stagnation trap. If people expect low growth they won't invest or innovate and this will cause low profits for other companies, thus exacerbating disincentives to invest. In this way, pessimism can be self-fulfilling.

          The problem is that such pessimism might be justified.

          One reason for this is that profit rates have fallen. The economics blogger Michael Roberts estimates that returns on capital in G20 countries have steadily fallen since the early 1970s. This has reduced incentives to invest or innovate.

          If stagnation takes greater hold, we could face decades of negative returns of the sort Japan has suffered"

          In this sense, secular stagnation might be the rediscovery of one of the oldest ideas in economics - that of the stationary state. All the classical economists such as Adam Smith, David Ricardo and John Stuart Mill thought that increases in the capital stock would lead to diminishing returns and thus to lower investment and eventually an end to growth.

          Why hasn't this happened earlier? It's because technical progress has offset diminishing returns. Some economists believe it will continue to do so. "There are a number of emerging technologies that provide tremendous scope for improvements in productivity," say Saara Tuuli and Sandra Batten, two Bank of England economists.

          However, it's a long way from the laboratory to the marketplace. Companies will only invest in these new technologies if they expect to make a profit. And history suggests this might not be the case. Yale University's William Nordhaus has shown that only a "minuscule fraction" of the returns to innovative activity flow to companies: it is mostly consumers that benefit. And Charles Lee and Salman Arif, two US economists, have shown that rises in capital spending lead on average to lower profits.

          It could be that investment and innovation are weak precisely because the tech crash and Great Recession have alerted companies to the facts that these often don't pay.

          Indeed, optimism about potential technical progress might itself be a reason not to invest. If you equip a factory with robots costing Ł10m you'll be unable to compete in a few years with the next, better generation of robots that cost only Ł5m. In this sense, techno-optimism and secular stagnation, far from being opposing arguments, are in fact compatible.

          So, what could change to lift us out of stagnation? Many believers in the idea - from Maynard Keynes to Paul Krugman - want governments to intervene in the economy more. This is unlikely to happen.

          Another possibility is that any short-term increase in investment caused by increased animal spirits might - as in Benigno and Fornaro's theory - shift us from a low- to a high-investment equilibrium.

          A longer-term hope is that there will eventually emerge a generation of entrepreneurs and business leaders who haven't been scarred by the tech crash and recession, and their greater (over-?) optimism could raise growth.

          For equity investors, the stakes here are massive. If stagnation takes greater hold, we could face decades of negative returns of the sort Japan has suffered. If it doesn't, relief at the fading away of such a horrible risk could cause a big revaluation. In this sense, equities are more uncertain than the historic distribution of returns would suggest.

          MORE FROM CHRIS DILLOW...

          Read more of Chris's comment pieces.

          Chris blogs at http://stumblingandmumbling.typepad.com

          View Chris Dillow's benchmark portfolio

          [Aug 03, 2015] Freshwater's Wrong Turn

          "... This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).
          Aug 2, 2015 | Economist's View

          Paul Krugman follows up on Paul Romer's latest attack on "mathiness":

          Freshwater's Wrong Turn (Wonkish): Paul Romer has been writing a series of posts on the problem he calls "mathiness", in which economists write down fairly hard-to-understand mathematical models accompanied by verbal claims that don't actually match what's going on in the math. Most recently, he has been recounting the pushback he's getting from freshwater macro types, who seem him as allying himself with evil people like me - whereas he sees them as having turned away from science toward a legalistic, adversarial form of pleading.
          You can guess where I stand on this. But in his latest, he notes some of the freshwater types appealing to their glorious past, claiming that Robert Lucas in particular has a record of intellectual transparency that should insulate him from criticism now. PR replies that Lucas once was like that, but no longer, and asks what happened.
          Well, I'm pretty sure I know the answer. ...

          It's hard to do an extract capturing all the points, so you'll likely want to read the full post, but in summary:

          So what happened to freshwater, I'd argue, is that a movement that started by doing interesting work was corrupted by its early hubris; the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems, and sent them off on the path Paul now finds so troubling.

          Recent tweets, email, etc. in response to posts I've done on mathiness reinforce just how unwilling many are to confront their tribalism. In the past, I've blamed the problems in macro on, in part, the sociology within the profession (leading to a less than scientific approach to problems as each side plays the advocacy game) and nothing that has happened lately has altered that view.

          Posted by Mark Thoma on Sunday, August 2, 2015 at 11:54 AM in Economics, Macroeconomics, Methodology | Permalink Comments (20)

          pgl said...
          When I first heard this Lucas island - also known as Friedman-Phelps - story about business cycles being driven by unanticipated inflation, it initially stuck me as interested. Then I thought about the fact that the Rational Expectations version would have trouble explaining why nominal shocks affect real events for more than a few months.

          No - it did not take long to realize that this nice neat model could not explain the real world. But what we usually got back then is a large parade of statistical techniques that just confused matters even more.

          At which I began to wonder what I was interested in macroeconomics in the first place.

          eightnine2718281828mu5 said in reply to pgl...
          ---
          the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems
          ---

          iow, assigning a higher value to their accumulated research (reputation?) than it was actually worth.

          sticky prices indeed.

          RC AKA Darryl, Ron said in reply to eightnine2718281828mu5...
          :<)

          [For most of us then:]

          "...Freedom's just another word for nothing left to lose
          Nothing don't mean nothing honey, if it ain't free
          Feeling good was easy, Lord, when he sang the blues
          You know, feeling good was good enough for me
          Good enough for me and my Bobby McGee..."
          ARTIST: Kris Kristofferson
          TITLE: Me and Bobby McGee

          *

          [For most of them then freedom is just a matter of low-regulation low-tax supply side economic policy. TO which end their statistics demand many degrees of "freedom" and they have taken increasingly more extensive "freedoms" with their theories ever since Uncle Milty taught us about "Capitalism and Freedom," why the initial conclusions reached by Keynes were all wrong, and why monetarism was sacred. (barf)

          I remember the 1970's well. The terminal punctuation was Reagan's election in 1980. When I was drafted in 1969 I still retained some hope, although much diminished since MLK was murdered a year earlier. By the time I returned from Viet Nam it was just one slap in the face after another. All our (the social movement that happened alongside the hippies) hopes from the 60's were dashed. Blacks were to be "locked" into ghettos by public policy and the working class was to be sacrificed on the alter of corporatism one merger or outsource at a time. ]

          anne said...

          https://en.wikipedia.org/wiki/Real_business_cycle_theory

          Real business cycle theory models (RBC theory) are a class of New classical macroeconomics models in which business cycle fluctuations to a large extent can be accounted for by real (in contrast to nominal) shocks. Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

          anne said in reply to anne...
          http://krugman.blogs.nytimes.com/2014/02/17/the-trouble-with-being-abstruse-slightly-wonkish/

          February 17, 2014

          The Trouble With Being Abstruse (Slightly Wonkish)
          By Paul Krugman

          Political scientists who write clearly for a broader audience are upset * with Nick Kristof ** for saying that political scientists no longer write for a broader audience. I'm not going to get into that fight. I do want to register one point, however: In my field there is indeed a problem with abstruseness, with the many academics who never even try to put their thoughts in plain language.

          And what is the nature of that problem? It's not that laypeople don't understand what the academics are saying. It is, instead, that the academics themselves don't understand what they're saying.

          Don't get me wrong: I like mathematical modeling. Mathematical modeling is a friend of mine. Math can be a powerful clarifying tool. So, in some cases, can jargon, which used right can both save time and add clarity to the discussion. If I talk about Dixit-Stiglitz preferences, or for that matter the zero lower bound, technically trained economists immediately know whereof I speak, where plain English would both take longer and leave room for misunderstanding.

          But it's really important to step away from the math and drop the jargon every once in a while, and not just as a public service. Trying to explain what you're doing intuitively isn't just for the proles; it's an important way to check on yourself, to be sure that your story is at least halfway plausible.

          Take real business cycle theory – I know it's a horse I beat a lot, but it's not dead, and it's a prime example within economics of what I have in mind. I still want to spend at least some time explaining that theory to my undergrads, so I've been looking for a simple, intuitive explanation by an RBC theorist of what's going on. And I haven't been able to find one!

          I mean, I could do it myself. Strip the story down to basics – make it a steady-state model, not a growth model, and drop the capital accumulation; what you're left with is fluctuations in the marginal productivity of labor, which have a magnified impact on output because workers choose to work less when the technology is bad and more when the technology is good. As I've written before someplace, it's the story of a farmer who stays inside when it's raining and puts in extra hours when the sun is shining.

          But the RBC theorists never seem to go there; it's right into calibration and statistical moments, with never a break for intuition. And because they never do the simple version, they don't realize (or at any rate don't admit to themselves) how fundamentally silly the whole thing sounds, how much it's at odds with lived experience.

          I once talked to a theorist (not RBC, micro) who said that his criterion for serious economics was stuff that you can't explain to your mother. I would say that if you can't explain it to your mother, or at least to your non-economist friends, there's a good chance that you yourself don't really know what you're doing.

          Math is good. Sometimes jargon is good, too. But plain language and simple intuition are important to keep you grounded.

          * http://crookedtimber.org/2014/02/16/look-who-nick-kristofs-saving-now/

          ** http://www.nytimes.com/2014/02/16/opinion/sunday/kristof-professors-we-need-you.html

          mulp said in reply to anne...
          Freshwater economists, free lunch economists, speak very clearly.

          Its too good to be true which makes everyone who wants a free lunch to believe it.

          For example, free lunch economists say lower prices are achieved by lower wages, fewer workers, tax cuts, and higher profits, which creates wealth, and the unemployed and working poor spend more using money the will never pay back because of the wealth effect, with mathiness to backup their claims.

          What they never do is put them all together like I have done so the words are revealed as nonsense and the math is 1+2-3 = 10 and thus obviously bogus.

          Note fresh water economists NEVER state that consumer spending is driven by wage income, as in real wage income, not the income from capital gains which sorta lots like wages but is really rent seeking aka private tax on the savings of workers.

          How can lower wages to get lower prices ever result in higher GDP without lots of debt that can never be repaid?

          Lafayette said in reply to anne...
          TO APE ONE ANOTHER

          {PK: with the many academics who never even try to put their thoughts in plain language.}

          Ha! I like that!

          Tis True. How many times do we see the word "exogenous". Many. How often, "endogenous"? Never.

          Anybody for a hard look at the "endogenous" factors causing economic cyclicity? How about the human ability to "ape" one another's consumer habits that builds patterns increasing in intensity - until the "bubble" bursts? ("Cyclicity"? Wow! Nice word? Hardly used! Here we go again!!!;^)

          Like lemmings falling off a cliff - cyclic in nature but deadly in consequence.

          DeDude said...
          When your math is incompatible with the observations from the real world - its the math that's wrong. I don't have a 3 page formula, but just trust me on this one.
          GeorgeK said...
          You will find the answers to all your questions in this book
          http://www.amazon.com/Wiser-Getting-Beyond-Groupthink-Smarter/dp/1422122999/ref=sr_1_1?s=books&ie=UTF8&qid=1438554831&sr=1-1&keywords=Group+think+getting+beyond

          bakho said...

          Science advances one funeral at a time. - Max Planck

          They are too invested in their mistakes to accept criticism.
          The next generation of economists will accept that they were wrong.

          likbez said...
          Before becoming columnist Krugman was mathiness practioner ;-)

          reason said...

          Anne
          "That is, the level of national output necessarily maximizes expected utility"

          We could stop right there. Clear nonsense. (You can always INCREASE utility by redistributing from rich to poor - at least with any sensible definition of utility.

          See this discussion
          http://crookedtimber.org/2015/07/24/utilitarianism-with-the-potentially-left-wing-bits-stripped-out/comment-page-2/

          Egmont Kakarot-Handtke said...

          Here it comes: the sexit
          Comment on 'Freshwater's Wrong Turn'

          There is political economics and theoretical economics. In political economics it suffices to tell a plausible story, in theoretical economics scientific standards are observed. Because economists since Adam Smith pursued these two hares simultaneously, coherence got eventually lost. As a result, economists never developed a theory about how the market economy works that satisfies the scientific criteria of material and formal consistency (Klant, 1994, p. 31).

          Economics is a failed science. Therefore, Paul Romer is in for a second big surprise. Until now he thought: "As you would expect from an economist, the normative assertion in 'X is wrong because it undermines the scientific method' is based on what I thought would be a shared premise ..."

          Now he learns: "In conversations with economists who are sympathetic to the freshwater economists ... it has become clear that freshwater economists do not share this premise. What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form 'we ought to behave like scientists'."

          What is the difference between political and theoretical economics?

          "A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent." (Haack, 1997, p. 1)

          The fact of the matter is that theoretical economics has from the very beginning been hijacked by the agenda pushers of political economics. Smith and Mill were agenda pushers against feudalism. Marx and Keynes were agenda pushers and so were Hayek and Friedman. However, all these economists insisted that they were doing science. This has changed now: "... the evidence ... suggests that freshwater economists differ sharply from other economists."

          The freshwater economists simply state the obvious, that is, that they are committed to politics and not to science. This marks the beginning of a voluntary scientific exit (sexit for short). What Romer has not yet realized is that most saltwater economists have to leave through the same door.

          Egmont Kakarot-Handtke

          References
          Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_scientism_and_anti-science_in_the_age_of_preposterism.
          Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

          lagarita said...

          This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).

          Lafayette said in reply to lagarita...

          APART FROM BERNIE

          {"we create reality"}

          Their entire existence revolves around such vapid, empty simplisms because they have no theoretical substance to their politics. It is either their lack of intelligence or their selfish perfidy that reduces their theoretical foundation of political views.

          They are hooked on the fallacy of wealth-creation as the sole credible goal/consequence of an economy. Piketty put that thought to shame in his work on Income Disparity, as did Domhoff on Wealth Disparity. The statistical facts (ie., the "numbers") could not be more clear.

          What should bother us most is not only the generation of enormous wealth, and the influence it has on a moneyed electoral system, but the dynastic tendency of such riches. The Koch Bros are already the first generation - will we be contending with the political antics of second, or third, or fourth generations?

          The last time historically that happened in Europe, called Inheritance Aristocracy, it all came apart in bloodshed.

          And yet the better notion of Social Justice, which supposes that all humans are created with the equal right to fairness and equitability, has taken decades upon decades to come to the fore.

          It is still no where near dominating political thought in America. Apart from Bernie, that is ...

          Lafayette said...
          LOOK IN THE MIRROR

          {the braggadocio and trash-talking of the 1970s}

          Of the 1970s?

          This type is still the mainstay of American parlance, whether political or business or just blogging. The aggressiveness of the language employed knows no bounds.

          The intent in commentary, whether verbal or written, whether political or otherwise, is overly combative and largely "ad hominem". The real subject of controversy is lost in the personalization of the rebuttals. The issues that largely determine the political consensus thus become secondary and confused.

          Really 'n truly puerile ... like the children they were and they remain, particularly in politics. Propelled by one and only one goal - to win, win, win.

          And without politics or politicians, what is a democracy? It's an autocracy. With them, its a manifested willfulness by a moneyed few to dominate electoral outcomes - and we are pawns in the game.

          My point? As an electorate, the people we chose to represent us personify as well the kind of people we are. So, complaining about the politicos in LaLaLand on the Potomac is useless.

          Seeking someone to blame? Look in the mirror ...

          [Aug 01, 2015] Paul Romer: Freshwater Feedback on Mathiness

          "...Freshwater economists seem to think, as far as I can tell, that the purpose of science is to make neat widgets, and that any theory you come up with that seems reasonable and points to a possible way of making neat widgets is as good as any other, and you can just shove the universe into your mold and saw off all the bits that don't match.
          The Bush administration had a quote about it: basically, 'you people on the left want to measure reality and figure out how to cope with it, whereas we on the right will just forge ahead and create it.' In other words, understanding is not required in order to achieve your goals. This is not true for any goal more complex than nailing two boards together, but it doesn't stop them from laying waste to everything, and then pointing at themselves, blinking, and saying, 'Who, ME?' every time you call them out at it."
          economistsview.typepad.com

          More from Paul Romer:

          Freshwater Feedback Part 1: "Everybody does it": You can boil my claim about mathiness down to two assertions:

          1. Economist N did X.
          2. X is wrong because it undermines the scientific method.

          #1 is a positive assertion, a statement about "what is …"#2 is a normative assertion, a statement about "what ought …" As you would expect from an economist, the normative assertion in #2 is based on what I thought would be a shared premise: that the scientific method is a better way to determine what is true about economic activity than any alternative method, and that knowing what is true is valuable.

          In conversations with economists who are sympathetic to the freshwater economists I singled out for criticism in my AEA paper on mathiness, it has become clear that freshwater economists do not share this premise. What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form "we ought to behave like scientists."

          In a series of three posts that summarize what I have learned since publishing that paper, I will try to stick to positive assertions, that is assertions about the facts, concerning this difference between the premises that freshwater economists take for granted and the premises that I and other economists take for granted.

          In my conversations, the freshwater sympathizers generally have not disagreed with my characterization of the facts in assertion #1–that specific freshwater economists did X. In their response, two themes recur:

          a) Yes, but everybody does X; that is how the adversarial method works.
          b) By selectively expressing disapproval of this behavior by the freshwater economists that you name, you, Paul, are doing something wrong because you are helping "those guys."

          In the rest of this post, I'll address response a). In a subsequent post, I'll address response b). Then in a third post, I'll observe that in my AEA paper, I also criticized a paper by Piketty and Zucman, who are not freshwater economists. The response I heard back from them was very different from the response from the freshwater economists. In short, Piketty and Zucman disagreed with my statement that they did X, but they did not dispute my assertion that X would be wrong because it would be a violation of the scientific method.

          Together, the evidence I summarize in these three posts suggests that freshwater economists differ sharply from other economists. This evidence strengthens my belief that the fundamental divide here is between the norms of political discourse and the norms of scientific discourse. Lawyers and politicians both engage in a version of the adversarial method, but they differ in another crucial way. In the suggestive terminology introduced by Jon Haidt in his book The Righteous Mind, lawyers are selfish, but politicians are groupish. What is distinctive about the freshwater economists is that their groupishness depends on a narrow definition of group that sharply separates them from all other economists. One unfortunate result of this narrow groupishness may be that the freshwater economists do not know the facts about how most economists actually behave. ...[continue]...

          Posted by Mark Thoma on Friday, July 31, 2015 at 03:33 PM in Economics, Methodology, Politics | Permalink Comments (9)

          Gibbon said...

          ""a) Yes, but everybody does X; that is how the adversarial method works.""

          This is how law works not science. The take away is the fresh water economists mission is not science, their mission is political.

          RueTheDay said...
          "What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form 'we ought to behave like scientists.' "

          That's mind boggling. It's precisely how you end up with Ptolemaic Epicycles, Phlogiston Theory, Aether Theory, etc.

          As Keynes said, "starting with a mistake, a remorseless logician can end up in Bedlam".

          If economists are going to claim that theirs is an a prior method, with no need for empiricism, no need to attempt falsification, then they ought to abandon any pretense of relevance to the real world and certainly need to acknowledge they have no business providing policy prescriptions.

          Fred Fnord said...

          I think Romer is being rather too nice. It is clear that saltwater economists, however flawed (and oh lord are they ever), view their job as trying to find a way to describe and predict the behavior of economies in the real world. Thus, if you know something about your model which makes it useless for this job, then hiding it is not just underhanded but is ridiculous. Which is to say, 'the purpose of science [and economics] is to accurately describe the world so that we might come to understand it and manipulate it.'

          Freshwater economists seem to think, as far as I can tell, that the purpose of science is to make neat widgets, and that any theory you come up with that seems reasonable and points to a possible way of making neat widgets is as good as any other, and you can just shove the universe into your mold and saw off all the bits that don't match.

          The Bush administration had a quote about it: basically, 'you people on the left want to measure reality and figure out how to cope with it, whereas we on the right will just forge ahead and create it.' In other words, understanding is not required in order to achieve your goals. This is not true for any goal more complex than nailing two boards together, but it doesn't stop them from laying waste to everything, and then pointing at themselves, blinking, and saying, 'Who, ME?' every time you call them out at it.

          RogerFox said...

          Enthralling - but then cat fights among competing peddlers of different brands of snake-oil so often are.
          Lee A. Arnold said...
          I see three different things that might explain Paul Romer's basic complaint, and they are all going on, at once:

          1. Many economists work within the individual-methodological assumption of "rationality", and thus believe that individual preferences are paramount. (Romer himself takes this assumption as the baseline in his approach to the question of how and why it is that innovation is adopted in some locations and not others.) Thus the economists who are less artful and subtle than he, are usually given to suppose that the best "natural" way to get to where we all want to be (collectively speaking), is by defending and promoting the "market system" against any and all hindrances or even alleviations by government institutions.

          2. Political scientists have identified a pervasive social-cognitive bias, which combines individual risk perception with "in-group" validation, and which is intimately involved in individual emotions, preferences, and existential fears -- and to which about half the population, including about half of the economists, falls prey. It is prevalent on the political Left and Right, each in its own way, but because it is involved with justifications for the status quo of the economic system, the Right currently exhibits more outbursts, because that status quo is evidently not working for everybody, as once was advertised, and indeed most people perceive a crisis. This bias has very deep emotional and cognitive correlates, and so is not easy to get out of, even by psychotherapy. Here is a short collation of its characteristics, taken from solid research literature in political science:
          http://crookedtimber.org/2014/07/17/condemned-by-history-crosspost/#comment-543475

          3. Romer has already spoken against the following view, but this does not excuse us from its consideration: it is possible that the economy, being a complex system, is beyond complete description by mathematics or even by computer modeling. Or even beyond much useful partial description by math. (This would follow from formal limitations in mathematics as well as cognitive or epistemological limitations in human observers.) If that is so, it would lead us to the situation which we do in fact observe: where economic science, as presently formulated, never finds adequate solutions, and never finds agreed closure upon policy formulations. If this is the case, then we would expect that, for many economists, "behaving like scientists" will naturally segue to "political discourse" -- in pursuit of, or driven by, the imperatives in my #1 and #2.

          DeDude said...

          Excellent observations.

          a) Is basically saying: "its OK to cheat if your "opponent" is doing it.
          b) Makes the goal one of fighting the "opponents"

          Both are turning economics into tribal warfare, and that is a bad idea.

          The "fighting" in economics should be a "fight" to discover the truth (rather than to defend a specific narrative). In that "fight" there should be no "us" and "them" because we are all on the same team (of truth), and nobody should want to cheat, because cheating defeat the purpose.

          [Jul 31, 2015] Stumbling and Mumbling On Corbynomics

          Jul 30, 2015 | stumblingandmumbling.typepad.com

          ON CORBYNOMICS

          Jeremy Corbyn's economic policy deserves more attention than it's getting.

          It seems to me that this comprises two necessarily related elements. One is higher corporate taxes: he wants to "strip out some of the huge tax reliefs and subsidies on offer to the corporate sector" - which he claims to be Ł93bn a year. This would depress investment, by depriving firms of some of the means and motive to invest. However, this would be offset by "people's quantitative easing" - a money-financed fiscal expansion:

          The Bank of England must be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects.

          This amounts to what Keynes called a "socialisation of investment":

          It seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. (General Theory, ch 24)

          This is a response to a genuine problem - low capital spending. The share of business investment in GDP has (in nominal terms) been trending downwards since the mid-70s.

          Quite why this has happened is unclear: I suspect it owes more to fundamental problems of a lack of monetizable investment opportunities than to short-termism, but this doesn't much matter for current purposes. Corbyn's view seems to be that, if private enterprise won't invest, the public sector should. Businv

          I don't have much problem with the diagnosis here. But I do with the remedy, for three reasons.

          First, how exactly will the public sector investment projects be chosen? One reason why the Bank of England didn't conduct QE through the corporate bond or equity markets was that it didn't think it had the expertise to pick companies. So how can it appraise energy and digital projects?

          One answer to this is to have a National Investment Bank. But again, where will its expertise be drawn from? I fear this is a form of managerialism - a faith in central managers.

          The second question is: who will do the actual investing? There's a case for the state to invest in infrastructure. But we also need corporate investment, to raise private sector productivity.

          It's possible that the higher aggregate demand created by people's QE will stimulate private sector investment via accelerator mechanisms. Maybe high expected demand will overcome higher corporate taxes. Or maybe not.

          My third problem is raised by David Boyle: where are the mutuals? Corbyn's world seems to comprise just two actors: the state and capitalist corporations. There seems insufficient emphasis upon decentralized forms of economic control, be they Robin Hahnel's participatory planning, Roemerian market socialism or workers' control.

          Granted, Corbynomics might be a building block towards these. But as it stands, it looks to me like replacing one set of bosses with another - which isn't as egalitarian as it could be.

          Nevertheless, Corbyn is at least asking the right question - how to stimulate investment - which is, sadly, more than his rivals are doing.

          July 30, 2015 | Permalink

          Matthew Maloney | July 31, 2015 at 10:20 AM

          Dangerous. Chris brings up Hayek's central proposition - centralised decision makers can't make optimal decisions. I'd imagine a government investment bank would start pumping money into political crony type projects, millitary rubbish and other aristocrat welfare measures. Not a good idea. Better to cut taxes for the middle class, and raise it on the rich.

          [Jul 31, 2015] Say A Little Prayer Bill Gross Warns, Zombie Corporations Now Roam The Real Economy

          "...The BIS emphatically avers that there are substantial medium term costs of "persistent ultra-low interest rates". Such rates they claim, "sap banks' interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries." "
          "...There is no statistical reason per se for the Fed to raise interest rates, yet absent a major global catastrophe we are likely to get one in September. But the reason will not be the risk of rising inflation, nor the continued downward push of unemployment to 5%. The reason will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history"
          "...In other countries, and in other times, low interest rates and monetary easing have resulted in speculation and stock market inflation rather than job-creating investment. Someone is not doing his homework. The massive use of stock buy backs is a relatively new phenomenon."
          Jul 30, 2015 | Zero Hedge

          Corporate investment has been anemic. Structural reasons abound and I have tried to convey that ever since my well-advertised New Normal, in 2009, which introduced the probability of a future generation of low real growth due to aging demographics, tighter regulations, and advancing technology permanently displacing workers. But there are other negatives which seem to be directly the result of zero bound interest rates.

          3 month Libor rates have rested near 30 basis points for 6 years now and high yield spreads have narrowed and narrowed again in the quest for higher investment returns. Because BB, B, and in some cases CCC rated companies have been able to borrow at less than 5%, a host of zombie and future zombie corporations now roam the real economy. Schumpeter's "creative destruction" – the supposed heart of capitalistic progress – has been neutered.

          The old remains in place, and new investment is stifled. And too, because of low interest rates, high quality investment grade corporations have borrowed hundreds of billions of dollars, but instead of deploying the funds into the real economy, they have used the proceeds for stock buybacks. Corporate authorizations to buy back their own stock are running at an annual rate of $1.02 trillion so far in 2015, 18% above 2007's record total of $863 billion.

          But perhaps the recent annual report from the BIS – the Bureau for International Settlements – says it best. The BIS is after all the central banks' central banker, and if there be a shift in the "feed a fever" zero interest rate policy of the Fed and other central banks, perhaps it would be logically introduced here first. The BIS emphatically avers that there are substantial medium term costs of "persistent ultra-low interest rates". Such rates they claim, "sap banks' interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries."

          Greece is not specifically mentioned, nor the roller coaster ride of Chinese equity markets, nor the rising illiquidity of global high yield bond markets, nor the…well a reader should get the point. Low interest rates may not cure a fever – they may in fact raise a patient's temperature to life threatening status. Yellen, Fisher, Dudley and company may not be in total agreement, but they assuredly are listening as this week's Fed meeting will likely attest.

          There is no statistical reason per se for the Fed to raise interest rates, yet absent a major global catastrophe we are likely to get one in September. But the reason will not be the risk of rising inflation, nor the continued downward push of unemployment to 5%. The reason will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history. Low interest rates are not the cure – they are part of the problem. Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC's Rick Santelli, can convince the establishment that their world has change

          nobodysfool

          "... a growing cast of contrarians, such as Jim Bianco and CNBC's Rick Santelli, can convince the establishment that their world has change."

          Rick Santelli Gets it....it's the other MSM sled dogs on Obama's leash that are too stupid too think for themselves or too realize there is no improving economy....guess it'll have to hit them in the face when they're fired for bad ratings.

          RMolineaux

          Two slips: BIS stands for Bank for International Settlements, and if Gross is refering to the Vice Chairman of the Fed, it is Stanley Fischer (with a "c"), former Chairman of the Central Bank of Israel. Otherwise an excellent piece of work, IMHO.

          In other countries, and in other times, low interest rates and monetary easing have resulted in speculation and stock market inflation rather than job-creating investment. Someone is not doing his homework. The massive use of stock buy backs is a relatively new phenomenon. In more serious times, the use of treasury stock by corporations to influence the market price was frowned upon, and attempts were made to make it illegal. Corporations over a certain size need to be required to have Federal charters (under the interstate commerce clause of the Constitution), and this kind of behavior prohibited.


          [Jul 31, 2015] Greed Is King - What We Learned Talking To Chinese Stock Investors

          "...Or was it just the foreign investors (Goldman Sachs) who rode that roller coaster bought into the Shanghai market on 50% margin?"
          "...Same for the short selling: peasant rice farmers or JPMorgan? Inquiring minds want to know."
          Jul 31, 2015 | Zero Hedge
          Early birds get the worms

          This goes completely against most prudent and established norms. While the standard advice is to avoid "hot" bubbly assets, in China the experience has actually been to jump in early and fully instead. Many of the bubbles or "hot" investments mentioned earlier have in truth made many of the people I've talked to a lot of money. China real estate today is a poor investment but those who got in early doubled or tripled their investments. Similarly with wealth-management products, more people have benefited from their high-interest-rate payouts than have suffered. While the Shanghai market has dropped 20%-30% from its peak a few weeks ago, it still represents a 100% gain from a year ago and a 30% gain over the last 6 months. Those participants who jumped in early are still more than happy.

          Greed is king

          Despite recognizing it's a bubble, almost everyone was still all-in on stocks. Why? Quite simply - greed with a dash of jealously. Seeing constant market gains in the news along with daily sharing and boasting from friends and family getting rich is simply too tempting and thus caution was thrown to the winds. Subsequently, this fueled a massive amount of equity exposure followed by leveraging and margin borrowing to go even more all-in.

          But fear is the emperor

          The only emotion more powerful than greed is fear. Almost everyone I talked to was still all-in on stocks but everyone had a foot halfway out the door, ready to bolt at the first sign of trouble. While not uniquely a China problem - market drops are almost always more violent than the initial rise - in China, it's several times more volatile. Look no further than solar-panel firm Hanergy's Hong Kong listed stock, which lost 47% in one hour, or the numerous days the Shanghai market rose or dropped by 5% or more.

          bid the soldier...

          Confucius say "With Chinese greed you get greedy one hour later. With American greed you greedy your whole life."

          Greed and fear - two intrinsic emotional states relating to the topic of unpredictability of stock market. Vulnerability to those two emotional states might be a result of investors' low comfort level due to the market instability.

          Greed and fear relate to an old Wall Street saying: " financial markets are driven by two powerful emotions – greed and fear".

          While sticking to this statement would be an oversimplification, it can also prove to be very truthful. Resisting these emotions can have an utter and deleterious effect on investors portfolios and stock market.

          This old Wall Street saying predates Kublai Kahn's duplex pleasure dome at the Xanau at 66th and Fifth.

          bid the soldier...

          The author hangs his hat on this stat:

          Chinese retail investors make up 85% of the market, a far cry from the U.S. where retail investors own less than 30% of equities and make up less than 2% of NYSE trading volume for listed firms in 2009.

          Of the 85% of the small retail investor, how many of them were in the market before China allowed foreign investors to trade their market in March 2014? How many rice farmers doubled down and margined further stock purchases when the foreign investors tried to take Shanghai to the moon? Or was it just the foreign investors (Goldman Sachs) who rode that roller coaster bought into the Shanghai market on 50% margin?

          Were stocks whose trading was halted, halted to prevent further selling or halted to prevent the "malicious sellers" from covering at lower prices as the authorities slowly forced the stock prices higher?

          Of the huge spike in margin loans, how much of it was caused by the rice farmers in the provinces and how much was taken on by the giant investment houses in New York and London?

          Same for the short selling: peasant rice farmers or JPMorgan?

          Inquiring minds want to know.

          Just as we snicker when we see statistics from the Bureau of Economic Analysis (BEA) and National Bureau of Economic Research (NBER) shoundn't we all have a giggle at the numbers from The Peoples Statistics of China?

          ******************************************************

          Their government told them it was the right thing to do. "Trust us," their government said.

          Do you really think the Chinese Authorities were completely unaware of what happened in the Tokyo Stock Exchange in 1989, 3 years after the Nikkei allowed Wall Street in?

          Either the Chinese are the major dumfuks on the planet or Goldman, Morgan Stanley will soon be singing the Song of Roland to deaf ears.

          GRDguy

          70 trips for Goldman-Sach's Hank "The Hammer" Paulson to teach certain Chinese leaders (sociopaths) on how to take candy from a baby. Big payoffs for some of them.

          Crush the Infame

          Stock markets need to change from being stock price based to dividend based. Investing should be about putting cash up today with the hope of getting more back tomorrow, not about making a quick casino win on market timing.

          Imagine if Vegas changed the odds on all the slots so that people starting winning a lot more than they were losing. The mania would be surreal, but then they pulled back and all of these people who now depend on that money begin to panic. Of course let's add in that a large chunk of the nation's pension funds and insurance companies were sending people to Vegas to play these rigged slots as an "investment."

          So what's next? Now the government steps in and tells the Vegas casinos that they will provide the cash to keep the party going. If this happened with slot machines people would be up in arms, but swap out slots for stocks and it's about keeping the "system" going.

          Capitalism doesn't require a stock market. Corporate bonds and private equity could replace the selling of stock in a rigged market. There would less boom but also less bust and no need for governments to intervene when the whole thing teetered on the verge of collapse.

          Moonrajah

          "Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A." (c) Gordon Gekko

          Uhh... about that...

          Batman11

          Did you find any shoe shine boys giving stock tips?

          [Jul 31, 2015] Paul Krugman China's Naked Emperors

          Jul 31, 2015 | Economist's View

          What can we learn from the response of the Chinese government to the problems in China's stock market?:

          China's Naked Emperors, by Paul Krugman, Commentary, NY Times: ... We've seen ... strange goings-on in China's stock market. In and of itself, the price of Chinese equities shouldn't matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market - and are in the process of demonstrating that, China's remarkable success over the past 25 years notwithstanding, the nation's rulers have no idea what they're doing. ...

          China is at the end of an era - the era of superfast growth... Meanwhile, China's leaders appear to be terrified - probably for political reasons - by the prospect of even a brief recession. ... China's response has been an all-out effort to prop up stock prices. Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading. ...

          What do Chinese authorities think they're doing?

          In part, they may be worried about financial fallout. It seems that a number of players in China borrowed large sums with stocks as security, so that the market's plunge could lead to defaults. This is especially troubling because China has a huge "shadow banking" sector that is essentially unregulated and could easily experience a wave of bank runs.

          But it also looks as if the Chinese government, having encouraged citizens to buy stocks, now feels that it must defend stock prices to preserve its reputation. And what it's ending up doing, of course, is shredding that reputation at record speed.

          Indeed, every time you think the authorities have done everything possible to destroy their credibility, they top themselves. Lately state-run media have been assigning blame for the stock plunge to, you guessed it, a foreign conspiracy against China, which is even less plausible than you may think: China has long maintained controls that effectively shut foreigners out of its stock market, and it's hard to sell off assets you were never allowed to own in the first place.

          So what have we just learned? China's incredible growth wasn't a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we've known that for a while. The big news here isn't about the Chinese economy; it's about China's leaders. Forget everything you've heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they're doing.

          [Jul 31, 2015] Dentists and Skin in the Game

          "...Dental patients who live close to an international border form the majority of dental health travelers. US citizens living in Arizona, California, and Texas can easily cross the border into Mexico, an hour's drive can save them thousands of dollars in dental costs."
          .
          "...This tells you right away that health care can't be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can't just trust insurance companies either - they're not in business for their health, or yours."
          .
          "...I used to have dental insurance through work, and looked at the IEEE plan when I lost that, but decided to go cash instead. Have been on a cash basis for the last 10 years. Prefer it that way, insurance was always pretty much a wash."
          .
          "...By casting " routine expenses like visits "(prevention) as undesirable the racket decreases prevention thus increases the lucrative intervention. The surgery plus the pain for the victim. Look! Prevention is the most cost effective item that GGG can push at us."
          Paul Krugman:

          Dentists and Skin in the Game: Wonkblog has a post inspired by the dentist who paid a lot of money to shoot Cecil the lion, asking why he - and dentists in general - make so much money. Interesting stuff; I've never really thought about the economics of dental care.

          But once you do focus on that issue, it turns out to have an important implication - namely, that the ruling theory behind conservative notions of health reform is completely wrong.

          For many years conservatives have insisted that the problem with health costs is that we don't treat health care like an ordinary consumer good; people have insurance, which means that they don't have "skin in the game" that gives them an incentive to watch costs. So what we need is "consumer-driven" health care, in which insurers no longer pay for routine expenses like visits to the doctor's office, and in which everyone shops around for the best deals. ...

          As it turns out, many fewer people have dental insurance than have general medical insurance; even where there is insurance, it typically leaves a lot of skin in the game. But dental costs have risen just as fast as overall health spending...

          Posted by Mark Thoma on Thursday, July 30, 2015 at 10:41 AM in Economics, Health Care, Market Failure | Permalink Comments (17)

          anne:
          http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/

          July 25, 2009

          Why Markets Can't Cure Healthcare
          By Paul Krugman

          Judging both from comments on this blog and from some of my mail, a significant number of Americans believe that the answer to our health care problems - indeed, the only answer - is to rely on the free market. Quite a few seem to believe that this view reflects the lessons of economic theory.

          Not so. One of the most influential economic papers of the postwar era was Kenneth Arrow's "Uncertainty and the Welfare Economics of Health Care," * which demonstrated - decisively, I and many others believe - that health care can't be marketed like bread or TVs. Let me offer my own version of Arrow's argument.

          There are two strongly distinctive aspects of health care. One is that you don't know when or whether you'll need care - but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor's office; and very, very few people can afford to pay major medical costs out of pocket.

          This tells you right away that health care can't be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can't just trust insurance companies either - they're not in business for their health, or yours.

          This problem is made worse by the fact that actually paying for your health care is a loss from an insurers' point of view - they actually refer to it as "medical costs." This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there's a widespread sense that our fellow citizens should get the care we need - not everyone agrees, but most do - this means that private insurance basically spends a lot of money on socially destructive activities.

          The second thing about health care is that it's complicated, and you can't rely on experience or comparison shopping. ("I hear they've got a real deal on stents over at St. Mary's!") That's why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

          You could rely on a health maintenance organization to make the hard choices and do the cost management, and to some extent we do. But HMOs have been highly limited in their ability to achieve cost-effectiveness because people don't trust them - they're profit-making institutions, and your treatment is their cost.

          Between those two factors, health care just doesn't work as a standard market story.

          All of this doesn't necessarily mean that socialized medicine, or even single-payer, is the only way to go. There are a number of successful healthcare systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn't work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.

          * http://www.who.int/bulletin/volumes/82/2/PHCBP.pdf

          pgl:
          Krugman is right as far as he goes but he has buried the lead from this excellent discussion:

          http://www.washingtonpost.com/news/wonkblog/wp/2015/07/29/why-dentists-are-so-darn-rich/

          There is an American Dental Association just like there is an American Medical Association and their game is the same. Limit the competition to drive dentist salaries higher. Economists from Dean Baker to Greg Mankiw and Milton Friedman agree. End these cartels and allow competition for doctors and for dentists.

          DrDick -> pgl...
          That was my thought as well, and you can add the ABA to that list. The problem with all of those markets is that it is difficult to impossible for consumers to get accurate information on local prices and relative quality of services provided.
          JohnH:
          Horrified at outrageous dental expenses, I tried to find a cheaper dentist...unsuccessfully. They all charge the same. So much for competition in a free market. Somehow they rigged the market.

          Worse, insurance companies pay far less for the same procedure than uninsured, so it is the uninsured who make dentists profitable.

          pgl -> JohnH...
          "Somehow they rigged the market". Yep - the American Dental Association is a lot like the American Medical Association. The WaPo blog was an excellent discussion.
          anne -> JohnH...
          Can dental insurance be bought, say through a professional organization or an AARP-like non-profit? AARP by the way enrolls adults at 50.
          Observer -> anne...
          Yes, here's an example from IEEE ...

          http://www.ieeeinsurance.com/us/PersonalInsurance/DentalInsurancePlan.aspx

          I used to have dental insurance through work, and looked at the IEEE plan when I lost that, but decided to go cash instead. Have been on a cash basis for the last 10 years. Prefer it that way, insurance was always pretty much a wash.

          Very competitive market, lots of dentists running adds in my area.

          My single practitioner dentist provides a ten percent cash discount, written quotes on any non-routine work, and calls that evening to follow up an any work beyond routine cleaning. Excellent service, on time, up to date technology, and I'd say the best managed medical provider office I've ever seen.

          For routine medical care, its a great model, and I wish my other providers operated the same way.

          anne -> Observer...
          Nice description.
          JohnH -> Observer...
          Agree. Insurance is pretty much a wash. Anything not routine that you would want insured has big co-pays.
          RC AKA Darryl, Ron -> JohnH...
          "...insurance companies pay far less for the same procedure than uninsured, so it is the uninsured who make dentists profitable."

          [That is certainly a big part of it. The family dentist does not make nearly so much per hour as any of the specialists, periodontist, endodontist, oral surgeon, or orthodontist. One dentist may run an office with up to a half dozen dental hygienists.]

          bakho -> JohnH...
          Dental patients who live close to an international border form the majority of dental health travelers. US citizens living in Arizona, California, and Texas can easily cross the border into Mexico, an hour's drive can save them thousands of dollars in dental costs. Canadians and US citizens along the East Coast, from Maine to Florida, are flocking to Costa Rica. The dental clinics of San José are only a short hop from Miami, and the dentistry is generally excellent, at costs 50-80 percent lower than those in the US. Three to check out in San José are Advance Dental Clinic, Nova Dental, and Meza Dental Clinic.
          Europeans find similar advantages in hopping over to Hungary, where they are spoiled for choice among high-quality, low-cost dental clinics. Most people don't realize that Hungary boasts more dentists per capita than any other country, and some of the best and least expensive clinics are found in rural areas. For example, the small town of Mosonmagyaróvár near the Austrian border is home to more than 160 dental offices! While it's economical for Europeans to travel to Hungary for a dental checkup or a cleaning, most North Americans who travel to Hungary are looking for more extensive care, including cosmetic oral surgeries, full-mouth restorations, and implants. Such work can be had at less than half the US price, including travel and accommodations.

          http://www.patientsbeyondborders.com/procedure/dentistry

          JohnH -> bakho...
          I have a friend who picks a Central American country and shows up unannounced at a dentist to have a root canal, etc. He can't afford US care and so far has had no problems. I'm not that adventurous.

          Now he's cycling by himself in Cuba...

          Whee Telephone:
          "insurers no longer pay for routine expenses like visits"
          ~~Paul Krugman~

          The *come on* from the prostitutes on 42nd street is mild, but the *come on* from the protection racket called "health insurance" is purified evil. Do you see the trap they set?

          Obviously GGG can pay insurance racketeers for the preventive procedures or for the surgical intervention. Paying for prevention increase prevention utilization thus decreases demand for surgery. Got it?

          By casting " routine expenses like visits "(prevention) as undesirable the racket decreases prevention thus increases the lucrative intervention. The surgery plus the pain for the victim. Look!

          Prevention is the most cost effective item that GGG can push at us. By contrast, when GGG pays directly to surgeon what happens to supply/price/demand

          ? Do you see what happens? Doesn't increase resource. Doesn't decrease pain. Merely raises the price of surgery plus the wealth of the surgeon. Now do you see why all surgeons are Socialists, Communists, Democrats?

          Think, My People!

          Think!

          Second Best:
          Veblen theory of conspicuous consumption, dentists who pay to shoot lions like fish in a barrel mount them in their office to prove their manhood comes at a price they can afford.
          Lyle:
          For more expensive dental work dental tourism makes sense. If you can ID a good dentist in say Costa Rica you might get the trip and the dental work for the price of the dental work in the US. In particular for implants and the like. Unless the dental guild has rules against this. (How do dental prices in Europe compare and does European insurance include dental work?)

          [Jul 30, 2015] How A Pork Bellies Trader And Milton Friedman Created The Greatest Trading Casino In World History

          "...In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman."
          .
          "...The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile."
          .
          "..."It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters,""
          .
          "..."When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold", With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim."
          economistsview.typepad.com
          Jul 21, 2015 | Zero Hedge

          "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

          In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

          Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

          Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

          As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

          Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

          During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

          Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

          In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

          A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

          Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

          Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

          It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

          THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED

          Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

          At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

          The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

          Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

          The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

          When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

          Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

          The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

          Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

          Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

          THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES

          According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

          Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

          The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

          In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

          Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

          Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

          As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

          After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

          "It's a wonderful idea," Friedman told him. "You must do it!"

          Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

          He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

          Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

          In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          *****

          Source: The Great Deformation by David Stockman

          falak pema

          Hahaha, for the FIRST time I see a post here on ZH where the "profoundly erroneous monetarist doctrine" of Milton Friedman gets blamed for what follows : the greatest monetary sin of the West (after the gold exchange standard according to Jacques Rueff).

          The Friedmanite floating rate regime is what started the instability in the world monetary casino and yes the futures market did the rest.

          Yipeeee, we have it right there. The monetary SIN laid out here at ZH and it had NOTHING to do with Keynesian plays. The Casino was a PURE product of the CHICAGO school so dear to Hayek. Who approved the supply side "liberalisation" of Reaganomics that followed.

          ZH has vindicated that very important piece of the puzzle in the global financial time line of our present age.

          Now Keynes's ghost can rest in piece. Monetarism will have to carry its own Cross on its Golgothan march.


          The Delicate Genius

          I think there may be a middle you're excluding...

          falak pema

          May be a middle called Nixonian petrodollar anchoring. But that did not change the Casino mantra. It just anchored "our money your problem" to Saud's Oil guzzler.

          All that did was to suck the Oil into the fiat bonanza world.

          Something the Sauds don't appreciate anymore as the Fiat pile is making Pax Americana fragile and it cannot zero hedge its support of Sunni Saudi hubris. It has to HEDGE with IRAN...now having showed its resilience after 40 years of confronting the USA.

          C'mon Genius don't just mumble in your libertarian beard, put up or shut up.

          hxc

          Not all monetarists are chicagoan. They became book cookers for Keynesian discretionary policy... Hence NK's, New Classicals, "market monetarists," et cetera. Friedman's been reduced to the guy in the back room, wearing a green visor and rigging up Keynes' insane monetary system.

          Check it out

          The Perversion of Monetarism

          MASTER OF UNIVERSE

          Agreed, but only because you know more than I do when it comes to Economics, and because I always thought that cocksucker Freidman, and the Chicago School, were crooked snakes-in-the-grass all along. And frankly, Z/H does kind of beat on Keynes a bit too much sometimes, but the SOB is dead, so who cares anyhow. Historiography has a nothing to do with reality in this day and age, methinks.

          falak pema

          1946 Keynes dies. 1965 De Gaulle starts talking about "exorbitant privilege" and US hubris.

          At the end of the 60s the London Gold club that tries to bridge French concerns about US spending profiglacy (Vietnam war, great society) and US balance of trade deterioration, collapses. Harold Wilson caves in to "gnomes of Zurich" and London loses pivotal role with a devalued Ł.

          By 1969 the French have put the fear of God up Nixon when a french gunboat arrives reclaiming French gold deposited in NY. SO...1971 and Nixon makes the plunge.

          You can say what you like about Keynes. He had nothing to do with Nixon/Johnson's spending spree which made gold revoke inevitable. It was not his philosophy which was ŕ la mode in 1969 but the Chicago school.

          MASTER OF UNIVERSE

          From what I have read about Keynes he was appropriately characterized as 'brilliant'. Of course, no amount of Keynesian Stimulus could have shut down the Bear Stearns bear raid, or the Lehman Bros. Chapter 11. Ergo, the downfall of Freidman's orthodoxy was bound to occur as soon as Glass-Steagall deregulation provided the leverage via the FCC. Since the exemption on leverage for Bear Stearns it took five years to melt down to a systemic Worldwide intractable problem. Keynes was right about CB intervention, but he had no way of knowing that certain fundamentals would be altered beyond logic of failsafe.

          p.s. thanks for going into detail on history. I always appreciate historical background given my background in Experimental Psychology/Personality/Biography/Historiography and Sociology.

          withglee

          Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar.

          Oh really? What would you have done ... with the street price of gold at over $70, the official price at $35, and the French choosing to be compensated in gold rather than dollars, as they were supposedly the same thing.

          What would you have done?

          knukles

          Another reason the Chitown Loop banks were not supportive of Melamed's currency futures ideas was that the Harris primarily was at the time "the" Bulge Bracket Big Swinging US Based Dick of the cash and forward 4X markets as well as one of the largest financers of the futures businesses on the CME and CBoT. They saw Leo not as a product extension, but a threat to their dominance.

          withglee

          When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold,

          With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim.

          armageddon addahere

          Everybody acts like Nixon closing the gold window was the beginning of something. It wasn't. It was the end. At that point the US had been spending money like water overseas for everything from the Marshall Plan, Volkswagens and Japanese transistor radios to the Korean and Vietnam wars. There was a net inflow of gold during the depression and WW2, but after that there was a steady outflow all through the fifties and sixties.

          The whole world wanted American dollars, and a lot of it got turned in for American gold. The gold was nearly gone. At the rate it was going, the last ounce would leave Fort Knox in less than two years. They had no choice but to end the convertability of gold - sooner or later. Nixon's only choice was to take action and make a smooth transition or let everything go to hell at once.

          most-interesting-frog-world

          Bear

          "The Great Deformation by David Stockman" ... This is the most remarkable treatise on economic history ever written. If you haven't read it you are still in the dark.You will continue to see many excerpts from this book on ZH ... and well deserved.

          David Stockman should be given a Nobel Prize for Economics ... for exposing Economics as the insanity it is and fully captive to politics.

          [Jul 29, 2015] Using Math to Obfuscate - Observations from Finance

          Notable quotes:
          "... then from Romer's assumptions the rival inputs cannot be earning their marginal product. ..."
          "... The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ... ..."
          "... Four-fifths of the "Economy" is a Complete Waste of Time ..."
          "... I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output. ..."
          "... The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output. ..."
          "... "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness." ..."
          "... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models." ..."
          "... why do economies grow vulnerable over time ..."
          "... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. ..."
          "... Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment ..."
          economistsview.typepad.com
          More from Paul Romer on "mathiness" -- this time the use of math in finance to obfuscate communication with regulators:
          Using Math to Obfuscate - Observations from Finance: The usual narrative suggests that the new mathematical tools of modern finance were like the wings that Daedalus gave Icarus. The people who put these tools to work soared too high and crashed.

          In two posts, here and here, Tim Johnson notes that two government investigations (one in the UK, the other in the US) tell a different tale. People in finance used math to hide what they were doing.

          One of the premises I used to take for granted was that an argument presented using math would be more precise than the corresponding argument presented using words. Under this model, words from natural language are more flexible than math. They let us refer to concepts we do not yet fully understand. They are like rough prototypes. Then as our understanding grows, we use math to give words more precise definitions and meanings. ...

          I assumed that because I was trying to use math to reason more precisely and to communicate more clearly, everyone would use it the same way. I knew that math, like words, could be used to confuse a reader, but I assumed that all of us who used math operated in a reputational equilibrium where obfuscating would be costly. I expected that in this equilibrium, we would see only the use of math to clarify and lend precision.

          Unfortunately, I was wrong even about the equilibrium in the academic world, where mathiness is in fact used to obfuscate. In the world of for-profit finance, the return to obfuscation in communication with regulators is much higher, so there is every reason to expect that mathiness would be used liberally, particularly in mandated disclosures. ...

          We should expect that there will be mistakes in math, just as there are mistakes in computer code. We should also expect some inaccuracies in the verbal claims about what the math says. A small number of errors of either type should not be a cause for alarm, particularly if the math is presented transparently so that readers can check the math itself and check whether it aligns with the words. In contrast, either opaque math or ambiguous verbal statements about the math should be grounds for suspicion. ...

          Mathiness–exposition characterized by a systematic divergence between what the words say and what the math implies–should be rejected outright.

          Posted by Mark Thoma on Wednesday, July 29, 2015 at 10:52 AM in Economics, Financial System, Methodology | Permalink Comments (2)

          [Jul 20, 2015] The Rivals (Samuelson and Friedman)
          Jul 19, 2015 | Economist's View

          pete said...

          I always loved Boulding's somewhat critical review of Samuelson, discussing the limits of the mathematicization of economic theory. Of course Samuelson was the tip of the iceberg, and since then many overconfident economic mathematicians have led to very serious financial problems. I had one stats professor who called a complex theory on the blackboard "graffiti."

          http://www.jstor.org/stable/1825768?seq=1#page_scan_tab_contents

          pgl -> pete...
          Samuelson did not do math for math's sake. He figured out first what the real world issue was and then used math to help explain his insights.
          likbez -> pgl...
          You need to distinguish "math" from "mathematical masturbation", or as they are now more politically correctly called "mathiness".

          Many economic works that use differential equations belong to the latter category ;-). A lot of pitiful clowns pretending to be mathematicians do not even bother to understand what is the precision and error bounds of the input data. As in "garbage in, garbage out".

          This is probably a unique case when mathematic equations are used to support particular political ideology. Support via "scietification" (as in Church of Scientology) of essentially political statements. Especially about unemployment and poverty.

          anne -> anne...

          All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.

          [ Keynesian ideas have worked? Influential among policy makers in general or not, Keynesian ideas have worked. ]

          pgl -> anne...

          Keynesian theory explains what happened. But what happened was the our policy makers failed to do the right thing. Had they listened to Keynes - the recoveries would have been much faster.

          likbez -> pgl...

          "Had they listened to Keynes - the recoveries would have been much faster."

          This was impossible. There is such thing as "Intellectual capture". As Keyes noted

          "The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."

          [Jun 15, 2015] What Assumptions Matter for Growth Theory
          Jun 15, 2015 | Economist's View
          Dietz Vollrath explains the "mathiness" debate (and also Euler's theorem in a part of the post I left out). Glad he's interpreting Romer -- it's very helpful:
          What Assumptions Matter for Growth Theory?: The whole "mathiness" debate that Paul Romer started tumbled onwards this week... I was able to get a little clarity in this whole "price-taking" versus "market power" part of the debate. I'll circle back to the actual "mathiness" issue at the end of the post.
          There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? We can answer the first without having to answer the second.
          Just to refresh, a production function tells us that output is determined by some combination of non-rival inputs and rival inputs.
          • Non-rival inputs are things like ideas that can be used by many firms or people at once without limiting the use by others. Think of blueprints.
          • Rival inputs are things that can only be used by one person or firm at a time. Think of nails.
          • The income earned by both rival and non-rival inputs has to add up to total output.
          Okay, given all that setup, here are three statements that could be true.
          1. Output is constant returns to scale in rival inputs
          2. Non-rival inputs receive some portion of output
          3. Rival inputs receive output equal to their marginal product
          Pick two.
          Romer's argument is that (1) and (2) are true. (1) he asserts through replication arguments, like my example of replicating Earth. (2) he takes as an empirical fact. Therefore, (3) cannot be true. If the owners of non-rival inputs are compensated in any way, then it is necessarily true that rival inputs earn less than their marginal product.

          Notice that I don't need to say anything about how the non-rival inputs are compensated here. But if they earn anything, then from Romer's assumptions the rival inputs cannot be earning their marginal product.

          Different authors have made different choices than Romer. McGrattan and Prescott abandoned (1) in favor of (2) and (3). Boldrin and Levine dropped (2) and accepted (1) and (3). Romer's issue with these papers is that (1) and (2) are clearly true, so writing down a model that abandons one of these assumptions gives you a model that makes no sense in describing growth. ...
          The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ...

          [There's a lot more in the full post. Also, Romer comments on Vollrath here.]

          Paine

          Excellent

          Lots of conclusions are per determined by simple assumptions like constant returns to scale

          If by scale we mean replication of the existing production system on a larger scale

          Where say we triple every plant and highway etc

          The model nicely captures the reality of a static production system
          Where all factors are expandable even if at a cost

          This is a very narrow notion of scale effects

          If for example markets for oust expand and a different technique is optimal
          Then there's a dynamic transition
          Where residuals emerge.

          anne -> Paine ...

          I assume this is the reference which the writer is too inconsiderate to mention:

          http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/are-ideas-really-non-rival.html

          June 13, 2015

          Are ideas really non-rival?
          By Nick Rowe

          Paine -> anne...

          Rowe thinks he is making a great joke

          But in actuality there is nothing but assertion of various hypothetical entities behind the entire neo classical construct

          No matter how carefully these atoms are defined they remain figments

          That one can conjure like epicycles

          Example

          Advertising Is a production factor -- Once we move away from he material basis of production lots of spirits dance in the air around us

          Once a non rival good has been discovered or invented or created etc it's cost to replicate is nearly zero

          To lay the bulk of profits at its feet is ridiculous of course. But intellectual property none the less is a growing means of exploitation...

          Paine -> Paine ...

          My definition of non rival is wrong of course. The meaning of non rival is castlessly inexhaustible

          Nothing fits this description exactly. And almost is as bad as not at all.

          Non rival -- Example of belief in the divinity of Jesus. I can believe as much whether you believe or not

          anne -> Paine ...

          All exchange value flows from labor time. Even if in complex patterns easily mystified by simple definitions. Of imaginary objects like non-rival production factors

          [ I understand and am pleased. ]

          Sandwichman said...

          Four-fifths of the "Economy" is a Complete Waste of Time

          "There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not?" -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"

          "Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory." -- Paul Romer, "The Assumptions in Growth Theory"

          Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.

          "As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'"

          Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

          Name one.

          Carry on, growth theorists.


          anne -> Sandwichman...

          http://econospeak.blogspot.com/2015/06/the-chimerical-analogies-of-growth-and.html

          June 6, 2015

          The Chimerical Analogies of Growth and Distribution


          http://econospeak.blogspot.com/2015/06/four-fifths-of-economy-is-complete.html

          June 14, 2015

          Four-fifths of the "Economy" is a Complete Waste of Time

          -- Sandwichman

          Sandwichman -> Sandwichman...

          1. "growth is a concept whose proper domicile is the study of organic units..."

          2. "The belief that society is an organism is an old but fanciful notion."

          3. ?

          4. Growth!

          Sandwichman -> anne...

          "the meaning of per capita growth in China over these last 38 years of 8.6% yearly"

          It means, literally, that if you ate one bowl of rice for dinner in 1977, in 2015 you would eat 23 bowls of rice for dinner. Of course it doesn't *really* mean that. The "measurement" is actually a figure of speech.

          Figuratively, it means something more like: many more Chinese own cars today than 38 years ago and those cars are worth hundreds of times what the old bicycle was worth. Never mind that the car is used to commute to work, that it takes as long to drive to work through congested traffic as it once did to ride a bike to work and that the air is unbreathable so it would be suicide to go back to riding a bike.

          Still, growing 8.6% per year for 38 years is a prodigious achievement even if we don't know what it means.

          Sandwichman -> anne...

          A large part of that gain in life expectancy is attributable to an enormous decline in infant mortality. Expenditures on improved infant health care would be only a miniscule portion of the total economic growth.

          When I say "prodigious" I mean remarkable or immense without attaching any value judgement about whether it is a good or a bad thing. There have obviously been some good things associated with that growth -- see infant mortality. There has also been an explosion of GHG emissions. If 2/3 of that growth was good things (reduced infant mortality, improved nutrition etc.) and 1/3 bad things (police surveillance, cost of commuting to work, etc.) then China would have been better off with a 6% growth rate.

          Can't we just forget about the confounded aggregate and get on with promoting the good? No, apparently not. Two pieces of pie is better than one if it's cherry pie but not if it's "dirt" pie.

          anne -> Sandwichman...

          Can't we just forget about the confounded aggregate and get on with promoting the good?

          [ Surely so, but if a part of the good is life span, well, that of India is 66 years which shows how far China has come and I really do know of the problems. ]

          anne -> Sandwichman...

          Again, I am waiting for an explanation of or a description showing what the past 38 years of per capita growth in China represent. What does the past 38 years of astonishing gains in Chinese productivity represent and how to depict these gains?

          Paine -> anne...

          We need a welfare index. And that greatly increases the degree of difficulty over a simple output index

          Sandwichman -> Paine ...

          "If the GDP is Up, Why is America Down?" Clifford Cobb, Ted Halstead, and Jonathan Rowe, The Atlantic, 1995.

          http://www.theatlantic.com/past/politics/ecbig/gdp.htm

          And do you know what the overwhelming response of economists was to that article? "Nothing new here." "We know GDP is not a measure of welfare. But it's useful because it tells us about the capacity to produce goods that could enhance welfare."

          Or to paraphrase Orwell, "If this boot wasn't stamping on your face, you could put it on your foot and it would keep your toes warm -- FOREVER!" Paul Samuelson's version, "Evaluation of Real National Income":

          "Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times."

          I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output.

          The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output.

          anne -> Sandwichman...

          http://econospeak.blogspot.com/2015/06/some-kind-of-index-no-normative.html

          June 14, 2015

          Some Kind of an Index -- No Normative Connotations

          -- Sandwichman

          Julio -> Sandwichman...

          A question for you folks in this subthread:

          "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness."

          Proposition: That myth underlies our world.

          Conclusion: In our world, "GDP is not correlated to happiness" is, therefore, a subversive statement.

          Is this sensible, and if so, does it make alternative measures of economic well-being difficult to construct?

          Julio -> Sandwichman...

          Aggregate is not the same as average.

          The "prices as the driver" argument is that you will buy a yellow car and I a green one, and Detroit will make just enough of each, and that's the closest we'll ever come to an economy that reflects our wishes, and that's in turn the closest we'll ever come to (economic) happiness.

          But this may be an aside: is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?

          We could measure economic decisions by using economics as far as it takes us to evaluate their consequences, and then using our moral compass to do the measuring.

          A more ad-hoc method which, for our collective decisions, has political pitfalls; but politics is the appropriate forum for those fights. We would no longer know (or care) what "progress" is, as a national aggregate.

          Sandwichman -> Julio...

          "is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?"

          No, it's not entirely unrealistic and irrelevant but it IS very limited and, like GDP subject to misinterpretation as more substantive than it is.

          The thing about GDP that won't be gotten away from is that it does provide information that is useful for projecting revenues for business and for government.

          A welfare index wouldn't do that. You can tax income but you can't tax happiness -- at least not literally.

          anne -> Sandwichman...

          The measurement of economic well-being is inherently difficult (impossible) because it involves the aggregation of subjective judgments....

          [ Agreed. ]

          anne -> Sandwichman...

          The sort of growth-happiness surveying referred to is to my mind no more than pseudo research. As empirical as bumble bees.

          Sandwichman -> anne...

          anne, I tend to agree with your skepticism about happiness surveying. However, I have also worked on so-called real survey research -- Canadian census. If you saw how the sausage was made...

          The Case of the Missing Minsky by Paul Krugman
          "...On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models."

          NYTimes.com

          Gavyn Davis has a good summary of the recent IMF conference on rethinking macro; Mark Thoma has further thoughts. Thoma in particular is disappointed that there hasn't been more of a change, decrying

          the arrogance that asserts that we have little to learn about theory or policy from the economists who wrote during and after the Great Depression.

          Maybe surprisingly, I'm a bit more upbeat than either. Of course there are economists, and whole departments, that have learned nothing, and remain wholly dominated by mathiness. But it seems to be that economists have done OK on two of the big three questions raised by the economic crisis. What are these three questions? I'm glad you asked.

          As I see it, it makes sense to think of what happened in terms of three phases.

          • First, a buildup of vulnerability, with rising leverage and an increasingly fragile financial system.

          • Second, the acute phase of crisis, with bank runs or their functional equivalent, collapsing liquidity, and more.

          • Then a long period of depressed employment and activity, which still isn't over.

          The questions then are how and why each of these things can/did happen. I think of these as the Minsky question - why do economies grow vulnerable over time ; the Bagehot question - why does all hell break loose now and then; and the Keynes question - how economies can stay depressed, and how such depressed economies work.

          On the Keynes question, it's true that we haven't had a radical change in thinking, but that's mainly because the old thinking still works pretty well. That is, the answer for people asking who would be the new Keynes turns out to be that Keynes is the new Keynes. Or maybe that's Hicks - anyway, IS-LMish analysis worked well, and the economists who made fools of themselves were those who rejected the time-tested approaches.

          What is new is that we have had a flowering of empirical work, and have much more econometric evidence on monetary and especially fiscal policy, price behavior, and more than we used to. Look, for example, at Nakamura/Steinsson's survey, or at the Blanchard work on multipliers in the euro area. So this is a happy story: the existing framework worked fairly well, and is now buttressed by a lot of really good empirical evidence.

          On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. But it wasn't very hard to fix these problems, or at least apply workable patches. Once you realized that repo was the new bank deposits, the basic crisis framework was already there; and there was already enough existing analysis of balance-sheet constraints and all that to make creation of a somewhat messy, inelegant, but usable set of models quite easy.

          And here too we have seen a flowering of empirical work, e.g. Mian and Sufi on household debt.

          Where we have not, as far as I can tell, made much progress is the Minsky question. Why did the system become so vulnerable? Was it deregulation (or failure of regulation to keep up with institutional change)? Simple forgetting, as memories of past crises faded? Excessively loose policy? I have views, but I have to admit that there isn't a lot of either fresh thinking or hard evidence here.

          Why is Minsky still mostly missing? Partly because asking how we got here may be less urgent than the question of what we do now. But also, I'd guess, because it's hard. Bubbles, excessive leverage, and all that probably have a lot to do with the limits of rationality, and behavioral economics doesn't provide anything like as much guidance as it should.

          Still, I'm relatively positive in my assessment of the state of macroeconomics. Against mathiness and political ideology, the gods themselves contend in vain, but that's not a problem with the models


          kbaa, The Irate Plutokrat

          It is good to see Krugman write in opposition to 'mathiness', economists' misuse of mathematics to justify their pet theories. And his suggestion that 'behavioral economics doesn't provide anything like as much guidance as it should' is probably as close to an admission as we are ever likely to get from an academic economist that it's human psychology that drives the economy after all, and that all of the various high minded macroeconomics theories are nothing more than propaganda to be used by lobbyists who present them as scholarship.

          Economics is a subject that is driven by data, i.e. numbers. Wherever there are numbers there is always the possibility of misusing mathematics to intimidate. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.

          NB For those who have never studied Calculus, "Euler" is pronounced "oiler", but there's no connection with the price of oil or any other commodity, and don't let any academic economist try to tell you otherwise.

          Book Review "Keynes The Return of the Master"
          WSJ.com

          Yet Mr. Skidelsky chooses to make Mr. Lucas sound like some kind of idiot savant, more interested in playing with mathematical models than in trying to understand how the world actually works. Mr. Lucas, we are told, is following in the tradition of the "French mathematician Leon Walras [who] pictured the economy as a system of simultaneous equations." The very idea is made to sound slightly crazed.

          This brings us to the biggest problem with "Keynes." Mr. Skidelsky admits to being poorly trained in the tools that economists use: "I find mathematics and statistics 'challenging,' as they say, and it is too late to improve. This has, I believe, saved me from important errors of thinking."

          Has it, really? Mr. Skidelsky would like to think that his math-aversion allows him to focus on the big ideas rather than being distracted by mere analytic details. But mathematics is, fundamentally, the language of logic. Modern research into Keynes's theories-I have conducted such research myself-tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.

          Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment. But if recessions and depressions are as costly as they seem to be, why don't firms have sufficient incentive to adjust wages and prices quickly, to restore equilibrium? This is a classic question of macroeconomics that, despite much hard work, is yet to be fully resolved.

          Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.

          US Army Building Roads in Eastern Europe, Citing 'Russian Aggression' " Antiwar.com Blog


          mojo · 2 hours ago


          USG paving its way for the third world war citing Russian aggression. Obama policies are based on war, based on the old version of saying: you either with us or against us, if you are with us we support you no matter what you do, the support of USG for Saudis and Israel is an example, if are not with us we will destroy your nation for not being and supporting us in what we do. Libya, Syria, Iraq are the recent example of such policy, another one is supporting turkish regime to bomb Kurdish people whom are fighting ISIS citing it that they (NATO and Turkish regime) are fighting ISIS. It is not the question of Russia being the aggressive, one which invading countries after another, this is a economical policies where as deceptive and fraud within such system been forcing system to losing it creditability all over the world, to repair that and as USG being a militarism regime, it needs to cooperate with others and create enemies for yet another war, this is USG-capitalism ideology, its been like that for hundreds or years, double standard, double language, changing color of its falsified democracy where and when necessary is whats been practiced by those who administrate the system. in that regard the american people only vote for those whom can fool them more then the other one.

          Why are these investors avoiding stocks in 401(k)s

          One of the most important investment maxims consists of just one word: diversification. Almost any investment professional will urge you to hold a mix of stocks, bonds and other assets for protection from sudden market swings and the prospect of steadier returns.

          But a stubborn subset of investors persists in ignoring that advice. Some 10.2 percent of the savers in a study by the Employee Benefit Research Institute, or EBRI, had no exposure to stocks in their 401(k) account as of 2013, and 11.8 percent had 90 percent or more of their money in equity funds.

          A separate analysis for CNBC.com by Federal Reserve analysts, using data from the Survey of Consumer Finances, found that among households of all ages with a 401(k), IRA or both, 18 percent had less than 10 percent of their retirement assets in equities, and 20 percent of households had more than 90 percent in 2013.

          ... ... ...

          Between Dec. 31, 1985, and Dec. 31, 2014, T. Rowe Price found that a diversified portfolio invested 60 percent in equities, 30 percent in bonds and 10 percent in cash would have delivered 91 percent of the returns generated by 100 percent stock exposure, with about 83 percent of the volatility.

          ... ... ...

          [Jul 29, 2015] Fed staff error reveals "potential" output is mostly nonsense by Matthew C Klein

          Jul 27. 2015 | ftalphaville.ft.com | 12 comments

          On June 29, someone at the Fed inadvertently included the staff's June economic projections, which are supposed to be secret, into publicly available computer files. On July 24, the Fed decided to let the world know that it goofed, while also letting you download the charts and tables for yourself. Then it turns out that some of the information released was incorrect and had to be updated yet again.

          For convenience, here's a link to the table, which is somewhat useful to compare to the published projections of FOMC members. You'll notice that the staff is much more pessimistic about real growth for 2015 than the entire range policymakers, and more pessimistic for 2016 growth than most policymakers polled for their projections. Otherwise there isn't much new there.

          Read

          [Jul 27, 2015] Can You Hear the Fat Lady Singing - Part III

          "...I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?"
          Jul 27, 2015 | Zero Hedge
          Renfield

          Loved your description of the irrelevant cocktail party! Reminded me of Tom Wolfe's description: social x-rays and lemon tarts. I've been to way too many of those, and now avoid them like the plague. Even if it means pretending I've caught the plague. They're boring and irrelevant except for those who really can win by networking, fewer and fewer these days.

          I've been fascinated by the currency markets this year. The US satellite currencies are also falling, along with EM. This is sending the USD up, but that just means it's dying last. Like when a body freezes, the limbs freeze first and all the blood moves in to protect the heart, so the heart dies last -- but you can't call it a healthy body, or a healthy heart, just because the blood is there rather than at the limbs.

          I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?

          Anyway, thanks for the focus on the currency wars waging out there. It isn't just emerging markets that are suffering; USD satellite economies are suffering too. It will take a real miracle to turn this around. Bond markets have been most volatile over the last few months, and second-most volatile have been currencies. Last May Wolf Richter posted this article with an Otterwood Capital Management chart, showing how "capital markets are completely backwards":

          http://wolfstreet.com/2015/05/18/buyers-beware-capital-markets-completel...

          with a chart showing the most volatility in bonds, second in currencies, third commodities, and last, equities. Christine Hughes wrote that "The important thing to take from this chart is that bonds and currencies (blue and red lines) are becoming more volatile than equities (black line).This is completely backwards to how capital markets typically behave. It is stock market volatility that is well known and feared, but we are seeing the reverse unfold". When equities get the memo, as they appear to be getting it now, then the central banks' pretence of control is over. As equities are now the last to get the memo, this 'contained, everything under control' leg of the Depression is about up as the facade starts to crack wide open.

          [Jul 26, 2015] What Is Wrong with the West's Economies?

          "...The jarring market forces? It was a political project with the desired results."
          .
          "..."We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.""
          .
          "...AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting."
          .
          "...Our financial leaders don't want a thriving economy. The want to crush the opposition and keep people under their thumb"
          .
          "...Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html"

          This is from Edmund Phelps. It was kind of hard to highlight the main points in brief extracts, so you may want to take a look at the full article:

          What Is Wrong with the West's Economies?: What is wrong with the economies of the West-and with economics? ...

          Many of us in Western Europe and America feel that our economies are far from just...

          With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades-mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end. The setback has cost the less advantaged not only a loss of income but also a loss of what economists call inclusion-access to jobs offering work and pay that provide self-respect. And inclusion was already lacking to begin with. ...

          How might Western nations gain-or regain-widespread prospering and flourishing? Taking concrete actions will not help much without fresh thinking: people must first grasp that standard economics is not a guide to flourishing-it is a tool only for efficiency. Widespread flourishing in a nation requires an economy energized by its own homegrown innovation from the grassroots on up. For such innovation a nation must possess the dynamism to imagine and create the new-economic freedoms are not sufficient. And dynamism needs to be nourished with strong human values.

          Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. ... The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

          It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education.

          We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.

          I'm skeptical that this is the answer to our inequality/job satisfaction problems.

          Posted by Mark Thoma on Friday, July 24, 2015 at 10:38 AM in Economics, Income Distribution, Productivity | Permalink Comments (14)

          Peter K. said...

          "With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades-mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end."

          The jarring market forces? It was a political project with the desired results.

          JohnH said in reply to Peter K....

          Indeed! And there is currently no meaningful effort to fix the problem, only to worsen it through TPP and TAFTA.

          Rune Lagman said...

          "We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life."

          Well, ain't gonna happen by "reforming" the education system.

          Everybody (more or less) knows what it takes to "fix" the western economies; lots of infrastructure investment (preferable green) and higher wages. I'm getting fed up with all these "economists" that keep justifying the status quo (probably because their paycheck depends on it).

          dan berg said...

          Could it possibly be that your skepticism arises from the fact that -precisely because you are an academic economist - you haven't got an imaginative or creative bone in your body?

          RC AKA Darryl, Ron said in reply to dan berg...

          Dear AH,

          Doc Thoma wrote "I'm skeptical that this is the answer to our inequality/job satisfaction problems."

          Everybody has imagination and creative potential. Most people just lack the mean to express it in a way that will enter the economy. Even Edmund realized that people got to eat. The obstacles run from there. It was Edmund's answer that Doc Thoma was skeptical of. This was Phelps answer to the question:

          "... Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. (Experts have urged greater education in STEM subjects-science, technology, engineering, and mathematics-but when Europe created specialized universities in these subjects, no innovation was observed.) The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

          It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education..."

          If you agree with Edmund Phelps on his answer then at least we must all admit that you have an astronomical imagination.

          djb said...

          Our financial leaders don't want a thriving economy

          The want to crush the opposition and keep people under their thumb

          Give people real hope and the economy will thrive

          anne said...

          By way of Branko Milanovic, referring to randomized trials in economics:

          http://www.sccs.swarthmore.edu/users/08/bblonder/phys120/docs/borges.pdf

          1658

          On Exactitude in Science
          Suarez Miranda

          …In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it. The following Generations, who were not so fond of the Study of Cartography as their Forebears had been, saw that that vast Map was Useless, and not without some Pitilessness was it, that they delivered it up to the Inclemencies of Sun and Winters. In the Deserts of the West, still today, there are Tattered Ruins of that Map, inhabited by Animals and Beggars; in all the Land there is no other Relic of the Disciplines of Geography.

          (1946

          Viajes de varones prudentes
          Jorge Luis Borges)

          cm said...

          "The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy."

          He left out the part who will pay for all these new things. Aggregate demand. I don't know where this idea comes from that young people don't imagine creating new things. They do it all the time, until the rubber hits the road and they have to get a corporate job because there is just not enough interest and funding for what they are interested in offering. No amount of education will help there.

          Not to put words in his mouth, but its sounds like an impersonalized form victim blaming - schools suck and young people have no imagination.

          RC AKA Darryl, Ron said in reply to cm...

          Schools suck and young people have too much imagination. But Edmund Phelps has more imagination that anyone that I have ever known :<)

          cm said in reply to RC AKA Darryl, Ron...

          Not sure how this relates to my point. How will "better education" fix the fact that when you have a good idea, more likely than not there is no market for it? A lot of tech innovation "rests" in actual or metaphorical drawers because of no ROI or no concrete customer/market to sell it. And this is not a recent phenomenon.

          RC AKA Darryl, Ron said...

          AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting.

          Lafayette said...

          {... which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end.}

          Yes, unopposed. Just what should any nation do about it? Forbid it?

          That's not the way economies work.

          The Industrial Revolution took a lot of people off the farms, brought them into large cities, where accommodations were created for their families, and gave them jobs in factories with which to pay the rent.

          Many then moved on to purchase those properties an become homeowners, which was a typical example of "economic progression".

          Of course, the Industrial Revolution, which started in western developed nations, aided by a couple of wars, inevitably progressed from more developed to lesser developed societies.

          We in the industrially developed West should not have permitted the Chinese, Vietnamese or Filipinos from bettering their lot by making exactly the same societal progression?

          Where is the Social Justice in that, pray tell?

          If there has been any failure in Social Justice, it is in the US. Piketty was very clear about that in this info-graphic: https://www.flickr.com/photos/68758107@N00/14266316974/

          The income unfairness that has occurred since the US ratcheted down drastically upper-income taxation was not replicated in the EU. Is a third of all income going to only 10% of the population in Europe unfair? Perhaps.

          But not quite as unfair as the nearly 50% in the United States. And as regards Wealth, the societal impact is even worse. As Domhoff's work shows, 80% of the American population obtain only 11% of America's wealth historically. See that tragic bit of unfairness here: http://www2.ucsc.edu/whorulesamerica/power/images/wealth/Net_worth_and_financial_wealth.gif

          Lafayette said in reply to Lafayette...

          Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html

          Excerpt: {The argument over the structure and distribution of power in the United States has been going on within academia since the 1950s. It has generated a large number of empirical studies, many of which have been drawn upon here.

          In the final analysis, however, scholars' conclusions about the American power structure depend upon their beliefs concerning power indicators, which are a product of their "philosophy of science". That sounds strange, I realize, but if "who benefits?" and "who sits?" are seen as valid power indicators, on the assumption that "power" is an underlying social trait that can be indexed by a variety of imperfect indicators, then the kind of evidence briefly outlined here will be seen as a very strong case for the dominant role of the power elite in the federal government.}

          Thanks to RR in the 1980s.

          No wonder "they" make statues of Reckless Ronnie. Can't believe that? See this from WikiPedia: "List of things named after Ronald Reagan", here: https://en.wikipedia.org/wiki/List_of_things_named_after_Ronald_Reagan

          [Jul 24, 2015] Though the Heavens May Fall

          "...As we have seen, in the latter part of the 20th century, people had forgotten, or more properly had been persuaded to disregard, the lessons of history and the reforms put in place in the 1930's. And to our regret the conmen and their enablers were able to get their hands in our pockets, and grab hold of our wallets. And we have not been able to get their slimy hands out of pockets yet. "
          Jul 24, 2015 | jessescrossroadscafe.blogspot.com

          There was intraday commentary titled The Epicenter of the Next Financial Crisis and overnight commentary on the precious metals, Free Markets at Work.

          I get the feeling sometimes that we have become a nation of conmen and their servants, who plague the great mass of people who are preoccupied with raising families and just getting by.

          As we have seen, in the latter part of the 20th century, people had forgotten, or more properly had been persuaded to disregard, the lessons of history and the reforms put in place in the 1930's. And to our regret the conmen and their enablers were able to get their hands in our pockets, and grab hold of our wallets. And we have not been able to get their slimy hands out of pockets yet.

          How fitting that in the next election we can once again consider voting for a Bush or a Clinton. Some choice.

          [Jul 22, 2015] Financial Regulation Which Reform Strategy is Best

          Economist's View

          ...in the WSJ two days ago, there was an opinion piece with the title "After Five Years, Dodd-Frank Is a Failure," and the sub-header "The law has crushed small banks, restricted access to credit, and planted the seeds of financial instability."

          There is a problem with small banks. Here's an email I received earlier this year (last March, in response to an article of mine at CBS MoneyWatch on the decline in the number of small banks and how that could harm smaller buinesses):

          Mr. Thoma,
          I am a regular reader of your columns, and lean more to the left than virtually any banker I know, but I have to tell you that you are on to something with the decline in the number of small banks, and regulations. As the Chairman of a small bank in [state omitted], the shear amount of regulations that have come out since the banking crisis started are incredible. I know of banks in the area which have simply had to hire a full time staff person to help with compliance. Our bank has had to hire the CPA firm [omitted] to have them come in once a quarter to help us keep up with the compliance. Obviously, this crimps our profits, as does the ZLB which we have had to deal with for six years now, through no fault, at all, of our own.
          Don't get me wrong, I understand why all these regulations have been put in place, but unfortunately for us, most of these have little to do with our small bank. They seem to be designed to keep the behemoths out of trouble, and we got dragged along. There needs to be a different set of rules for banks under a certain size. Banks like ours, who keep all our loans in house, and aren't a threat to the economy as a whole, have never been ones to "screw" our customers, or write "bogus" loans, and sell them. Our loan losses since 2008 have been minimal to say the least, because we try very hard to make loans that are going to be repaid. Our total losses over the last six or seven years are not any worse than, and probably, better than they were before the banking crisis arrived.
          We, as a board of the bank, have talked on numerous occasions in the last few years on what to do about this problem, and have brought it up with the federal regulators at our last two exams, but have really gotten no where as far as coming up with any ideas on what to do to try and alleviate these burdens on small banks. Any suggestions, or publicity regarding the issue, would be greatly appreciated.

          The point I'm trying to make is this. There are two choices when trying to fix a financial system after a crisis. The first is to move fast while the politics are supportive, and put as many of the needed rules and regulations in place as possible. Then, over time, *carefully* adjust the rules to overcome unforeseen problems (while resisting attempts to rollback needed legislation, a delicate balance). The second is to proceed slowly and deliberately and "consider the regulatory moves carefully" before implementing legislation. But by the time this deliberate procedure has been completed, it may very well be that the politics have changed and nothing will be done at all. So I'd rather move fast, if imperfectly, and then fix problems later instead of waiting in an attempt to put near perfect legislation in place and risk doing very little, or nothing at all.

          RC AKA Darryl, Ron said...

          For starters, Glass-Steagall.

          Then put a high tax on capital gains and an even higher tax on short term capital gains partially offset by lower taxes on interest and dividends. Rather than regulate corporate buyouts and derivatives then just tax them to death. Fire sale buyouts are done at a capital loss so would continue unaffected to rescue the good wood left in insolvent firms.

          RC AKA Darryl, Ron said in reply to pgl...

          https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

          ...From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively...

          *

          [Starting with a high tax rate then I kind of like that. Make the tax rate on capital gains so that either the 5 year exclusion is on parity with current long term capital gains rates or even parity with the 10 year effective tax rate if we give them inflation adjustment to the basis. SSA annual COLA inflation index works fine for me. If the rich want chained CPI then let them share in the losses benefits :) ]

          pgl

          The thing that gets me is that the issues with lax regulation of financial institutions were basically clear 80 years ago and were crystal clear 30 years ago. And fixing them would not require complex regulations. Real capital adequacy rules, avoiding conflicts of interest, addressing the issue of adverse selection even as we give deposit insurance, and avoiding too big to fail are all things any good economist knows about and how to address. And with Dodd and Frank being center stage after the financial crisis - this could have gotten done. Ah but the political interests of the megabanks did not want this done so they undermined the efforts. Of course we also see some stupid taxi service known as Uber playing this game too. But that is more of a personal rant as I'm really beginning to get sick of their dishonest attacks on my mayor.
          bakho
          That is what happened. As much as was done happened right away.
          Now it is being rolled back.
          DeDude said...
          Yes we need to loosen up on the small banks. There is naturally less concern for banks below a certain size. It should be possible to say that banks below size X who does not do any of risky transactions Y,Z and W do not need to comply with certain regulations. We give regulatory relief to other small businesses; fair enough to also do it with the banks. However, this is a difficult process since the regulators are likely to resist "deregulation" as much as the big banks are resisting regulations.

          [Jul 22, 2015] How A Pork Bellies Trader And Milton Friedman Created The Greatest Trading Casino In World History

          Jul 21, 2015 | Zero Hedge

          "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

          In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

          Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

          Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

          As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

          Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

          During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

          Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

          In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

          A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

          Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

          Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

          It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

          THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED

          Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

          At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

          The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

          Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

          The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

          When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

          Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

          The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

          Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

          Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

          THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES

          According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

          Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

          The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

          In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

          Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

          Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

          As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

          After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

          "It's a wonderful idea," Friedman told him. "You must do it!"

          Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

          He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

          Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

          In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

          *****

          Source:

          [Jul 20, 2015] Which Is A Bigger Act Of Faith - Owning Gold Or Stocks?

          07/19/2015

          The WSJ has released yet another gold hit piece calling it a "pet rock' and gold bugs "subjects of a laboratory experiment on the psychology of cognitive dissonance" just one day after the PBOC reveals it has added the biggest amount of gold in history in order to "ensure security." But the biggest irony is that none other than Citigroup made a far bolder case that it is not the ownership of gold but of stocks that is the ultimate act of faith: "investors remain united in their faith in the central banks – if not for their ability to create growth, then at least in their ability to push up asset prices. And yet the limits of that faith are increasingly on display." So who is right?

          Financial_skeptic/ Casino_capitalism/ Systemic_instability*/ Stagnation/

          [Jul 19, 2015] How The Fed And Wall Street Are Eating Their Seed Corn

          Jul 19, 2015 | Zero Hedge
          Submitted by Mark St.Cyr,

          When it comes to the stock market these days the overriding theme you hear from the financial media is "You've got to get in." Another is, "Buy on the dips and average in." Or, "You can't profit if you aren't in it" and more. So many more it would fill its own multi-volume set. However, there was some truth to many of those quips just a few years ago. Today, the amount of hidden reality to the actual destruction of one's wealth is far more factual than any will let on. Let alone reveal.

          I hear and speak to a lot of entrepreneurs who are absolutely mystified by not only the rise in the markets since the financial crisis in 2008. Rather, what many just can't wrap their heads around is: "If the markets are a reflection of the economy. Then how in the world did we get up here?" That line of thought I rendered down to be the overwhelming theme when discussing the current state of business affairs throughout the economy. This confusion is coming from a group of people who at one time would seek out Wall Street aficionados for insight or expertise. Today, they tend more to distrust what they hear. For what they lack in stock market expertise – they make up in spades with an acutely precise B.S. meter honed by years of business acumen. And many confirm today; it's off the charts far more than they can ever remember. So much so, as to avoid stepping in any of it – they just avoid it all together.

          At one time entrepreneurs were not only sought out by Wall Street, rather, entrepreneurs did the same in kind. Before the advent of 401K plans and more it was entrepreneurs with the sale of their business, or profits from something else that fueled many a brokerage firms bottom line. And in many cases that relationship did well for both sides. There was true expertise needed to help one navigate the pitfalls of exactly how and where one was to put their money to work (usually a substantial amount such as after a business sale etc.) in relative safety as to finance the remainder of one's years. Today, not only in much of that expertise gone – so too is the safety.

          There's probably no better example of this than what transpires at any bank branch today (those that are left that is). Opening a checking or savings account? You used to be incentivized to do so. But what this initial transaction is really designed for today is more along the lines of "a soft opening" to ask…"So, do you have a 401K account elsewhere?" Then the sales pitch is on by some seemingly just out of grad school quota seeking "financial adviser" with an array of pamphlets, jargon, and sales phrases anyone with any financial sense can see through. "Index this… diversify that…dividend paying yields " and on and on. Along with whatever might be the latest tagline from the financial shows.

          This is the true face of Wall St. today. As much as Wall St. would like to think of itself as it was in the glory days of a Gordon Gekko – that image is long gone. Today, what most people see is nothing more than some recent college grad trying desperately to say anything that might convince one to switch 401K accounts as to possibly make this months quota. For if not they too will have to join the hordes of recently dislocated tellers they once worked with. And the numbers show this to be true because not only is the vast majority not switching – they aren't even staying, let alone "getting in."

          Let's use a few scenarios that are emblematic to the challenges facing the likes of both the recently cashed out entrepreneur as well as a recent retiree of any sorts. I'll use the dollar amount of $3,000,000.00 ($3MM). To some this may seem high, to others it's not all that great. However, for many entrepreneurs it's an amount easily understood as well as feasible. I also use if because it's a representative amount even Julian Robertson of Tiger Management™ has used to describe the dilemma many entrepreneurs find themselves in with navigating today's financial morass.

          (The following of course is over simplified, I mean it as such. However, the questions, answers, as well as premise can not be over stated as to their importance.)

          The "buy and hold" strategy. Sounds great, makes perfect sense – unless you can't hold. Retirement for many means just that: no more working to generate income. Income is now derived via their stock holdings. If one doesn't sell (e.g., their stocks) – there's no money to eat. Better to "stay and hold" in one's business and take their chances rather than try to "cash out" and place their livelihoods (i.e., money) in someone else's hands. Especially what constitutes as today's "investment adviser."

          "Buy stocks that pay out dividends!" Again, sounds great and seems to solve the problem of the above. Problem is, in a stock rout, what's the first thing companies cut? Dividends. You had just better hope and pray the companies that do cut – aren't the ones you were sold. Or, you're now cut out. But not too worry, they say skipping a meal or two here and there is healthy. And that's what you'll need to remember when there's no food on the table because – there's no "dividend" in the mailbox. I'll also add: it's probably safe to assume in another financial rout, the "financial adviser" that sold you those "dividend" plays is no longer employed themselves. So calling them for further "advice" might be more challenging than it is frustrating.

          "Buy the dips!" Sure, there's only one problem. If there is a "dip" doesn't that mean the markets lost value? So if one didn't sell at the heights where is the money to buy on the dip? And if one is selling on the high to fund retirement as to eat and pay bills: That money is now gone. There is no money to now "buy the f'n dip!"

          "A stock market correction of 20% to 30% is a gift to buy great companies that are now on sale!" No. A 20% to 30% market correction is a loss of $600,000.00 to just shy of $1,000,000.00 of ones net worth. More than likely a "net worth" that was to be "worth" food to eat, and pay living expenses.

          "If you're nervous about the markets just be diversified." This line means squat. Diversified as in what? Other markets? Other vehicles? Lot of good that did during the financial crisis of '08 when everything was going down and coming apart together. And if one believes the markets to be more stable today, and better fortified to withstand another such calamity, even one only half as extreme – I have some beautiful oceanfront property here in Kentucky I'd love to sell you. Cheap!

          Don't like the "markets?" Don't worry – you can be safe in bonds. Only problem? Today they pay next to nothing. The bigger problem? Tomorrow they may charge you. All while having to be willing to accept: if you want out sooner than later – it's gonna cost you a plenty if that sooner is at the wrong time. But don't worry. It's not like you need to eat or pay bills anytime sooner or later, right?

          Want to keep your money as safe as possible? "Keep it in liquid instruments such as C.D.'s or savings accounts here at our bank." Unless of course it's over $100K. Then depending on the bank not only might you have to pay for the privilege, if they deem you have too much they might ask you to take your money elsewhere. Why? Easy. Your "cash" is now a hindrance that needs to be protected as well as accounted for. And that's not what a "bank" is in business for any longer. Silly you for thinking "bank" today means anything what "bank" meant in the past.

          "Don't like banks? Put you're money in a money market!" Right. Only problem there is after the financial meltdown of 2008 where it was shown a great deal of distress was caused by funds needing to keep 1 for 1 notional values in their cash accounts, it's now been deemed that pesky thing of trying to preserve someones cash balance was just too hard. So a new rule was implemented where this pesky detail is no longer relevant. Now if your "cash" value in a money market account resembles an equation of cents on the dollar rather than a dollar for a dollar – oh well; it is 2015 after all. And the times – they have a changed. I'll bet you didn't even get a toaster when you opened that six or seven figured account. So there should be no need to whine about not having any bread to cook in it. After all it's no longer even clear when you may gain or regain access to it (if there's anything left) in another market rout. For any doubts on this just look to the bottom of your latest statement. it's written right there in black and white. (Just have your 10X magnifying glass at the ready is all I'll say.)

          I could go on and on, yet I believe, you get the point. Ask just one of the above scenarios to what constitutes a "Wall St. maven" today and I'll bet dollars to doughnuts you'll hear more back peddling or more evasive, jargon laced, mumbo-jumbo – it will have you questioning humanity itself let alone just financially.

          What both Wall Street in general as well as the Federal Reserve has wrought is a market so adulterated, so anemic, and so mistrusted the euphemistic "money on the sidelines" has more in common with nursery rhymes than it does with anything reality based. There is no money on the sidelines. Nobody wants "in" to this market. Anyone with half a brain and a modicum of common sense wants out – and the outflow numbers show it still to be true.

          "Buying the right index, diversification, and thinking like a billionaire" is not only nonsensical in today's marketplace. It can cause one a whole lot of pain when one is unable to fully comprehend as well as separate euphemisms for real world panic and dismay. All one needs to do is look east to see just how well that type of thinking is doing in China today. For "bubbles" no matter the culture when it comes to one's money "pop" the same way: First panic – then distrust – then the repeating of another euphemism that sometimes lasts for generations: Never trust a bank or the markets. Never, ever, ever!

          [Jul 14, 2015] Francis in America: a radical pope journeys to the heart of the [neoliberal] machine

          Notable quotes:
          "... Note the adjective " unfettered ". Anything that is not sanctioned by the rule of law is not good for anyone. The challenge today is extractive capitalism. Some of this can be addressed by tax policy. Bankruptcy law needs to be changed to hold liable those executives who take out excessive amounts of funds from an enterprize. Personal property needs need better protection. Existing environmental laws need to be enforced. ..."
          "... My understanding is that Pope Francis (I am not Catholic) has spoken about the inherent unfairness of "unrestricted" capitalism. He has not denounced capitalism. His words are painstaking, accurately stated & precise. ..."
          "... I like his moves, promoting climate change, making a point in visiting the poorest countries on Earth, and naming Capitalists as members of a greedy system, not capable of taking on the role of providing goods and services to the Needy, and of course, the Pontiff heaps religious obscenities upon the War Mongers, mainly in the West. I am going to give my Bible another chance, here's hoping . ..."
          "... He seems to be pointing out a few realities. Which, as others have pointed out is causing much wriggling by those who have complete faith by the dollar in the sky. ..."
          "... "The US government gives the Vatican nothing...". Not quite. The US Government gives the Church tax-exemption. ..."
          "... Of course all the corporate politicians both Republican and Democrat are going to oppose the Pope. Forget the politicians and let's see how the American people react. I expect the Pope will be warmly received as a man of empathy and humanity who shows concern for the poor. I hope that when he addresses congress he does not pull any of his punches. ..."
          Jul 14, 2015 | The Guardian

          LivinVirginia -> Ken Barnes 13 Jul 2015 20:27

          I do not mean to misquote him. Pope Francis is a good man, but before he lectures the US on capitalism, he needs to remember that the Vatican bank has been embroiled in their own banking scandals. I was raised Catholic. I do not have a good impression of the men who run the church. They spend a lot of time asking for money, and I always wonder if they are spending it hiring lawyers for pedophile priests. I like the Pope though. He seems better that the rest of the lot. I think the tax exemptions for religions should be stopped. Religions spend too much time discriminating against certain segments of society. I think they are wolves in sheep's clothing.

          RoachAmerican 13 Jul 2015 20:19

          Note the adjective " unfettered ". Anything that is not sanctioned by the rule of law is not good for anyone. The challenge today is extractive capitalism. Some of this can be addressed by tax policy. Bankruptcy law needs to be changed to hold liable those executives who take out excessive amounts of funds from an enterprize. Personal property needs need better protection. Existing environmental laws need to be enforced.

          William Brown 13 Jul 2015 20:05

          I imagine The Pope will say something about an 'eye of a needle'

          brianboru1014 13 Jul 2015 19:52

          Wall Street via the New York Times and the WS Journal is well on the way to denigrating this man. Even though most Americans support him, these publications will do everything to belittle him.

          CaptainWillard -> CaptainWillard 13 Jul 2015 19:36

          The US government gives "only" tax exempt status. On the other-hand, citizens of the US very likely raise more money for the Catholic Church than the citizens of any other country.

          Ken Barnes -> LivinVirginia 13 Jul 2015 19:30

          My understanding is that Pope Francis (I am not Catholic) has spoken about the inherent unfairness of "unrestricted" capitalism. He has not denounced capitalism. His words are painstaking, accurately stated & precise. It helps no one in a discussion to change what another has said & then attempt to debate the misquote.

          Greenshoots -> goatrider 13 Jul 2015 19:29

          And a shedload of other "purposes" as well:

          The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

          Richard Martin 13 Jul 2015 19:20

          Francis really follows in the footsteps of the First Fisherman, radicalised in God's format .

          I like his moves, promoting climate change, making a point in visiting the poorest countries on Earth, and naming Capitalists as members of a greedy system, not capable of taking on the role of providing goods and services to the Needy, and of course, the Pontiff heaps religious obscenities upon the War Mongers, mainly in the West. I am going to give my Bible another chance, here's hoping .

          John Fahy 13 Jul 2015 19:16

          He seems to be pointing out a few realities. Which, as others have pointed out is causing much wriggling by those who have complete faith by the dollar in the sky.

          goatrider -> LivinVirginia 13 Jul 2015 19:01

          As it does every other religion----

          TerryMcGee -> Magali Luna 13 Jul 2015 19:00

          Up until this pope, I would have agreed with you. But this pope is different. In one step, he has taken the papacy from being a major part of the problem to a major force for good. We can't expect him to fix all the problems in the church and its doctrines - that's not the work of one generation. But if he can play a major part in fixing the two massive world problems he has focussed on - climate change and rampant capitalism - he will have done enough for one lifetime.

          And I get the impression that he's only warming up....

          LivinVirginia -> goatrider 13 Jul 2015 18:34

          "The US government gives the Vatican nothing...". Not quite. The US Government gives the Church tax-exemption.

          David Dougherty 13 Jul 2015 18:13

          Of course all the corporate politicians both Republican and Democrat are going to oppose the Pope. Forget the politicians and let's see how the American people react. I expect the Pope will be warmly received as a man of empathy and humanity who shows concern for the poor. I hope that when he addresses congress he does not pull any of his punches.

          Cooper2345 13 Jul 2015 17:59

          I like the gift that Morales gave to the Pope, the crucifix over the hammer and sickle. It shows the victory of Christianity over Soviet communism that one of Francis' predecessors helped to shepherd. It's a great reminder of a wonderful triumph and reason to be thankful for the genius of St. John Paul II.

          [Jul 14, 2015] Rich countries accused of foiling effort to give poorer nations a voice on tax

          Jul 14, 2015 | The Guardian
          Jul 13, 2015 | The Guardian

          Aid agencies at Addis Ababa development finance summit claim UK and others have obstructed talks aimed at enabling poor countries to influence UN tax policy.


          Aid agencies on Monday accused the world's richest countries, including the UK, of blocking plans to allow poor countries a greater say on UN tax policies.

          The upgrade of the UN tax committee to an intergovernmental body was widely seen as a way for less wealthy nations that have struggled to build effective tax systems to influence policy decisions at the UN.

          The UK joined the US and several other wealthy countries at the UN financing for development conference in Addis Ababa in a manoeuvre to limit discussions on tax policy at the UN, arguing that the Organisation for Economic Cooperation and Development (OECD) was taking the lead on tax issues.

          But a proposal presented to the conference by the OECD, known as a thinktank for the world's 34 richest nations, was also criticised for treating developing countries as an afterthought.

          The OECD and the UN Development Programme launched a project entitled tax inspectors without borders to help poorer countries bolster domestic revenues by strengthening the ability of tax authorities to limit tax avoidance by multinationals.

          The initiative, which involves providing tax audit experts to work alongside local officials dealing with the affairs of multinationals, has had encouraging results across pilot projects in Albania, Ghana and Senegal. Evidence from Colombia, meanwhile, indicated an improvement in tax revenue from $3.3m (Ł2.1m) in 2011 to $33.2m in 2014, "thanks to tax audit advice and guidance".

          Aid charities believe developing countries should build robust tax systems to prevent them from borrowing heavily and getting into debt, as highlighted in a recent report by the Jubilee debt campaign.


          The World Bank has come under heavy fire in the past for encouraging poor countries to cut corporate taxes to boost foreign direct investment. Ethiopia, Mongolia, El Salvador and Puerto Rico are among 38 countries in the report that are slipping dangerously into debt after borrowing on the international money markets to bridge the gap left by large tax shortfalls.

          The Addis Ababa conference was expected to produce a series of high-level deals to promote sustainable, self-sufficient development. But the charities fear the UN and the World Bank will promote private finance initiatives that involved either privatisation or greater borrowing to finance investment, improve infrastructure and public services.

          Speaking at the conference, a spokeswoman for ActionAid said: "The UK government has positioned itself as a global leader on many aspects of sustainable development, aid and in global efforts to tackle tax avoidance and evasion. It is therefore disappointing that the UK appears to be one of the few governments blocking progress on the important issue of a tax body."

          Failure to tackle this question in Addis will not make the urgent need for international tax reform go away. It will simply intensify the challenges ahead for the international community. There is growing recognition that the OECD alone cannot ensure global rules work for all countries, especially the poorest. Blocking agreement on an obvious solution in Addis simply delays the inevitable while putting other critical processes at risk.

          Save the Children said the world was "sleepwalking towards failure" at the global finance summit, adding that the UN should create an international body to oversee global tax matters.

          A spokesman said: "Tax has never been more under the spotlight as the source of finance for development, but decisions affecting the poorest countries and their ability to recoup money owed to them are taken in an elite club of the most powerful nations. This 20th-century way of doing business is no longer appropriate for the era of sustainable development goals."

          [Jul 11, 2015] Varoufakis: Behind Germany's Refusal to Grant Greece Debt Relief

          "...The calling of the referendum was politically brilliant, because it defused the notion of an extremist government standing irrationally against the Troika."
          .
          "...Greece would look to the US for help in vain, given that Obama's representative to the continent is Victoria Nuland, the bearer of color revolutions and the reaping of ancient lands and cultures for profit."
          Jul 11, 2015 | jessescrossroadscafe.blogspot.com
          "What is at stake is a rather heroic rebellion by a very beleaguered people against a doctrine which has been destroying their lives - the austerity doctrine and the whole neoliberal project. For the rest of us, what is at stake is whether we have the moral courage in the sense of ethical responsibility to stand up to it."

          Jamie Galbraith, Greek Revolt Threatens Entire Neoliberal Project

          It is probably less an issue of ethical responsibility and more an act of self-interest for most. Having come out of the Third World and working into the developed nations, why would anyone assume that Greece would be sufficient for the maw of neoliberal greed.

          The above interview with Galbraith is worth reading. For one thing it contains the seed of the current spin that Tsipras called the referendum in order to lose it, and to somehow save himself and betray the Greeks. And for another you will be able to read what Jamie Galbraith really thinks, the parts that the friends of the financial establishment have carefully excluded from their versions of the story.

          The calling of the referendum was politically brilliant, because it defused the notion of an extremist government standing irrationally against the Troika. This derailed the path towards a scheme to stage a 'color revolution' backed by the oligarchs to take out these mad leftists who were not speaking for the people.

          Remember the economic decision involving Europe which provoked the recent coup d'état in the Ukraine? In that case the government did not have the backing of the people, and it took hold, at least in the Western portions of the country. Wash, rinse, repeat.

          Of course the referendum was famously too close to predict when first called for Syriza, and surprisingly late in the game for most everyone else as you may recall How soon some choose to forget. But it changed the course of events in a dramatic way. As it was it did not help their bargaining position, but as Galbraith relates they did not expect it to be.

          But it put the field of play into better terms if you goal is playing for survival and time. They are knocking down all the rationales and excuses to visit harsh terms on Greece that the Troika and their enablers are using. They are exposing their opponents for what they really are.

          Empires founded on unsustainable foundations are like financial bubbles and Ponzi schemes. They are inherently non-productive and consuming, so they must continue to grow, or choke on their own ideologically driven detritus. Transferring wealth as your major economic policy requires a steady source of new supply.

          Most of the American media has fallen into line with the neoliberal agenda. It might seem surprising, but power has its attraction under corporatism, even for people who would ordinarily consider themselves to be 'liberal.'

          There are concerning things happening in the Western world, and a lack of traction towards individual freedom amongst 'the great democracies,' above and beyond Germany's growing desire to bring their version of order and efficient management of lands and people to the rest of Europe.

          The growing militancy in Japan, and Abe's aggressive pushing aside of constitutional restraints, is undernoted in the West, but of concern to those in Asia.

          Greece would look to the US for help in vain, given that Obama's representative to the continent is Victoria Nuland, the bearer of color revolutions and the reaping of ancient lands and cultures for profit.

          At least in this cycle of the will to power some, including the Pope thank God, are speaking out early, publicly, and strongly against the rising tide of injustice, the senseless abuse of power, and the impulse towards dehumanizing central rule and neo-totalitarianism. Silence is complicity.

          Behind Germany's refusal to grant Greece debt relief

          Posted on July 11, 2015 by yanisv

          Tomorrow's EU Summit will seal Greece's fate in the Eurozone. As these lines are being written, Euclid Tsakalotos, my great friend, comrade and successor as Greece's Finance Ministry is heading for a Eurogroup meeting that will determine whether a last ditch agreement between Greece and our creditors is reached and whether this agreement contains the degree of debt relief that could render the Greek economy viable within the Euro Area.

          Euclid is taking with him a moderate, well-thought out debt restructuring plan that is undoubtedly in the interests both of Greece and its creditors. (Details of it I intend to publish here on Monday, once the dust has settled.) If these modest debt restructuring proposals are turned down, as the German finance minister has foreshadowed, Sunday's EU Summit will be deciding between kicking Greece out of the Eurozone now or keeping it in for a little while longer, in a state of deepening destitution, until it leaves some time in the future.

          The question is: Why is the German finance Minister, Dr Wolfgang Schäuble, resisting a sensible, mild, mutually beneficial debt restructure? The following op-ed just published in today's The Guardian offers my answer. [Please note that the Guardian's title was not of my choosing. Mine read, as above: Behind Germany's refusal to grant Greece debt relief ). Click here for the op-ed or…

          Greece's financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF's verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe's labyrinthine politics.

          In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.

          Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece's socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings.Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state's insolvency as a problem of illiquidity, and justified the "bailout" as a case of "solidarity" with the Greeks.

          To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in "tough love", record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter. It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well.

          Once the sordid operation was complete, Europe had automatically acquired another reason for refusing to discuss debt restructuring: it would now hit the pockets of European citizens! And so increasing doses of austerity were administered while the debt grew larger, forcing creditors to extend more loans in exchange for even more austerity.

          Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid "parametrically" by the weakest of Greeks, their children and their grandchildren.

          In my first week as minister for finance I was visited by Jeroen Dijsselbloem, president of the Eurogroup (the eurozone finance ministers), who put a stark choice to me: accept the bailout's "logic" and drop any demands for debt restructuring or your loan agreement will "crash" – the unsaid repercussion being that Greece's banks would be boarded up.

          Five months of negotiations ensued under conditions of monetary asphyxiation and an induced bank-run supervised and administered by the European Central Bank. The writing was on the wall: unless we capitulated, we would soon be facing capital controls, quasi-functioning cash machines, a prolonged bank holiday and, ultimately, Grexit.

          The threat of Grexit has had a brief rollercoaster of a history. In 2010 it put the fear of God in financiers' hearts and minds as their banks were replete with Greek debt. Even in 2012, when Germany's finance minister, Wolfgang Schäuble, decided that Grexit's costs were a worthwhile "investment" as a way of disciplining France et al, the prospect continued to scare the living daylights out of almost everyone else.

          By the time Syriza won power last January, and as if to confirm our claim that the "bailouts" had nothing to do with rescuing Greece (and everything to do with ringfencing northern Europe), a large majority within the Eurogroup – under the tutelage of Schäuble – had adopted Grexit either as their preferred outcome or weapon of choice against our government.

          Greeks, rightly, shiver at the thought of amputation from monetary union. Exiting a common currency is nothing like severing a peg, as Britain did in 1992, when Norman Lamont famously sang in the shower the morning sterling quit the European exchange rate mechanism (ERM). Alas, Greece does not have a currency whose peg with the euro can be cut. It has the euro – a foreign currency fully administered by a creditor inimical to restructuring our nation's unsustainable debt.

          To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military's might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

          With Grexit reinforcing the ECB-induced bank run, our attempts to put debt restructuring back on the negotiating table fell on deaf ears. Time and again we were told that this was a matter for an unspecified future that would follow the "programme's successful completion" – a stupendous Catch-22 since the "programme" could never succeed without a debt restructure.

          This weekend brings the climax of the talks as Euclid Tsakalotos, my successor, strives, again, to put the horse before the cart – to convince a hostile Eurogroup that debt restructuring is a prerequisite of success for reforming Greece, not an ex-post reward for it. Why is this so hard to get across? I see three reasons.

          Europe did not know how to respond to the financial crisis. Should it prepare for an expulsion (Grexit) or a federation?
          One is that institutional inertia is hard to beat. A second, that unsustainable debt gives creditors immense power over debtors – and power, as we know, corrupts even the finest. But it is the third which seems to me more pertinent and, indeed, more interesting.

          The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools – it is more than an exchange-rate regime and less than a state.

          And there's the rub. After the crisis of 2008/9, Europe didn't know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. Suddenly, a permanently unsustainable Greek public debt, without which the risk of Grexit would fade, has acquired a new usefulness for Schauble.

          What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.

          [Jul 11, 2015] Gold Daily and Silver Weekly Charts - Some Group Is Sitting On These Markets

          Jul 11, 2015 | jessescrossroadscafe.blogspot.com
          "Gold is looking like the dog that just did not bark -- but not uniquely so. Most safe-haven assets are looking distinctly lackluster, including the VIX index. Either 5,000 years of safe-haven buying has just become bunk, or there is a desire to portray what is evidently a financial and economic crisis as nothing to be concerned about."

          Ross Norman, Sharps Pixley

          "In keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations."

          Aleksandr Solzhenitsyn, The Gulag Archipelago

          At least in my judgement, the precious metal markets are being consistently rigged.

          I believe the reason that they are being rigged is that the financiers have convinced the political class that this is a necessary action in order to prevent a panic, a run on the dollar and the bonds, and a seepage of critical funds into an unproductive investment as compared to equities for example.

          We are just defending what is ours, right? And what is ours is the global dollar hegemony.

          This is really just another excuse for looting, picking both the global public pockets and the Treasury's.

          This sort of thing seems to happen periodically, at least once per generation, and the system generally has to get washed out badly, and then reform may come. You can see a clear trend back to the early Reagan years for this particular dalliance with the overreach and madness of the moneyed interests.

          Protracted market rigging tend to distort supply profoundly. And there should be no doubt that the distortions and excesses of our current round of economic quackery have caused an historic imbalance of wealth and power. And the rigging of the gold and silver markets have badly affected the ability of supply to meet demand.

          Oh well. Interesting times.

          Have a pleasant evening.

          [Jul 10, 2015] Unbridled capitalism is the 'dung of the devil', says Pope Francis

          "...He said he supported their efforts to obtain "so elementary and undeniably necessary a right as that of the three "Ls": land, lodging and labour"."
          "...he called the unfettered pursuit of money "the dung of the devil", and said poor countries should not be reduced to being providers of raw material and cheap labour for developed countries. "
          "..."Let us not be afraid to say it: we want change, real change, structural change," the pope said, decrying a system that "has imposed the mentality of profit at any price, with no concern for social exclusion or the destruction of nature"."
          "...The new colonialism takes on different faces. At times it appears as the anonymous influence of mammon: corporations, loan agencies, certain 'free trade' treaties, and the imposition of measures of 'austerity' which always tighten the belt of workers and the poor"
          "...A lot of us are awaiting the 3rd WW, between Russia and the US, between China and the US, between the West and the East, while the war is on. ... Is it work of Capitalism? I think that capitalism in it's modern form lies near this war, and both are made by the same people."
          "...Still, the subject of my comment was not the predominance of Christians, but how much poverty exists in this predominantly Christian nation. They ignore the most fundamental teachings they profess to believe--the admonitions of Jesus to feed, clothe, and generally help the poor."
          "...There is a reason the US has over 900 bases across the world, and that is to insure its business interests."
          "...An economic system is not a matter of either-or. Those who profit from "Laissez Faire" capitalism like to push the idea that the only alternative is communism. Pope Francis is obviously a proponent of a "mixed economy" as most people in the US on the left are. He is attacking "unbridled capitalism" not an adequately regulated free-market economy."
          "...Animal farm is not about the failure of either Communism or Fascism....it is a commentary on the corruption of power; not a uniquely Communist problem. The machinations of politics also feature quite heavily...divide and rule, propaganda, double standards and the use of language to achieve ones aims...these are abuses of power that both the left and the right have been guilty of. Hitler's Germany was Fascist (right wing extremism), Stalin's Russia was Communist (left wing extremism)..."
          Jul 10, 2015 | The Guardian

          Pope Francis has urged the downtrodden to change the world economic order, denouncing a "new colonialism" by agencies that impose austerity programs and calling for the poor to have the "sacred rights" of labor, lodging and land.

          In one of the longest, most passionate and sweeping speeches of his pontificate, the Argentine-born pope used his visit to Bolivia to ask forgiveness for the sins committed by the Roman Catholic church in its treatment of native Americans during what he called the "so-called conquest of America".

          The pontiff also demanded an immediate end to what he called the "genocide" of Christians taking place in the Middle East and beyond, describing it as a third world war.

          "Today we are dismayed to see how in the Middle East and elsewhere in the world many of our brothers and sisters are persecuted, tortured and killed for their faith in Jesus," Pope Francis said.

          "In this third world war, waged piecemeal, which we are now experiencing, a form of genocide is taking place, and it must end."

          Quoting a fourth century bishop, he called the unfettered pursuit of money "the dung of the devil", and said poor countries should not be reduced to being providers of raw material and cheap labour for developed countries.

          Repeating some of the themes of his landmark encyclical Laudato Si on the environment last month, Francis said time was running out to save the planet from perhaps irreversible harm to the ecosystem.

          Pope Francis shakes hands with a mining worker's leader watched by Bolivia's president Evo Morales, right, in Santa Cruz, Bolivia. Photograph: Rodrigo Abd/AP

          Francis made the address in the city of Santa Cruz to participants of the second world meeting of popular movements, an international body that brings together organisations of people on the margins of society, including the poor, the unemployed and peasants who have lost their land. The Vatican hosted the first meeting last year.

          He said he supported their efforts to obtain "so elementary and undeniably necessary a right as that of the three "Ls": land, lodging and labour".

          His speech was preceded by lengthy remarks from the left-wing Bolivian president Evo Morales, who wore a jacket adorned with the face of Argentine revolutionary Ernesto "Che" Guevara. He was executed in Bolivia in 1967 by CIA-backed Bolivian troops.

          "Let us not be afraid to say it: we want change, real change, structural change," the pope said, decrying a system that "has imposed the mentality of profit at any price, with no concern for social exclusion or the destruction of nature".

          "This system is by now intolerable: farm workers find it intolerable, labourers find it intolerable, communities find it intolerable, peoples find it intolerable. The earth itself – our sister, Mother Earth, as Saint Francis would say – also finds it intolerable," he said in an hour-long speech that was interrupted by applause and cheering dozens of times.

          Since his election in 2013, the first pope from Latin America has often spoken out in defence of the poor and against unbridled capitalism but the speech in Santa Cruz was the most comprehensive to date on the issues he has championed.

          Francis' previous attacks on capitalism have prompted stiff criticism from politicians and commentators in the United States, where he is due to visit in September.

          The pontiff appeared to take a swipe at international monetary organisations such as the IMF and the development aid policies by some developed countries.

          "No actual or established power has the right to deprive peoples of the full exercise of their sovereignty. Whenever they do so, we see the rise of new forms of colonialism which seriously prejudice the possibility of peace and justice," he said.

          "The new colonialism takes on different faces. At times it appears as the anonymous influence of mammon: corporations, loan agencies, certain 'free trade' treaties, and the imposition of measures of 'austerity' which always tighten the belt of workers and the poor," he said.

          Last week, Francis called on European authorities to keep human dignity at the centre of debate for a solution to the economic crisis in Greece.

          He defended labor unions and praised poor people who had formed cooperatives to create jobs where previously "there were only crumbs of an idolatrous economy".

          In one of the sections on colonialism, he said:

          "I say this to you with regret: many grave sins were committed against the native peoples of America in the name of God."

          He added: "I humbly ask forgiveness, not only for the offences of the church herself, but also for crimes committed against the native peoples during the so-called conquest of America.

          "There was sin and an abundant amount of it."

          The audience gave Francis a standing ovation when he put on a yellow miner's hat that was given to him at the end of his speech.

          The pope made his speech at the end of his first full day in Bolivia, where he arrived on Wednesday. On Thursday morning he said a mass for hundreds of thousands of people and said that everyone had a moral duty to help the poor, and that those with means could not wish they would just "go away".

          Francis praised Bolivia's social reforms to spread wealth under Morales. On Friday, he will visit Bolivia's notoriously violent Palmasola prison.

          The pope looked bemused on Wednesday night when Morales handed him one of the more unusual gifts he has received: a sculpted wooden hammer and sickle – the symbol of communism – with a figure of a crucified Christ resting on the hammer.
          Francis leaves on Friday for Paraguay, the last stop on his "homecoming" trip.


          Westonboy 10 Jul 2015 09:01

          The Pope didn't actually say "unbridled capitalism is the dung of the devil" did he?
          So why is that the headline of this piece?


          valeronfreza 10 Jul 2015 08:46

          Actually, I find one of his thoughts really interesting. A lot of us are awaiting the 3rd WW, between Russia and the US, between China and the US, between the West and the East, while the war is on. The whole civilized world takes part in this mess, the thing is that this war looks different from what we're used to see. I mean, we get information, made by those, who wants us to see it different, like something, that happening far away, though it's dangerous as hell.
          Is it work of Capitalism? I think that capitalism in it's modern form lies near this war, and both are made by the same people.


          cblyth79 10 Jul 2015 08:41

          he called the unfettered pursuit of money "the dung of the devil"

          He has hit the nail on the head. This is everything that is wrong with society. Every decision is taken with regards to making as much money as possible. However, the great irony is that even if people do make money, their constant desire for more means they are never happy or fulfilled. Meanwhile, socially and environmentally we suffer greatly due to this ultimately fruitless pursuit of as much money as possible.


          PM782_ -> Greenshoots 10 Jul 2015 08:40

          Generally speaking, you are right of course.

          I have very little time for virgin men in silly hats & dresses, carrying crucifixes and expecting everyone to take them seriously when history shows us they cannot be trusted to act in an ethical way, and will (as always) be more concerned about amassing money and influence than doing any good in the world.

          The whole thing is ludicrous and you should be ashamed that you believe in it. It is really astonishing.

          Greenshoots -> Drew Layton 10 Jul 2015 08:39

          Atheist trope. One could as easily say "Religion compels unreasonable people to do reasonable things".


          Westonboy -> pol098 10 Jul 2015 08:37

          I'm happy to salute the personal contributions you make but, of course, the computer that you will have used to write or test your software is a product of capitalism.
          Also, most of the the goods you recycle or give away are no doubt the products of capitalism.
          Anti-capitalists don't seem to have any alternative method of wealth creation.


          EnglishChapin 10 Jul 2015 08:26

          In the article:

          Quoting a fourth century bishop, he called the unfettered pursuit of money "the dung of the devil"

          In the headline:

          "Unbridled capitalism is the 'dung of the devil', says Pope Francis"


          kycol1 -> natsirtguy 10 Jul 2015 08:24

          As a Unitarian/Universalist I am equally, if not more, wary of that practice. Francis, however, is a public figure who has the right to express his opinion. While he was definitely speaking to a Catholic audience, he was not giving his words the weight of a Papal Encyclical. Also, it is the accepted and expected belief of Catholics that the Pope directs their thinking as far as faith goes. I do not see his words being a act of forcing his will on me, personally. All public figures have the right to express their opinion on that subject. I also believe that regulation should go further than dealing with "negative externalities" unless you view the financial crisis of 2008 as a negative externality . While the causes of the crisis were complex and varied, lax regulatory oversight during the Reagan and Clinton Administrations played a role in creating the conditions for it.

          lesmandalasdeniki -> hollyjadoon 10 Jul 2015 08:13

          Why do you want poor people to rise up? On what sense? Revolution to topple world governments, what's next? What kind of governmental system will we apply to ensure law and order? Will it be one world government by the Vatican?


          GallopingGournmet -> citizen_1111 10 Jul 2015 08:09

          I'm glad you set everyone straight on this. We were all thinking capitalism is an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state. But clearly capitalism involves greed for money, exploitation and environmental destruction. The very fact you've attempted to pick at this shows you're missing the overarching point. The Pope is criticizing how our unregulated "socioeconomic system" - which was capitalism the last time I looked - for being responsible for ruining society, enslaving men and women and destroying human fraternity. All of which is pretty spot on. Excuse me for having to clarify this for you.


          citizen_1111 10 Jul 2015 07:48

          Wouldn't it be great if newspapers like the Guardian printed the truth, rather than spin. The pope did not say that "unbridled capitalism is the dung of devil". Here's the actual paragraph. It's nothing like the Guardian's deceptive headline.

          Today, the scientific community realizes what the poor have long told us: harm, perhaps irreversible harm, is being done to the ecosystem. The earth, entire peoples and individual persons are being brutally punished.

          And behind all this pain, death and destruction there is the stench of what Basil of Caesarea called "the dung of the devil". An unfettered pursuit of money rules.

          The service of the common good is left behind. Once capital becomes an idol and guides people's decisions, once greed for money presides over the entire socioeconomic system, it ruins society, it condemns and enslaves men and women, it destroys human fraternity, it sets people against one another and, as we clearly see, it even puts at risk our common home.

          So he's actually referring to greed for money - a moral sin .... not capitalism, which is basically meritocratic mechanism of funding businesses.


          HobbesianWorld -> Drew Layton 10 Jul 2015 07:41

          Wrong, it's a predominantly Christian nation. Christians don't own it. Under the Constitution, all beliefs in matters of religion are equal.

          Still, the subject of my comment was not the predominance of Christians, but how much poverty exists in this predominantly Christian nation. They ignore the most fundamental teachings they profess to believe--the admonitions of Jesus to feed, clothe, and generally help the poor.

          Capitalism isn't a sacred arm of Christianity, yet many (most?) Christians tend to favor Wall Street's gluttony and greed while millions of children live in poverty. Is that what we should see in a "Christian" nation? It's the epitome of hypocrisy.


          PM782_ 10 Jul 2015 07:33

          The guy in charge of 1 billion plus devout catholics, with all the riches of the Vatican, preaches to us about how excessive capitalism is a bad thing.

          This pope seems more reasonable than his predecessors however until he actually DOES something that makes the world a better place and in some way makes up for the history of atrocious behavior that the Catholic church has engaged in, I'm simply not interested.

          It is strange though, seeing how many people are hoodwinked by a few choice words, when the organization he represents has been an utter blight on humanity since it began.


          heretoeternity -> natsirtguy 10 Jul 2015 07:32

          There is a reason the US has over 900 bases across the world, and that is to insure its business interests.

          Laurence W 10 Jul 2015 07:18

          Devout capitalists/corporatists may not see the symmetry between John Paul II's defiance of the bankruptcy of unbridled Communism and Francis's defiance of the bankruptcy of unfettered Capitalism. They cling to their irrational faith (and that is what it is) in Adam Smith's "invisible hand." The collapse of Communism does not somehow validate Capitalism. It seems Capitalism's true believers must be dragged kicking and screaming into the 21st. Century.


          ideation2020 -> PeterAB12 10 Jul 2015 07:11

          In the West there is a marked reduction in family size since about 1965. There are also far more women at work, the workforce has adapted to almost full attendance of female workers. We generally have accommodated an increase of 70% by reducing family size and equally as important is the accommodation and full attendance of single a and" won't marry" adults.

          SmileyFace2 -> natsirtguy 10 Jul 2015 07:10

          But Capitalism has resulted in a Plutocracy which leads to rule by the top 1%. So it is not quite a simple as you seem to think hence the need for a mixed economy.


          HobbesianWorld 10 Jul 2015 07:08

          While I wouldn't put it that way, the Pope is correct that unfettered capitalism is the major source of injustice, especially the injustice of poverty.

          It's a source of dark humor for me to hear Christians call the U.S. a "Christian nation" even as they fight to maintain and enhance the cause of poverty--unbridled corporatism; profit over humanity, wealth over justice and selfishness over honor.


          Brian Milne -> Kevin Lim 10 Jul 2015 06:59

          How much time have you spent in South America? I spent 18 years going back and forth as part of my job, must admit I have not spoken to a Liberation Theology priest (he was actually a Jesuit originally) since October. So perhaps I am just a little bit out of synch.

          Life paths include being allowed to express one's sexuality openly and not risk excommunication and denunciation by the church, to be allowed to have abortions and use contraception without being told that you will go to Hell, to be allowed to 'formally' leave the church (some countries still require religion on official document) and to follow political streams that the church condemns as unchristian to name but just a few. By using the pressure of condemnation in the afterlife people are to this day controlled by fear.

          Sure nobody is obliged to put money in the dish but too many still fear the stigma of not doing so. If this man can end that then it would be a job well done, but he will not, will he?


          cblyth79 -> Manjush 10 Jul 2015 06:51

          I agree that overpopulation is a problem, but to me the real problem is the capitalist consumerism of first-world countries and the damage this is causing to the planet. Even if the populations of third-world countries doubled they would not get anywhere near the CO2 that we produce. And that's not even to mention the fact that we have caused climate change and they haven't. To blame overpopulation is to out the blame on third-world countries, when it should be squarely on us.


          VivF -> dysro1 10 Jul 2015 06:50

          Animal farm is not about the failure of either Communism or Fascism....it is a commentary on the corruption of power; not a uniquely Communist problem. The machinations of politics also feature quite heavily...divide and rule, propaganda, double standards and the use of language to achieve ones aims...these are abuses of power that both the left and the right have been guilty of. Hitler's Germany was Fascist (right wing extremism), Stalin's Russia was Communist (left wing extremism)...

          "Power tends to corrupt and absolute power corrupts absolutely."
          - Lord Acton


          Drew -> Layton 10 Jul 2015 06:48

          Yay! Religion has done something that isn't rape, muder, burning at the stake, ripping people's breasts off, implement, beheading, shooting people on beaches, blowing things up, being homophobic, sexist, racist or generally being a complete twat! Let's all jump up and down and burn a pilot! YAY!


          Kathy -> Foulds 10 Jul 2015 06:42

          We are in very new times....Pope Francis is not afraid to challenge the status quo...Alleluia.


          Tony Menezes 10 Jul 2015 06:24

          The national interest of the unbridled capitalists has sidelined morality and justice. The third world war has started albeit piecemeal.
          This is a strong wake up call from someone that must be listened to.


          Greenshoots -> rgrabman 10 Jul 2015 06:23

          I can only speak for the UK where I have yet to find a Catholic friend who is not immensely supportive of what the Pope has to say, whatever prominent Tory Catholics may have to say. Catholics on the whole tend to vote Labour.

          If you want to see a precursor to what the Pope is now saying, read the Catholic bishops document "The common good" from 1996:
          "As at the end of the 19th century, Catholic Social Teaching is concerned to protect the poor and vulnerable from the chill winds of economic forces. The defeat of Communism should not mean the triumph of unbridled capitalism."

          "The Catholic doctrine of the common good is incompatible with unlimited freemarket, or laissez-faire, capitalism ...".


          Unconstituted -> natsirtguy 10 Jul 2015 06:22

          Massively disagree with that bit about him being a non-scientist etc.

          If skeptics are still unsure after all the science that has been thrown at them, then perhaps they aren't influenced that way. They follow figures that they personally respect.

          And the Pope has a huge following. I am certain that he will have given a lot of people pause for thought recently.

          Like many here, as an atheist, I'm no fan of the guy. But causes like social justice, climate change etc need more than just reams of studies. It needs PR.


          Greenshoots -> clogexpat 10 Jul 2015 06:17

          Which is incorrect because the left is not, and never has been, an identifiable tribe in British politics.
          I agree that many people are not tribal about being left wing. They are willing to partner with people whom they disagree with on some issues but where there is a common cause.
          However, you just have to read many of the posts in this thread to see that, for many other people, it is a form of tribal allegiance because they, in response to the Pope saying something they probably do agree with, they cannot refrain from attacking him on unrelated issues. They are not interested in supporting the common cause.


          Longasyourarm -> MaximTS 10 Jul 2015 06:15

          Well spotted but many here are in it for the opportunity to exercise their demons of hatred, bigotry and racism. Most don't even read the article and jump right to the comments in their haste to slag off Catholics, the Pope, Religion in general. I suppose it is still better than invasion of other countries and stealing their stuff, isn't it Tony?


          domrice 10 Jul 2015 06:13

          Finally, a pontiff brave enough to enunciate the core values of Jesus Christ. Oh that the world had political leaders who weren't shameless slaves to the moneylenders.


          discreto -> SmileyFace2 10 Jul 2015 06:11

          That is because the Free Trade is not Fair Trade, this is what Pope Francis is talking about. Capitalism is Free Trade it is not Fair Trade with the People who work to ensure the Goods are there to trade are not getting what is a Fair and Just Living wage, they are being used by the Corporations who make Millions out of their hard work. I support Pope Francis and his Courage in speaking up for the People in developing Countries who are made to depend on Capitalism against their will. At last he is the Pope who is acknowledging the sins of the Church both past and present, with a strong voice of Apology. It would be good if he could sit down with The First Nations of America to take part in their native Ritual of Smudging from Smoke of burnt Herbs and grasses for forgiveness and Peace. I pray for Pope Francis's Protection.


          kycol1 -> natsirtguy 10 Jul 2015 06:02

          An economic system is not a matter of either-or. Those who profit from "Laissez Faire" capitalism like to push the idea that the only alternative is communism. Pope Francis is obviously a proponent of a "mixed economy" as most people in the US on the left are. He is attacking "unbridled capitalism" not an adequately regulated free-market economy.


          ID1780902 10 Jul 2015 05:55

          Why so many negative comments? Here we have an extremely high profile figure publicly rallying people all over the world to help with climate change, and to oppose some of the excesses of capitalism.

          Regardless of what you think of the Catholic church, many people will listen to what he says, and take it very seriously. If he only changes the mind of a single climate-change denier that would be enough, but I think he will do a lot more than that, particularly in the US.

          [Jul 10, 2015]200PM Water Cooler 7-9-15

          Jul 09, 2015 | naked capitalism
          Anon July 9, 2015 at 2:18 pm

          Maybe there's some formatting goodness still going on behind the scenes, but shouldn't that be New Hampshire? Reading the tweets from the bettermarkets account, brought me to this article by Taibbi:

          Eric Holder: Double Agent.

          What I especially love about this is that it really makes you realize how milquetoast Holder was during his stint as AG, with moments like this:

          One is that he failed to win a single conviction in court for any crimes related to the financial crisis. The only trial of any consequence brought by his Justice Department for crimes related to the crisis involved a pair of Bear Stearns nimrods named Ralph Cioffi and Matthew Tannin, who confided in each other via email that the subprime markets were "toast" but told their clients something very different to keep them invested.

          After a jury acquitted both in early 2009, the Holder Justice Department turtled. Sources inside the DOJ told me over the years that both Holder and his deputy, fellow Covington & Burling alum Lanny Breuer, were obsessed with winning and refused to chance any case where they felt a jury might go sideways on them. Thus the Cioffi-Tannin case was the last financial crisis case they dared to bring into to a criminal courtroom – virtually every other case ended in settlements.

          It sure must be nice to be rich – I can utterly fail at the main responsibility of my job AND land a cushy job with no real effort on my part! Going on that tangent reminds me of that PBS parody video with Lanny Bruce.

          [Jul 10, 2015] Are Big Banks Using Derivatives To Suppress Bullion Prices

          Jul 9, 2015 | Zero Hedge
          Submitted by Paul Craig Roberts and Dave Kranzler via PaulCraigRoberts.org,

          We have explained on a number of occasions how the Federal Reserves' agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts ("naked shorts") on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in "paper gold" is created, and this increase in supply drives down the price.

          This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts ("open interest') can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.

          In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.

          For example last Tuesday the US Mint announced that it was sold out of the American Eagle one ounce silver coin. It is a contradiction of the law of supply and demand that demand is high, supply is low, and the price is falling. Such an economic anomaly can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts.

          Obviously fraud and price manipulation is at work, but no heads roll. The Federal Reserve and US Treasury support this fraud and manipulation, because the suppression of precious metal prices protects the value and status of the US dollar as the world's reserve currency and prevents gold and silver from fulfilling their role as the transmission mechanism that warns of developing financial and economic troubles. The suppression of the rising gold price suppresses the warning signal and permits the continuation of financial market bubbles and Washington's ability to impose sanctions on other world powers that are disadvantaged by not being a reserve currency.

          It has come to our attention that over-the-counter (OTC) derivatives also play a role in price suppression and simultaneously serve to provide long positions for the bullion banks that disguise their manipulation of prices in the futures market.

          OTC derivatives are privately structured contracts created by the secretive large banks. They are a paper, or derivative, form of an underlying financial instrument or commodity. Little is known about them. Brooksley Born, the head of the Commodity Futures Trading Corporation (CFTC) during the Clinton regime said, correctly, that the derivatives needed to be regulated. However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary and Deputy Secretary Robert Rubin and Lawrence Summers, and Securities and Exchange Commission (SEC) chairman Arthur Levitt, all de facto agents of the big banks, convinced Congress to prevent the CFTC from regulating OTC derivatives.

          The absence of regulation means that information is not available that would indicate the purposes for which the banks use these derivatives. When JPMorgan was investigated for its short silver position on Comex, the bank convinced the CFTC that its short position on Comex was a hedge against a long position via OTC derivatives. In other words, JPMorgan used its OTC derivatives to shield its attack on the silver price in the futures market.

          During 2015 the attack on bullion prices has intensified, driving the prices lower than they have been for years. During the first quarter of this year there was a huge upward spike in the quantity of precious metal derivatives.

          If these were long positions hedging the banks' Comex shorts, why did the price of gold and silver decline?

          More evidence of manipulation comes from the continuing fall in the prices of gold and silver as set in paper future markets, although demand for the physical metals continues to rise even to the point that the US Mint has run out of silver coins to sell. Uncertainties arising from the Greek No vote increase systemic uncertainty. The normal response would be rising, not falling, bullion prices.

          The circumstantial evidence is that the unregulated OTC derivatives in gold and silver are not really hedges to short positions in Comex but are themselves structured as an additional attack on precious metal prices.

          If this supposition is correct, it indicates that seven years of bailing out the big banks that control the Federal Reserve and US Treasury at the expense of the US economy has threatened the US dollar to the extent that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.

          Pinto Currency

          The price is set in London where they trade 200 million oz spot every day.

          It is a paper spot market fraud.

          http://www.safehaven.com/article/36534/lbma-data-points-to-gold-and-silver-default

          SafelyGraze

          supply and demand still set the price as PCR points out, the demand is not for physical hugs,
          mark dice and a handful of chocolate bars

          "you can't eat chocolate!"

          SafelyGraze

          spoiler:

          https://www.youtube.com/watch?v=bYhTFz_SGw0

          Oldwood

          I thought Kyle Bass told us that there was no way near enough physical to cover paper gold. This would mean that they are simply printing gold to push "supply" up and prices down. On the other side we have stocks and with exception to splits or IPOs, they aren't making more, but companies are buying them up which decreases supply and with a little QE stimulus, pushes prices up. To me it all looks manipulated, but I'm sure they are only trying to make us all rich.

          Captain Debtcrash

          As shown in China, manipulation eventually always fails. Any manipulation of gold and silver will too. Those that say zero is the correct allocation to gold and silver these past weeks are using it as evidence that it doesn't even serve as a safe haven, exactly what a manipulator would want.

          BaBaBouy

          Its A Dirty Stinking Putrid Trading World For GOLD SILVER And Now Also Most Other Commods...

          [Jul 09, 2015] More Work Hours Jeb Bush, Try Talking to the Employers

          It's not Jeb Bush. It's Jeb Romney
          .
          "...Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs."
          .
          "...this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out…."
          Jul 09, 2015 | Forbes

          The economic world is obsessed with growth - bigger revenues, more profits, broader markets (and just not regulation). The bias came across today via Jeb Bush who, in answer to a question from the Manchester, New Hampshire Union Leader, said the following:

          My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours" and, through their productivity, gain more income for their families. That's the only way we're going to get out of this rut that we're in.

          https://www.youtube.com/watch?feature=player_embedded&v=P5RERORKXNU

          Erik Sherman,

          I remember once getting into a discussion with a number of corporate executives from public companies. I was giving a talk on some plain-English filing requirements. The executives were complaining roundly about more regulations. "It's killing us - KILLING US!" one literally said. I turned to him and asked, "Did you have higher revenues this year than last?" He said, "Yes." I asked, "Did you have higher profits?" "Yes," he answered. "Then you're not getting killed," I said. Yes, there are costs of regulations and there are times legislators can overdo things because they're either justifying their own existence or trying to position themselves for reelection.

          However, costs *have* been reduced. Companies are generally far more profitable now than in the past. Regulations are necessary as companies have proven that without being compelled, they will often do things that are bad for the environment, bad for communities, and bad for the economy. That's why we have environmental legislation, anti-bribery laws, labor laws like overtime requirements, and a host of other things. If companies are finding it too tough, they can raise their prices (and they do that anyway on a regular basis) or make their operations more efficient. If they can't, maybe they shouldn't be in business. If you want to take a market view, then take a full one.

          Elarie Rose

          Amazing. I never thought to see a business oriented publication like Forbes tell the truth about employers. A few weeks ago I had a casual conversation with a young women that I met casually at a lecture. She was really lovely, well-spoken and intelligent. She works for minimum wage at a supermarket, is trying to afford a few classes at a time at a community college, never expects to own a house and assumes that she will never have children. The most chilling thing about the whole conversation was her calm acceptance that this is just the way the world is, with no expectations that life in America should be any different. She wasn't angry because everyone else in her age group was in the same situation and thought it was normal.

          Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs.

          wigglwagon

          The only reason America ever had the MOST PROSPEROUS economy was because America had the BEST PAID employees and consequently, American businesses had the customers with the most money to spend. American business owners are SO GREEDY that they are using free trade agreements, immigration, and deregulation to drive down wages and destroy benefits. In their quest for short term profits, employers are destroying their own customer base.

          Gregory A. Peterson

          most of the hourly laborers that I know are more than happy to work a "few" hours of overtime for a few extra bucks….here's the problem….a fair number of employers absolutely refuse to pay overtime and IF an employee happens to get some overtime they are promptly reprimanded or written up (I have actually worked for a couple of those companies)…..

          companies want all their income to go into their pockets they seem to have forgotten the old saying that one has to spend money to make money…..

          this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out….

          apparently it's a genetic issue within the Bush family…..

          [Jul 04, 2015] Yanis Varoufakis accuses creditors of terrorism ahead of Greek referendum

          Like any neoliberal country Greece is a divided country with 20% of population representing "fifth column of globalization" and benefiting from it and 80% suffering from it.
          .
          "...Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value."
          .
          "...Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?
          "

          .
          "...The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal."
          .
          "...The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss."
          .
          "...The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs."
          .
          "...Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.
          "

          .
          "...Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.

          I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.

          The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down."
          .
          "...No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks! "

          Jul 04, 2015 | The Guardian

          Banksterdebtslave -> conor boyle 4 Jul 2015 11:15

          Yes it should have been, by letting the banks go under as per Iceland. Or were too many people (living in vacuums ?) unprepared to deal with the short term pain ? Now it seems the world of people must suffer to service the Banks' bad debt.....what good slaves we are! The Emperor has no clothes!

          Duncan Frame -> Brasil13 4 Jul 2015 11:10

          Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value.

          W61212 -> Brasil13 4 Jul 2015 11:08

          Careful what you wish for. From the EC

          'In 2013 the EU recorded a trade surplus in goods (more than double the surplus registered in 2012). The EU also has a surplus in commercial services trade.
          The EU is the biggest foreign investor in Brazil with investments in many sectors of the Brazilian economy. Around 50% of the FDI flows received by Brazil during the last 5 years originated in the EU.'

          This debacle with Greece demonstrates the EU can't run itself and yet it has huge holdings with Brazil and has recently reversed to a trade surplus in to Brazil, a nation with huge natural, industrial and human resources of its own. Brazil exports mainly agricultural and mining products to the EU and imports manufactured products. See the imbalance? Brazil exports primary products and imports finished products made elsewhere and those jobs are elsewhere. See the problem?

          http://ec.europa.eu/trade/policy/countries-and-regions/countries/brazil/

          GordonGecko 4 Jul 2015 11:07

          There's only one letter difference but choice for the Greeks is to become either the new Ireland (and suffer self-inflicted austerity for decades to come) or the new Iceland (by tearing up the rule book and starting again).

          I hope they watch this before voting;

          https://www.youtube.com/watch?v=xu5sTyAXyAo


          usufruct -> Laurelei 4 Jul 2015 11:07

          Germans (for the most part) are not Nazis or terrorists, and should not have to take the blame for this crisis. They are, however, dupes, like people living under capitalism everywhere. They are willing to let the international banksters and their political cronies in the European parliament run their lives and create whatever mischief they believe is in their interest.


          ToddPalant -> Scaff1 4 Jul 2015 11:06

          Tell us suckers then, about how Ukraine, a run down country that was just made worse by regime change. From bad Yanukovich to much worse American puppet and idiot Poroshenko plus a catastrophic war. Tell us about Lybia and bad Qaddafi, who in his life time killed 3-4000 people and the much worse UK-France that caused at least a 100000 dead with their pet invasion at the behest of our friends from across the Atlantic.

          May be you need to dust your mirror.


          Duncan Frame -> Laurelei 4 Jul 2015 11:05

          Terrorists primary aim is to promote fear rather than harm. That's far more effective in getting their way. You close the banks you show the public what you're capable of.

          Saaywar Montana -> thisisafix 4 Jul 2015 11:04

          Their economies are naff. Spain and Italy are the two countries most likely to join Greece in a new union. Portugal and Ireland are too far gone but Ireland has been rebelling. Once people see a progressive union to compete with the rubbish EU then these countries will gain support for joining a new southern European union.

          These countries are not out of the water and won't get out of it either. Austerity will do what it does and the people will rise up. It's inevitable. The EU doesn't have a monopoly on unions lol.

          Greece, as did every other country, got left with the bill of the private banking sector. Yes, it was their fault for running a deficit but a significant proportion of the debt owed by the Greek gov is bank bailouts.

          It's the same here. The UK paid Ł700bn to private banks to make sure they didn't fail. The deficit has nothing to do with that. so around 50% of the debt is a mixture or deficit spending and capital investments made by the government.

          Robape Laurelei 4 Jul 2015 10:57

          Financial terrorists, just interested in the bottom line, not countries.

          elcomm W61212 4 Jul 2015 10:56

          When fascist governments get in trouble at home they start wars to distract people. It's not that far out.

          Duncan Frame Laurelei 4 Jul 2015 10:56

          Yes everything's exceptional. 2008 was the biggest economic collapse since the great depression. And Greece was the most exposed country. No difference.

          Alfie Silva karlmiltonkeynes 4 Jul 2015 10:55

          My mistake, I thought you were intelligent.

          It is common knowledge that only around 10% of bailout monies went to the real economy. You are correct indeed in that creditors got a haircut, mainly hedgefunds and most foreign banks by 2015 had reduced their exposure to Greece. The issue today is sovereign debt. Do you realise that sovereign debt is the senior collatoral for Eurozone banks?

          So we are back to banks again Mr Banker.

          Duncan Frame ID13579 4 Jul 2015 10:53

          I don't have to excuse giving voice to the victims of those in power to you or anyone else. And it seems to me Tsipras is taking the same line. You confuse the Greek people with the people who actually profited from that debt. Why should they be forced to starve on the back of decisions over which they had influence?


          usufruct -> HoorayHenrietta 4 Jul 2015 10:44

          Like Americans and most other people around the globe, the German people have allowed the international banks to pull the wool over their eyes. There is no reason for taxpayers to bail out the banks as we are still doing here in the U.S. For the past six years my wife and I have been paying down mortgages on real estate hoping to reestablish equity in properties whose value was gutted by cavalier banksters on Wall Steet. A few clicks to gamble away the hard work of millions! These people should be arrested and tried for their crimes. In a fair court they would be sent away for life.


          Chris Hindle 4 Jul 2015 10:42

          'Yanis Varoufakis accuses creditors of terrorism.'

          So what is wrong with that? Financial terrorism is a much more protracted and painful process to the victims than sudden violence, but the end result is the same.

          The Vermin Who Would Be Kings have discovered they no longer need the fuss and expense of maintaining a standing army of occupation, far simpler to get countries/continents/ the world in deep debt (via bent politicians making private bankster debt into sovereign debt - just like they did in Greece ) and exert control through that.

          BTW the UK has some Ł9 trillion in foreign debt (much of which is the bad debts of the City - and the highest of any stand-alone country on earth) So now you know what next months austerity drive is all about

          InjunJoe -> degardiyen 4 Jul 2015 10:24

          The "slovakian tax payer" will not be paying to maintain the Greek standard of living,
          but to shore up the ECB, the IMF and the private lenders to Greek banks, as 90% of the "bail-out" goes to serving interest. Haven't you been reading the news?

          Duncan Frame -> karlmiltonkeynes 4 Jul 2015 10:20

          That's weird because at the same time the banks collapsed in 2008 the deficit went up from 57% to 82%, lots of people lost their jobs or had to take pay cuts. I'm sure it was just a coincidence.

          LeftToWrite -> ID6487190 4 Jul 2015 10:17

          Yeah the EU has shown itself to want a compromise. All those nice compromised offers it made. Yep we all remember those.

          Compromise means both sides giving ground, not one side accepting everything the other demands. Use a dictionary next time.

          For once a nation is standing up to EU bullying and we have ignorant fools like you turning it the other way in an attempt to change the narrative.

          LeftToWrite 4 Jul 2015 10:11

          How can the Troika have fucked up this badly? It seems they forgot that Greece is actually a construct that represents the people who live there, and you can't just impose misery after misery on a people without expecting them to finally have enough. Even if they vote yes, all it does is postpone that that time when they will have had enough.

          Honestly, this has shown the true greed at the hearts of Merkel et al, and by extension the people they represent. Save the French and German banks, fuck over the Greek people. If people think anti German rhetoric in Greece is extreme now, decades of resentment is about to follow.


          שוקי גלילי Steve Collins 4 Jul 2015 10:09

          You probably meant to say "when you ask for it back from someone ELSE, who didn't actually get your money". Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?

          -> dniviE 4 Jul 2015 10:06

          01

          Sorry: its Wednesday 8th, I wrote Tuesday ;-))

          email from Green Party Brussels office.
          TTIP and ISDS - Call to action by Keith Taylor MEP!

          Breaking news! We've just been informed that the postponed vote on the European Parliament resolution on TTIP has been put on the agenda for Wednesday 8th July.

          MEPs will be voting on the resolution as a whole, but also on a whole array of amendments to the text.
          Among these is a compromise amendment on the investor-state dispute mechanism, or ISDS. The compromise amendment suggests replacing ISDS courts with some kind of 'new' system, but there is no further explanation or details. As long as there is any system in place for investors to sue governments, as the compromise calls for, it is still ISDS. The fact that the Parliament's President is trying to spin this as something different by giving it a new name does not change anything.


          The compromise amendment has been agreed by the largest groups in the European Parliament: the centre-left Socialists & Democrats (which includes the UK's Labour MEPs), the centre-right European People's Party, and the European Conservatives and Reformists group (which includes the UK's Conservative MEPs) and the Alliance of Liberals and Democrats (which includes the UK's Liberal Democrat MEP).

          On Wednesday, all MEPs will get a chance to vote on this amendment and the resolution as a whole.

          The Greens are calling on citizens, trade unions, NGOs, towns and regions and businesses to speak out and contact their elected representatives and hold them to account on this attempt to privatise justice and infringe democratic rights.

          How you can help
          This is our last chance to make sure that damaging ISDS provisions are not given the green light by the European Parliament. MEPs need to know the full force of public opinion on this threat to our national laws and our democratic rights.
          Contact your other MEPs before Wednesday asking them to oppose TTIP and the Investor State Dispute Settlement (ISDS).
          - use Write To Them to email your MEPs directly with your own concerns
          - use the 38 Degrees campaign to send a quick template email
          - call your MEPs in Brussels to let them the reasons you're opposed
          - spread the word! Share your concerns on social media, tweet your MEPs, encourage your friends and family to contact their MEPs, use Greens/EFA resources to campaign.
          Message from Keith

          "I've been extremely heartened to receive so many emails from constituents voicing their opposition to ISDS and the TTIP proposals in the last few weeks. It's clear that there's a powerful and growing democratic movement to protect our laws, our public services and our regulatory standards from potential devastation.

          The decision to postpone the vote on TTIP earlier in the month stinks of political parties running scared of the huge public opposition to TTIP.

          TTIP represents a monumental power grab by corporations and it must be stopped in its tracks.

          The sudden re-scheduling of this vote means we are now short on time to make our voices heard. The Greens need all the help we can get to spread the word and put pressure on other MEPs to do the right thing and represent the views and interests of their constituents."
          You can keep up-to-date with the Greens/EFA campaign and what the Greens are doing in the European Parliament via their TTIP campaign website and their twitter feed.

          Thank you for your support.
          Best wishes,


          LeftToWrite ID105467 4 Jul 2015 10:14

          To bail out German banks, get your facts straight before posting nonsense.

          Kalandar 4 Jul 2015 10:14

          Propoganda galore from the mainstream media but its fooling no one, except perhaps themselves.

          ID345543 4 Jul 2015 10:04

          This Is Why The Euro Is Finished

          The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal.

          http://www.zerohedge.com/news/2015-07-04/why-euro-finished

          Ninetto owl905 4 Jul 2015 10:03

          The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss.

          NeverNotHereTV gsxsure 4 Jul 2015 09:59

          Syriza does not want "free money". They want a fraction put toward economic growth, and then payments as a meaningful fraction of that growth. It is simple enough.

          Alfie Silva 4 Jul 2015 09:50

          Please can anyone explain to me why we are letting the bankster cabal turn European against European?

          The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs.

          Finnbolt 4 Jul 2015 09:49

          "Debt relief was "politically highly toxic for many eurozone member states"."

          Here you have the problem. The creditor state governments are responsible to their voters and many have said that their taxpayers will not finance the Greeks and money lent will be paid back in full.

          Syriza says they have a mandate from the Greek people to force other euro countries to continue financing them and take a haircut. In other words, lose most of the money lent to Greece.

          EU is a collection of nation states with pretensions of a federation. One of the pretensions about to be busted is a transfer union, meaning taxpayers in richer countries tranferring part of their wealth to poorer countries.


          APSAPS 4 Jul 2015 09:49

          A $22.6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market. Despite the bailout, July 1998 monthly interest payments on Russia's debt rose to a figure 40 percent higher than its monthly tax collections. Additionally, on 15 July 1998, the State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan so that the government was forced to rely on presidential decrees. On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors. It was later revealed that about $5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds' arrival in Russia on the eve of the meltdown.

          Sounds very similar.

          Oh, wait, maybe some referendum could have helped?


          Insomnijazz hertsman 4 Jul 2015 09:48

          Nah - these are just lies for the gullible to swallow.

          Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.

          Instead they chose the worst option: bailing out the bank shareholders by assuming responsibility for their risky lending, but refusing to then pay the price for their political cowardice and shifting the blame onto a largely guiltless Greek population which has already suffered hugely from the economic devastation.


          Brent1023 4 Jul 2015 09:46

          Debt relief not on the table.
          It comes down to the Greek people or the banksters. Who needs a bailout more?
          The EU has sided with the banksters.
          Not just in Greece but in Ireland, Spain, Portugal.
          Only Iceland was able to force banksters to swallow their losses.
          Everywhere else bankster fraud was rewarded with a 100% bailout.
          Should be renamed the European Bankster Union.
          Surprising that the UK does not want it - it also bailed out its banksters.

          NWObserver sunnytimes 4 Jul 2015 09:39

          The creditors are not looking to get their money back. Debt is the leverage being used to destroy the social and public infrastructure in the country.

          So their worst nightmare is Greeks voting 'No', staying in default and surviving or prospering while remaining in the Eurozone. Then they will not be able to use the same fear tactics against another EZ country. They are psychopaths out to destroy, not creditors looking to get their money. So if Greeks vote 'No' , they will spare no effort to destroy Greece, beginning with the continuation of the liquidity freeze. However, there are some simple steps that Greece can take to end the liquidity freeze and I think they have already taken them.

          Gottaloveit 4 Jul 2015 09:28

          Read this article from 2010 by Michael Lewis and get a glimpse of what a mess Greece is
          http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010
          The people of Greece are not finished paying penance yet

          W61212 Fritz72 4 Jul 2015 09:28

          Albrecht Ritschl: During the past century alone, though, at least three times. After the first default during the 1930s, the US gave Germany a "haircut" in 1953, reducing its debt problem to practically nothing. Germany has been in a very good position ever since, even as other Europeans were forced to endure the burdens of World War II and the consequences of the German occupation. Germany even had a period of non-payment in 1990....but we were also extremely reckless -- and our export industry has thrived on orders. The anti-Greek sentiment that is widespread in many German media outlets is highly dangerous. And we are sitting in a glass house: Germany's resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims.'

          Enough said now?

          W61212 hhnheim 4 Jul 2015 09:21

          http://www.spiegel.de/international/germany/economic-historian-germany-was-biggest-debt-transgressor-of-20th-century-a-769703.html


          North2011 kizbot 4 Jul 2015 09:04

          Don't worry. The nappy business is doing well in Brussels...
          EU sources: possible extra Eurogroup on Monday and EU leaders Summit on Wednesday #Greferendum via GR media http://www.dimokratiki.gr/04-07-2015/pithano-ektakto-eurogroup-ti-deftera-ke-sinodos-korifis-tin-tetarti/ …
          They are pissing in their pants the lot of them...


          rafela Bogoas81 4 Jul 2015 09:00

          Austerity didnt work. In the last five years the economy shrinked by 19%. Unemployment rose to 27%. Tsipras wanted more debt relief. The IMF report sustain that an improvement is impossible without debt relief.


          sunnytimes 4 Jul 2015 08:58

          German people are industrious and inventive. They play by the rules. Unfortunately they are also rather naive and believe generally what the state tells them. In history the role of such people has always been to pay the bills.


          GuillotinesRUs 4 Jul 2015 08:45

          Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.

          I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.

          The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down.

          U77777 -> CassiusClay 4 Jul 2015 08:40

          Austerity isn't the answer - but when you have put yourself into the situation that the Greeks have, it is part of the solution. A small part and nothing like the media like to portray, but something has got to give.

          As for electing Tsipras and varoufakis......Seriously, stop drinking. They're a bunch of cowboys with some well intended principles and a load of rather deluded ideas. Worse still, neither of them have actually come up with anything like a constructive plan how to stimulate the economy and help Greece stand on its own 2 feet again


          Dimitris Chloupis -> sylvester 4 Jul 2015 08:39

          Any sensible Greek realizes without deep reforms no economy is going forward. This is not even debatable in my country. We already reduced public sector by 500.000 employes thats a juicy 50%. High pensions of the past are long gone. The result is that now it costs 6 billion to pay for wages in public sector and another 5 billion to pay for pension, total 10 billion. But we need another 10 billion for paying back loans each year. This year alone we paid back 25 billion !!!

          Tax evasion should be our next focus, its not reasonable for an economy that makes 200 billions per year to need loans . There is a will to fix all that, because the alternative is far worse.

          Of course the same can be said about Germany , why a country that make 3.1 trillion euros per year has a 80% debt ? Tax evasion of course ;) Time to open those swish bank accounts , but does Germany want that ? How many vested Greek interest are connected with German vested interest ?

          Denying corruption is to deny the foundation of modern economies.

          W61212 -> RussBrown 4 Jul 2015 08:39

          I made a point earlier about the birth of a new Brussels based dictatorship which controls all EZ 'national governments', which are national governments by name only, ergo Syriza has to go for straying from the script. Brussels has already proven it would rather deal with corrupt Greek politicians by doing so in the past

          Continent Renato -> Timotheus 4 Jul 2015 08:37

          Inequality of opportunity in the Eurozone is now so great -- young people in Greece have an unemployment level of 60% and the rate is 33% in the austerity "success story" of Portugal

          The systems are different. Northern countries have the dual education system, i.e. only about 10 p.c. of the youth go to college/university, and 90 p.c. go through a 3 or 4 year education "learning by doing".

          In addition, the "dirty work" in Greece (farming/harvest/construction) is done by temporary migrants from Macedonia, Albania, Romania, Bulgaria because the Greek parents wanted their children to have a better life and sent them to universities without an employment market for so many acdemics. Many of them land in a job with in the bloated govt.

          sunnytimes 4 Jul 2015 08:36

          The true parasites are the bond markets of London and New York. The create nothing. All they do is swap pieces of paper with ech other all day long, skimming every transaction. The UK and US have run trade deficits or decades, that is by definition they produce less than they consume. Time to tear down this edifice of debt and get back to a capital-based economy.

          LeftOrRightSameShite FOARP 4 Jul 2015 08:35

          Greece already has been bailed out

          No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks!

          Bit thick really innit!

          RussBrown 4 Jul 2015 08:35

          Myth 1 - Greece do nothing to solve the problem (they have had years of austerity)

          Myth 2 - Germany is bailing out the Greeks. The money that goes to Greece goes straight back into the German Banks. But by making it impossible for business to run in Greece the businesses move their resources to Germany and pay taxes their in a massive transfer of wealth from a poor EU country to the richest. This is a capitalist scam and all of lot on here shouting their propaganda should be ashamed of yourselves. The rich bankers are using you to justify the destruction of the poor!

          [Jul 01, 2015] Path to Grexit Tragedy Paved by Political Incompetence

          "...I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal."
          Jul 01, 2015 | Economist's View

          Ellis said...

          How many austerity plans do the Greek people have to suffer through? How much unemployment? Half the young population? Is the plan to to cut living standards in half?

          And for what? To repay a debt that the Greek people had nothing do with! To reimburse usurious interest rates that cut the economy in a trap by the banks!

          What a bunch of predators!

          djb said in reply to Ellis...

          i like how the advocates of austerity get all pissed off at the greek people as if they are just being obstinate

          its like someone is trying to punch someone else in the face and they are getting all pissed off at the other guy because he keeps lifting his hands to block the punches

          "come cut it out, just let me get good shots in at you , whats a matter with you"

          And Greece will not go to the drachma - Greeks are now demanding paper Euro notes, and everyone outside Greece shipping into Greece is demanding paper Euro notes up front. Greeks are now not able to get food and medicine and fuel if they don't have Euro currency.

          But let's be clear - the Greeks are to blame because they refuse to pay Greeks to work by buying only Greek production, or by trading Greek produced goods for imported goods.

          Charles Carlstrom said...

          Strikes at first glance don't seem rational. But they occur. Somestimes you swerve too late to avoid ruin.
          But even now it appears Greece is starting to swerve.

          DrDick said in reply to Charles Carlstrom...

          Only if you are a member of management. For the workers they are the only logical recourse. When management will not provide safe/decent working conditions or pay you what you are worth, your best recourse is to withhold your labor.

          anne said...

          http://www.nakedcapitalism.com/2015/07/tsipras-accepts-most-terms-as-merkel-insists-on-referendum.html

          July 1, 2015

          Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum
          By Yves Smith

          Post-bailout expiration dynamics are likely to produce even worse outcomes for Greece than it had on offer from the creditors last month. It isn't just that the bailout funds of €7.2 billion are gone; it's that Greece has gone over an event horizon with stringent capital controls on and the European Central Bank ready and able to push the Greek banking system over the brink.

          Greece's weak negotiating position is even weaker now. Even with a boost via a "no" vote on the referendum this Sunday, if the Greek government were to take a firmer stance, the creditors have the means and the incentives to keep crushing the economy via financial strangulation. The ruling coalition would not be able to hold on to power for more than a month or two as the economy continued to decay at an accelerating rate.

          This is a ruthless, brutal power play in progress. Too many key actors are driven by their own narrow imperatives, most important of all, their domestic politics, as well as institutional rigidities. Those constraints work against taking a broader view and recognizing that the immolation of Greece will blow back and damage the European project and their own economies. But that would require much bolder, visionary thinking and action. The current crop of leaders has instead become habituated to incremental patches even though it is widely recognized that the architecture of the Eurozone is incomplete and wobbly. But no one is willing to move to a higher level of integration, in large measure because, particularly for Germany, that entails the loss of power and privilege at the national level.

          Tsipras has recognized the weakness of his position too late. Yesterday, he tried making a desperate, last-minute deal to ward off an IMF default and secure the bailout funds before the program expired. But that clearly could never happen. It would require approval from all of the other 18 states in the Eurozone, including parliamentary approval in Germany. There was no way that would occur without German legislators having had Greece pass legislation before they voted on the release of funds; the Greek government had been told that that was a requirement and that needed to be done by the end of last weekend, June 28. *

          Moreover, Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt. Given that it was obviously impossible at that late juncture for the other Eurogroup members to release the bailout funds before they went poof (at a bare minimum, there was no way the Germany MPs would approve it), the Tsipras appeal was a sign of utter desperation or delusion. And that in turn was an admission of tremendous weakness. Less than two days of capital controls and a bank holiday, and the ruling coalition was folding....

          * Some pundits have depicted these deadlines as artificial. They weren't. There are many areas where the lenders' conduct can correctly be called unreasonable, but the hard deadlines were the result of past agreements and Eurozone procedures make them extremely difficult to change. This is one reason for the current creditor hostility. Greece consumed an enormous amount of time, running up against deadlines in what the other side saw as brinksmanship, which was a bizarre strategy given that Greece had a weak bargaining position. But the lenders felt compelled to accommodate Greece on that front as much as possible because the optics would be terrible if they didn't, particularly if the situation were to devolve into a Grexit. Compounding that problem, an lawyer with considerable knowledge of European practice pointed out by e-mail: "Europeans have a very hidebound and literal view about their EU rules and documents. Americans see a contract as a basis for negotiation."

          Fred C. Dobbs said in reply to anne...

          'Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt.'

          Every country in the EU is angry with Greece.

          In Greece's bailout talks, why it's 18 eurozone countries versus one http://on.wsj.com/1B7hOIy via @WSJ

          ... Some eurozone governments-Ireland, Portugal, Spain and the Baltic states-see themselves as having swallowed tough, politically costly but ultimately successful medicine and see no reason why Greece should be spared such rigor. Some, like Slovakia and the Baltic states, are poorer than Greece and pay their workers a lower minimum wage.

          Another element is that further debt relief for Greece in whatever form means losses for governments-Athens owes other eurozone governments €195 billion ($212 billion)-and therefore for eurozone taxpayers. Germany is owed the largest sum-more than €60 billion-followed by France and Italy. But, as a percentage of their gross domestic product, other countries have more on the line than Germany. According to a Bloomberg Brief analysis, Greece's debts to Slovenia exceed 3% of Slovenian GDP, compared with 2.4% for Germany. ...

          DeDude said in reply to Fred C. Dobbs...

          "see no reason why Greece should be spared such rigor"

          Yes their rulers have convinced them that the depression they threw Greece into is no big deal compared to what they themselves have suffered. As long as your corporate media hide the facts from people, you can convince them of all kinds of stuff.

          "debt relief for Greece in whatever form means losses for governments"

          Yes - and the real story there is that almost all the debt that was held by private banks and plutocrats back when this problem surfaced (and the debt should have been written down) is now owned by governments. But that is not the debate in the corporate media - instead it is about how terribly irresponsible the Greek government is (I guess you can fool the fools every time).

          Nathanael said in reply to anne...

          Yves has been mis-analyzing the Greek crisis from beginning to end. It's seriously lowered my opinion of her, and I think she's a complete idiot at this point.

          Syriza has played this out exactly right, whether intentionally or not.

          Given that the Troika will never, ever make a functional offer of major fiscal stransfers to Greece, and has as much as said so, default was inevitable.

          Greece doesn't have to leave the euro, of course; Greece could unilaterally print euros (in violation of the Troika's insane deflationary policies) and wait for Germany to leave the euro. But it has the same effect.

          GIVEN that default is inevitable, Syriza needs to be seen as:
          (1) Trying as hard as it can to offer a deal
          (2) Not knuckling under to the foreign powers

          They've done this.

          The referendum will either go "yes" or "no".

          If it's "yes", then Syriza will resign. The new government of Greece will implement stupid policies forced by the Troika which will make their situation even WORSE; they will be blamed for it and will be thrown out. Syriza survives.

          If it's "no", Syriza can exit and allow the economy to recover through devaluation.

          The worst case scenario for Syriza was that the Troika accepted one of Syriza's overly generous offers of surrender; the economy continued to get worse; Syriza was blamed for this and thrown out of office; and Golden Dawn was elected.

          Golden Dawn would, of course, immediately leave the euro and revive the economy. By pressganging, if necessary. :-P Having a glowing example of successful fascist economic management in Europe is the LAST thing the world needs. Thank goodness we seem to be avoiding that.

          anne said in reply to anne...

          Yves Smith has from my perspective been remarkably sensitive to the needs of the Greek people, thorough in reporting and analysis, and evidently, however sadly, all too correct in analysis compared with other Greek-sympathetic economists.

          I am aware that the analysis of Smith has been criticized, but I am also aware and impressed that even leaders of liberal Podemos in Spain have shared in criticisms of Syriza.

          paine said in reply to anne...

          Just a side comment

          The private greek banks can go to hell in a chariot for all I care

          The greek government should worry about small dipositors only

          paine said in reply to paine...

          Eichenberry seems poorly briefed
          On the negotiations here

          Syriza has not acted incompetently

          The troika is out for regime change

          Reply Wednesday, July 01, 2015 at 02:24 PM

          anne said in reply to paine...

          Eichengreen seems poorly briefed
          On the negotiations here

          Syriza has not acted incompetently

          The troika is out for regime change

          [ Understood as to what the European leadership is after, but Syriza has puzzled me. ]

          ilsm said in reply to paine...

          ecb the usa of the europa.

          troika deals like nukes.

          widespread drone strikes without deflation.....

          Chris Herbert said...

          I have a problem with the exit=disaster scenario. As a monetary sovereign and with a central bank, both recapitalization and devaluation can be accomplished without the armageddon stuff. China's currency, for example, is not traded on Forex. China's central bank pegs its value by fixing what it will pay in its currency for another currency--and its currency is the only one that can be used in China. Once Greece goes back to the drachma and once they've got a central banker and a currency that is exclusive to domestic commerce (no Forex speculative trading) I think a good central banker can do a lot to help Greece maintain its balance. Even better, said recapitalization can be debt free. I'm not saying it won't cost anything, I'm just saying a monetary sovereign need not issue debt. Greece could put people to work doing infrastructure improvements, which build assets not liabilities. Without issuing debt. Greece has to learn how to collect taxes, obviously. And some reforms to government size is probably in order. But the 'end of days' scare is just that, a scare.

          pgl said in reply to Chris Herbert...

          I have a similar problem with the criticism is Grexit. Let's roll the tape back to 1967 when Prime Minister Harold Wilson decided to devalue the UK pound:

          http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

          The UK did not suffer a financial crisis. It did manage to raise its net exports. So why can't the Greeks do the same?

          am said in reply to pgl...

          Fine, so why do the Greek people want to keep the euro as the official currency. Professor Krugman mentioned as a reason that people like to have a strong currency. They have had the drachma before and it was never very good and neither was the economy. I suggest the reason they want to keep the euro is it is strong in the sense of a stable currency and inflation is kept low in Greece as most of their imports are in euros. With a weak drachma they just get inflation on imports. With the euro they get steady prices. Add in to that payment of salaries and pensions in euros and then you have the advantage of earning in the currency of import purchases. Hohum, I'm probably wrong.

          Chris Herbert said in reply to mulp...

          Leaving the euro is not cost free. The dollar/drachma after Grexit is set by the central bank. Maybe Greece needs to become more efficient in their use of energy. Maybe Russia will sell oil to them at advantageous prices. A central bank can price the drachma advantageously between different suppliers. And don't forget the Greeks have a primary surplus right now and Grexit will eject its creditors, which is what I think Greece needs to to. The collapse scenarios are scare stories aimed at the Greeks. They should reject them and become independent. Only by being a monetary sovereign can Greece regain control of its economy. Right now they are in debtors prison.

          Peter K. said in reply to am...

          with the Euro they get humanitarian disaster. You know the economic stats, don't you?

          am said in reply to Peter K....

          Yes but why do they want to keep the euro, as is reported. They may suddenly change that in the referendum vote but it is reported that the euro is what they want.

          foofootos said in reply to am...

          easy, the depositors want to keep the euro because they don't have a lender of last resort. They will loose their deposits. That's all, that and scare tactics.

          Paine said in reply to foofootos...

          Yes that's a good part of it

          But I'd like to know the value of euros held on deposit now
          by the bottom three quarters of the population

          Dan Kervick said in reply to am...

          I don't think it's really entirely economic. They view the euro symbolically as a special European club membership, and don't want to be excluded from that club.

          anne said in reply to Chris Herbert...

          http://www.cepr.net/blogs/beat-the-press/who-uses-the-euro

          July 1, 2015

          Who Uses the Euro

          The Washington Post ran a map * showing which countries in Europe use the euro and which use other currencies. The map is wrong. It shows Montenegro and Kosovo as using currencies other than the euro. This is not accurate, both countries do use the euro as their official currency although they are not have been accepted into the euro zone.

          This is important in the context of the discussions on Greece because it illustrates the point that Greece cannot be forced off the euro. The European Commission and the European Central Bank can impose incredibly onerous conditions on Greece, but they cannot prevent the country from using the euro if it so chooses. The decision to leave the euro could only be made by the Greek government, not its creditors.

          * https://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/30/7-questions-about-greeces-huge-crisis-you-were-too-embarrassed-to-ask/

          -- Dean Baker

          John Cummings said in reply to Anonymous...

          I never saw the "big" Greece problem before the Euro. The problem is the credit bubble starting in 73 creating a redic surge in consumer products that really took hold in the 80's/90's for the US and spread after that. It created the "look" of growing personal wealth via personal assets, but it was a bubble. Without this borrowing, the US economy probably would have struggled to grow much in the 80's as inflation fighters went on a rampage(which is what partially triggered the bubble to grow faster). They still maintain much of the growth from the bubble, only thanks to the market being scared to live without it. About the only thing it did, was force Russia away from the Stalin era Soviet fast, but now, they are stepping back while no one is watching. This is late capitalism.

          The 80's and 90's would have been a lot more Escape from New York rather than Morning in America.

          Nathanael said in reply to Anonymous...

          Argentina's main problems were US-backed military coups and fascism. Argentina has quite impressively managed to get itself out from under both of those problems -- seemingly permanently.

          foofootos said in reply to Anonymous...

          Greece only got to comparable trouble after the Balkan wars (they defaulted), during the second world war, and then during civil war. Hardly a counter-example of "drachma troubles". Many a time I see Greece described as a serial defaulter. And then I read the History of the Greek state after it's independence from the Ottoman empire, and I see a war happening every 15-20 years or so. It seems this way of looking the Greek economy just goes with the Greek stereotype.

          ilsm said in reply to foofootos...

          Greece seems to spend about 150% of the NATO standard war spending for GDP. While the rest of the EU spends <75% of NATO standard.

          Still only 3% compared to US' 5 to 7% according to how you count.

          US spends more in VA than total of Russia, China and UK for their military.

          Darrell in Phoenix said in reply to anne...

          Pegging to the Euro will not counter trade imbalances, which is the real source of Greece's troubles.

          They need a currency that floats. They need to decrease imports and increase exports (or more likely tourism) to eliminate their trade imbalance, which is the root cause of their debt.

          pgl said in reply to Darrell in Phoenix...

          Exactly!

          foofootos said in reply to Darrell in Phoenix...

          Greece currently has a balanced current account.

          pgl said in reply to foofootos...

          Link? Evidence? Even if this is true, it is mainly because of the imposed austerity and weak economy.

          pgl said in reply to foofootos...

          Darrell in Phoenix notes:

          "Check the CIA world factbook for Greece.

          Exports $35B. Imports $62B.

          Trade imbalance of $27B compared to GDP of $290B = 9.5%!"

          Your source?

          am said in reply to anne...

          In Simbabwe which has no currency of its own apart from small coins for change shop goods are priced in US dollars. So consumers can buy a basket of goods and then pay the value of the us dollars in us dollars, south African rand, Botswanan pula, euro or pound. These are all calculated up by a routine in the software system operating at the checkout. The tax which is vat is then sent up to the government. The government staff are paid in us dollars. But the government can't do stimulus because they can't print any of these currencies and they don't have one of their own. But for an interim solution it is workable.

          Darrell in Phoenix said in reply to am...

          And the dollars flow out of the country, and them when there are no dollars left, the economy collapses.

          What you need is exactly what Ben Franklin argued for nearly 300 years ago. A government issued script currency that can be used to pay your taxes, and taxes high enough to create sufficient demand for the script to give it value. You then let the value of that government issued script currency to float on the international exchange markets to balance trade.

          OH, and NEVER take on debt denominated in a foreign currency.

          Nathanael said in reply to Darrell in Phoenix...

          That's even a good rule for households, frankly. I never take debt denominated in a currency I can't print. :-)

          Peter K. said in reply to Chris Herbert...

          What the critics of the Greek fail to mention is that before the Troika began bringing the hammer down on Syriza and refused to negotiate with them, the Greeks were running a primary surplus.

          Krugman pointed to this. That is, they were in the black without interest payments. With default and saying no to the bailout packages they are free of the interest payments and free of the onerous austerity measures which killed their economy.

          What the critics of defaults say is that the defaulters will never be able to borrow again, but in the real world that hasn't been the case. They're just blowing smoke to bully the Greeks into more, fruitless austerity measures.

          Dan Kervick said in reply to Peter K....

          Agreed. There will always be attractive economic opportunities in Greece. Even if Greece defaults, there will be new investors willing to gamble that they wont default again.

          pgl said...

          "Instead, the creditors first calculated the size of the primary budget surpluses that Greece would have to run in order to hypothetically repay its debt. They then required the government to raise taxes and cut spending sufficiently to produce those surpluses.They ignored the fact that, in so doing, they consigned the country to an even deeper depression. By privileging their own balance sheets, they got the Greek government and the outcome they deserved."

          This is precisely the problem Keynes warned about after WWI when the French demanded too much from the Germans. Of course the Germans never really did pay all of those cursed repatriations. Modern day European leaders have forgotten everything Keynes tried to teach us.

          Darrell in Phoenix said in reply to pgl...

          The austerity proponents are following the typical NeoCon mind-set of ignoring macroeconomic principles. "Keynesian hokum" is their preferred name for macroeconomics I believe.

          DrDick said in reply to pgl...

          This is exactly why Eichengreen's piece is pure garbage. Greece made lots of compromises, too many in fact. It was the creditors who refused to compromise. Every bank that had made irresponsible loans (and their were huge numbers of these) in Greece should have been forced to eat all their losses. After all, they had charged a risk premium to cover this already. Instead the Troika has decided that they should be fully indemnified and only the Greeks should suffer.

          Peter K. said in reply to DrDick...

          Yeah it's almost as if he criticizes the Greeks so he can criticize the Troika even more.

          "Still, this incompetence pales in comparison with that of the European Commission, the ECB and the IMF."

          Nonetheless I agree with you and disagree with Yves Smith and the like. Syriza and the Greeks did the best they could under impossible circumstances.

          The Troika's plan didn't work and they refused to negotiate. The problem is Greeks want to stay in the Eurozone nonetheless. Sunday we'll find out if they still do no matter what.

          pgl said in reply to DrDick...

          This is why I prefer what Krugman wrote.

          DrDick said in reply to pgl...

          Likewise, and the same for Stiglitz, who is quite good on this.

          Paine said in reply to pgl...

          Running these nakedly in humane pub sec pruning exercises was the entire project

          The debt
          A pretext

          Let that be a lesson to you long run fiscal space fuss budgets

          Paine said in reply to Paine ...

          A yes on Sunday simply means

          Go back and get the best deal you can

          Darrell in Phoenix said...

          Exchange rates fluctuate to counter trade imbalances. The concept of a common currency, without controls to ensure no trade imbalances exist, is fundamentally flawed.

          Money flows out of Greece. THE ONLY way money can get back into Greece is debt.

          Trade imbalances cannot be persisted indefinitely. They result in the buildup of debt on the side with the deficit, and interest on the debt just widens the trade imbalance until the debt collapses.

          Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt.

          RGC said in reply to Darrell in Phoenix...

          "Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt."

          Yep. Varoufakis had a "Modest Proposal" to fix this:


          4. THE MODEST PROPOSAL – Four crises, four policies

          The Modest Proposal introduces no new EU institutions and violates no existing treaty. Instead, we propose that existing institutions be used in ways that remain within the letter of European legislation but allow for new functions and policies.

          These institutions are:

          · The European Central Bank – ECB

          · The European Investment Bank – EIB

          · The European Investment Fund – EIF

          · The European Stability Mechanism – ESM

          Here are the four policies that will re-deploy the above institutions in a manner that deals a decisive blow at, respectively, (1) the banking crisis, (2) the public debt crisis, (3) the under-investment and internal imbalances crisis, and (4) the social emergency crisis afflicting countries were absolute poverty is becoming a major issue...

          http://yanisvaroufakis.eu/euro-crisis/modest-proposal/4-the-modest-proposal-four-crises-four-policies/

          Chris Herbert said in reply to Darrell in Phoenix...

          Darell writes "Money flows out of Greece. THE ONLY way money can get back into Greece is debt." Not so with a monetary sovereign. Euros are worth what the Greek central banks says they are worth, in drachmas. And only drachmas can be used in domestic commerce. You have squirreled away euros in Swiss bank accounts? Fine. Spend them anywhere but in Greece. If you have cheated on taxes, and for sure you have if you are Greek and rich, then face extradition for crimes in Greece. A monetary sovereign does not have to issue debt. It can recapitalize without debt. Look at China, which has used this banking system successfully for more than two decades! China understand the difference between liabilities and assets. It's not the debt that matters it's what you build that matters.

          Darrell in Phoenix said in reply to Chris Herbert...

          Chris, I was saying now... With Greece on the Euro and unable to print their own currency.

          Yes, if they return to drachma, they can issue money. Until then, the only way they have been able to make their economy liquid in the face of large trade deficit is with debt.

          Darrell in Phoenix said...

          Check the CIA world factbook for Greece.

          Exports $35B. Imports $62B.

          Trade imbalance of $27B compared to GDP of $290B = 9.5%!


          Of, Germany LOVED loaning Greece money so they could buy German products.... but the problem is that the debt can't possibly be repaid unless the trade imbalance is reversed. Germans have the money that Greece needs to repay the debt!


          This echos the problems in the USA. The poor go into debt, creating money that they spend, which then flows through into the economy into the hands of billionaires. It is mathematically impossible for the poor to repay the debt unless the rich first spend the money! Oh, we say it is a legal, moral and social obligation to repay the debt, but suggest it is a moral and social obligation (and should be a legal obligation through a steeply progressive income tax code with deductions for most spending and capital investments) and OH HOW THE RICH SCREAM!

          pgl said in reply to Darrell in Phoenix...

          Good research - and analysis.

          RueTheDay said...

          I struggle to understand the path forward from the referendum. Putting aside the obvious question of "what exactly are they voting on", there are some serious logistical challenges.

          It will likely take a day or two (or three) for the votes to be counted and the result certified. Assuming a best case scenario of a YES vote, Tsipras will likely resign, a snap election will be called, and a new government will have to form. How long will this take? What if Syriza is re-elected? What if there is no clear winner and we're back to having to form a coalition government, which may or may not happen?

          Time is one thing this situation does not have. There are significant upcoming dates:
          -July 10 €2B Rollover of treasury bills
          -July 13 €452M IMF
          -July 14 €73M in Japanese Samurai bonds due
          -July 17 €1B Rollover of treasury bills
          -July 20 €2.1B ECB
          -July 20 €1.4B National central banks
          -July 20 €25M European Investment Bank

          I can't imagine any scenario under which the ECB can avoid having to yank the ELA if the July 20 payments are missed. But there are plenty of opportunities for an accident before then. It is assumed that the treasury bill rollovers will not be an issue since they are almost entirely held by Greek banks. Is it really safe to assume that? I might be thinking about a switch into safer, more liquid assets if I were a Greek banker. Or are they just going to avoid an auction altogether and deem the bills rolled over by fiat? The Samurai bonds are tiny, but they are still a commercial obligation, will require money the Greek government likely will not have, and a default will not be able to be brushed aside as easily as the missed IMF payment. Speaking of which, the IMF will be unable to assist in any way throughout this period, unless the arrears are cleared.

          But wait, there's more. With the previous programme having expired, there will need to be a new MoU, a vote by the Greek Parliament, a vote by other European parliaments, including Germany. This is no longer something Finance Ministers can decide at a late night meeting.

          Yet, the official position is no more talks until after the referendum.

          Darrell in Phoenix said in reply to RueTheDay...

          I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal.

          A vote of NO to the "Should we accept these terms?" means the Greek people support Tsipras's hardline demand for write downs. This puts the Germans in the position of having to accept his terms or face Greece leaving.

          In short, the referendum may take the "well just wait until the Greeks replace you, then deal with the new guy" threat off the table.

          Reply Wednesday, July 01, 2015 at 11:53 AM

          RueTheDay said in reply to Darrell in Phoenix...

          My point is that regardless of which way the vote goes on Sunday, by the time the results are in there simply may not be enough time left to avoid a default. Note well that default does not automatically imply Grexit, but it certainly ratchets things up a notch.

          Reply Wednesday, July 01, 2015 at 11:59 AM

          Peter K. said in reply to RueTheDay...

          It's all up to the ECB and Troika. The money involved is small to them. It's all political. Looks like they want a regime change in Greece. Either that will happen or there will be Grexit.

          Syriza caved on austerity but wanted more taxes and less spending cuts. The Troika said no. And the Troika spins it like the Greeks left the negotiation table. The Troika said no and then the ECB refused to back Greek banks as the "deadline" passed causing the bank holiday.

          Darrell in Phoenix said in reply to RueTheDay...

          Oh, I think default is inevitable. All the referendum does is clarify the options AFTER that.

          If it fails, and the Greeks vote that they want to accept the Eurozone offer, then there will be a change in Greek government, a new round of austerity, and a delay of another year before the crisis explodes again.

          If it passes with a resounding vote of "NO, we're not paying" then Eurozone will have to take major cuts in the debt or accept Greece leaving the Eurozone.

          Nathanael said in reply to Darrell in Phoenix...

          Darrell has the analysis correct.

          The political key here is that SOME party is going to either leave the euro. (Or massively and permanently default and start printing euros. If they simply ignore all the ECB rules entirely, they may be able to stay in the euro. Same thing; in this case, Germany is the one who leaves the euro.)

          • If it's Syriza and they do it with public support, there are good things in the future.
          • If it's Golden Dawn and they do it with public support, there are bad things in the future.
          • If Syriza does it without public support, Golden Dawn benefits, and there are bad things in the future.
          • If Golden Dawn does it without public support, they'll just cancel elections to avoid losing power, so they'll again benefit and there will be bad things in the future.

          In a sense, the democratic parties are handcuffed in their options relative to the fascist parties, so it's harder for Syriza to succeed than for Golden Dawn.

          And it's really REALLY bad if Golden Dawn becomes a big economic success by defaulting or leaving the euro!!!

          Paine said in reply to RueTheDay...

          Default is a label easily applied and un applied
          In arrears delinquent these are objective terms
          Use em instead of the Halloween word default

          [Jul 01, 2015]Syriza can't just cave in. Europe's elites want regime change in Greece

          "...But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms."
          .
          "...No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union."
          .
          "...I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong. "
          .
          "...Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon."
          .
          "...After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years. "
          .
          "...we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

          But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.
          "

          .
          "...I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order. I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites."
          .
          "...This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe "
          .
          "...My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves."
          .
          "...Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010."
          .
          "...Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you."
          .
          "...The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands. "
          .
          "...This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should."
          .
          "..."Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project."
          .
          "...The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt."
          .
          "...I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??"

          Jul 01, 2015 | The Guardian

          It's now clear that Germany and Europe's powers that be don't just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington.

          But that the German chancellor Angela Merkel and the troika of Greece's European and International Monetary Fund creditors are out to remove the elected government in Athens now seems beyond serious doubt. . Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras's government.

          They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday. There could be no talks, Merkel responded, until the ballot had taken place.

          There's no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week's "final proposals" and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario.

          That's because, just as the bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money. If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him.

          Hence the European Central Bank's decision to switch off emergency funding of Greece's banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece's crisis to a new level this week as it became the first developed country to default on an IMF loan.

          The EU authorities have a deep aversion to referendums, and countries are routinely persuaded to hold them again if they give the wrong answer. The vote planned in Greece is no exception. A barrage of threats and scaremongering was unleashed as soon as it was called.

          One European leader after another warned Greeks to ignore their government and vote yes – or be forced out of the eurozone, with dire consequences. Already the class nature of the divide between the the wealthier yes and more working-class no camps is stark. The troika's hope seems to be that if Tsipras is defeated by fear of chaos, Syriza will split or be forced from office in short order. The euro elite insists it is representing the interests of Portuguese or Irish taxpayers who have to pick up the bill for bailing out the feckless Greeks – or will be enraged by any debt forgiveness when they have been forced to swallow similar medicine. The reality is the other way round.

          ... ... ...

          Tsipras and Syriza's determination to stay in the eurozone come what may has seriously weakened Greece's hand. The economic dislocation of jumping off the euro train would doubtless be severe in the short term, though the costs of permanent austerity would almost certainly be greater thereafter.

          But Syriza insiders say there is little preparation for what anyway may be forced on them. The relentless pressure of the EU bureaucracy demands a strong and clear-headed response. Right now, for example, that means the Athens government immediately taking control of its banks, currently shutting down all transactions.

          The worst outcome of this crisis would be for Syriza to implement the austerity it was elected to end. A yes vote in next weekend's referendum, , if it goes ahead, would probably lead to the government's fall, and almost certainly new elections.

          Papistpal rredge 1 Jul 2015 21:21

          "Implicit in your argument"

          Always a ploy of course, when you find implicit, tacit, implied arguments in someone else's thought, and then argue with it. No, I am not saying anything about the money.
          No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union. There is NO excuse for your behavior

          Ritoras Tijger 1 Jul 2015 20:57

          I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong.

          As said, because none answers your question that doesn't mean no is the answer.

          Be open minded and less emotional. Few of the questions you ask you can google them and share the findings with us. That will be more convincing!

          peekaboo -> summicron 1 Jul 2015 20:54

          The public in the 18 countries have not been consulted. Critical decisions affecting all other members need direct approval. In fact referendums have almost never been held for EU membership in candidate countries.

          ineluctable2u -> tsimshatsui 1 Jul 2015 20:50

          That's naive. Merkel is only making the Greek people suffer now in the hope that they will lose their will and vote yes. This is ruthless politics by the troika and Merkel in particular.

          martyc73 -> Gearóid Ó Loingsigh 1 Jul 2015 20:49

          The North is a diversion - it cant raise taxes and relies on subvention from the British State etc and you know this so don't be using that as an argument. The bank guarantee was also sold in a totally different way to what was rolled out subsequently. And you know this too. Hums and Haws???

          Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon.

          Ritoras Tijger 1 Jul 2015 20:46

          Bud, first of all you repeat you you you, it is very instructional, chill. Bravo to you as well for making so focussed comments. I mean it even though you put all the fault on the Greek gov.. Don't see you challenging yourself enough? Are the rest of stakeholders here perfect?

          But, how do you know what Greece has done and what not?

          Why the Troika have not reacted the same and with the same persistence as it does now during the last 5 years to correct the direction of travel? You're 100% right about the Lagarde list. The ministers who did not do nothing are in trials now.. However, I was in fact hoping that the Troika could play a more active role in this and exercise influence to clear corruption. After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years.

          About the military expenses. I like defense and the military in fact. But! In a recession, the Troika should have first said, save money there to invest in sectors like healthcare, education etc. After all, Greece is very well equipped and supposedly is backed up by NATO allies.

          calsation miceonparade 1 Jul 2015 20:43

          I must say I enjoyed your takedown of oldships immensely. It seems he doesn't realise we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

          But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.

          Papistpal 1 Jul 2015 20:40

          Never thought I'd agree with you, but I have to say, from this American capitalist perspective, Berlin and Brussels have no sense of fair play and no respect for democracy. How can the EU call itself a democracy if Germany has a veto because it has the big bucks. The US, I admit, would like to do something similar, but we are constrained by maintaining at least some vestige of democratic practice and sensibility. What is with the moralism, anyway. "Greece is wrong, so we get to do whatever we want to them." Moralistic platitudes are not policy statements. Damn Merkel to hell


          TheNerveInstitute 1 Jul 2015 20:36

          Greeks must not cave in. This is interesting !

          http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=14132

          lawrenceab 1 Jul 2015 20:29

          I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order.

          I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites. Why for instance did they not impose capital controls the very first weekend after coming to power?? The the country could have put up its defenses at a time of its own choosing, husbanded its resources while negotiating - paid the IMF, keep banks open during this crucial referendum week. You don't negotiate with 17 adversaries who all want to crush you, with one hand tied behind your back and € billions flowing out weekly. In three months you are on the floor.


          castalla 1 Jul 2015 20:17

          This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe ... let's hope the OXI vote wins the day and Syriza gets a mandate to argue for a restructure of the debt programme.

          someoneionceknew -> FactPatrol 1 Jul 2015 20:10

          The – European Social Model – is built on the fundamental principles built into Treaty establishing the European Community (TEC):

          … promotion of employment, improved living and working conditions … proper social protection, dialogue between management and labour, the development of human resources with a view to lasting high employment and the combating of exclusion.

          It combines with the EU Charter of Fundamental Rights to define an "underlying principle is one of solidarity and cohesion: that economic growth must serve to boost overall social wellbeing, and not take place at the expense of any section of society".

          The ILO book says that while "there is no official definition of the European Social Model" there is a long history of practice and dialogue that allows one to map out the main characteristics.

          The ILO define "six main pillars":

          1. "Increased Minimum Rights on Working Conditions".

          2. "Universal and Sustainable Social Protection Systems".

          3. "Inclusive Labour Markets".

          4. "Strong and Well-Functioning Social Dialogue".

          5. "Public Services and Services of General Interest".

          6. "Social Inclusion and Social Cohesion".

          miceonparade -> Exodus20 1 Jul 2015 20:08

          Remember what Greece were like before joining the euro, in the 1990's?

          Greece in the 1990s did not have 30% unemployment or 60% youth unemployment or a depression. Things can only begin to get better after exiting the euro and reclaiming fiscal sovereignty which can be used to put Greek people back to work.

          someoneionceknew FactPatrol 1 Jul 2015 20:07

          The European Social Model in Crisis: Is Europe losing its soul?

          PDF 52 page precis.

          while the European Social Model may have been called into question here and there before the crisis, the list of changes in most elements and pillars of the European Social Model since the crisis is formidable. While there are a few exceptions … all other trends show a general withdrawal of the state from social policy, first through massive cuts in social expenditure and reduced funding of education, health care and other public services, and second through radical reforms in a number of areas, such as social dialogue, social protection, pensions, labour market and social cohesion in general …

          the changes are particularly severe in those countries that implemented an austerity package under the direct influence of the Troika …


          Hill0fBeans sjorsnotmine 1 Jul 2015 20:05

          There are no poor Greeks in Greece any more...

          You're a disgrace. Instead of trolling, read some facts every now and then.

          - like the 4 out of 10 Greek children living beneath the poverty line

          - or 44.8% of pensioners living on less than 665 euros/month

          - or the 27% unemployed

          Go crawl back underneath your bridge. This is not a place for trolls.

          camerashy 1 Jul 2015 19:56

          The closet fascists are all out in force to get rid of a democratically elected government! Rule by corporations and banks is what you deserve and is what you are going to get in next 5 years ... so enjoy it.

          deskandchair -> Danny Sheahan 1 Jul 2015 19:56

          It can't go any other way, fiscal control means political control. The tragedy is that the EZ was formed in the first place.

          Lafcadio1944 1 Jul 2015 19:52

          My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves.


          xsyfer John Smith 1 Jul 2015 19:51

          It has that already. Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010. There will be friends. I reckon UK, us and Sweden might do something bilateral after the mess to keep Greece away from Russia.

          Might be too late then though


          deskandchair Markdoug1 1 Jul 2015 19:51

          You don't live in EZ or EU (although superficial thinking isn't exclusive to those outside EZ) however you're correct, Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you.


          Eleutheros 1 Jul 2015 19:46

          But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms.

          And that's the essence of the current situation, not just in the EU, but most "western" societies, including Australia, where I live; our present government follows the policies of Thatcher and Reagan and is trying to bring austerity to a rich and prosperous country.

          Excellent article Seumas Milne, thank you.


          Oscarinho 1 Jul 2015 19:43

          Yes, there is a potential danger of a right-wing, if not neo-nazi, turn in Greece (and maybe, only maybe in other places, too). But just tell me why does the author doesn't mention that without the support of the right-wingers and neo-nazis called Anel and Golden Dawn Syriza would not have a majority in their own country??? Syriza does not represent a European leftist alternative (ask Renzi) but mere 2 million Greek voters supported by the far right that are taking their own society hostage playing the nationalistic card.

          Yes, we need another haircut and, yes, this radical austerity policies needs to be changed. It's just not sustainable as we learned the hard way- But Syriza is looking for a system change by any means with any partners (Golden Dawn, Putin's Russia, and even Erdogan). No thanks.


          Forthestate ID5590609 1 Jul 2015 19:40

          you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living...

          Just more bollocks! How do you square "this new and vastly improved standard of living" with the reality since the crisis hit? Most analysts agree that the decline has seen Greece lose everything that it acquired during the years you refer to, and more, and I repeat, it is a decline probably unparalleled in peacetime. Where is the recognition of the catastrophe that has hit the Greek people in your ridiculous assertion that they are enjoying a new and vastly improved standard of living?


          John Smith 1 Jul 2015 19:32

          Looking at the headline photo of Merkel, the caption: Who will rid me of this troublesome Greek
          popped into my head.

          Then I read the article above.

          Nothing would please the Euromeddlers more than a military coup, or a revolt by the coalition partners.

          Because what this crisis is exposing is how after five fruitless years, the geniuses at the heart of the EU, couldn't grasp that among their many errors of judgement, it's no good loaning a bankrupt money to pay off debt, the Euro has actually worked against the economic expansion of the Eurozone both before and after the crash, and by failing to spot the dishonesty of previous Greek administrations or act, it has shown the world that their system is weak, cannot tackle a crisis, and despite years of rhetoric will have to do the one thing it said would never ever happen, expel a member state and write off tens of billions of wasted euros.

          In my earlier analysis I have already explained why the Euro was a currency launched half cocked, and that without taking into account the needs of individual nations, it is doomed in the long term, to fall to pieces.

          I fear that whatever happens now, Greece is going to find itself with few friends, and at least five years of pain and emigration of its youth.

          ID5590609 Forthestate 1 Jul 2015 19:26

          The level of Greek tax collection from all sectors and classes in Greek society is abysmal. Tspiras and Varoufakis do not deny this is a problem, and other than pride or foolishness, I question why you do. Some economists suggests that as much as 39% of the Greek economy is effectively underground. The other purported statistics are simply red herrings to confuse this simple fact (and also avoid dealing with the rampant other corruption and incompetence inherent in the Greek economy).

          The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands.

          The fact that Greece's economy has contracted over 25% is also not particularly relevant. The larger GDP since joining the Euro represented a tremendously bloated bubble based on irresponsible public and private debt. The current GPD still has ample room to decrease before it accurately reflects the true size, scope and productivity of the Greek economy (and even reflects Greece's pre-Euro GDP). Also noteworthy is the fact that Greek incomes nearly tripled since it joined the Euro Apparently, you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living (more impressive than some other Eurozone members who are poorer and helped fund Greece's bailout) despite the fact that it was entirely unearned and based on fraud and the largesse of the taxpayers of other nations.


          Exodus20 Tijger 1 Jul 2015 19:26

          This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should.


          JordiLlull neilmack 1 Jul 2015 19:24

          Who are "Most people"? I dont think there are polls, but few people in Europe believe that the fault lies exclusively on a government who has been there for 6 months, and is trying to prevent the policies that have led to a 25% loss of GDP. Particularly since the troika has made it damn clear that it does not plan to accept ANY plan. Sure, some have bought Daily Mirror arguments that the Greeks spent the bailouts on Ouzo, but informed people know that the vast majority was used to pay back interests, and that Greek retirement pensions are around 300 euro/month. I would rather argue that "most people" in Europe who have traditionally supported EU are starting to raise questions about what EU's role in this crisis.

          "Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project.

          deskandchair truecomrade 1 Jul 2015 19:22

          Fiscal control = political control, it can be no other way.


          FourtyTwo sjorsnotmine 1 Jul 2015 19:21

          More than 30% of the population are officially below the poverty line.

          http://www.enetenglish.gr/?i=news.en.article&id=2040


          FourtyTwo Exodus20 1 Jul 2015 19:17

          The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt.

          MTSK87 privateindustry44 1 Jul 2015 19:13

          You are an ignorant piece of work aren't you Sir? Look at the facts before spreading lies. The Greeks work (the ones still in employment that is) work more hours than any other EU citizen ( http://www.bbc.co.uk/news/magazine-17155304 ), the rich and powerful did not pay taxes no, but your average 20-30 something year old with a wage of 400 euros a month that has to go back to living with his/her parents can barely afford coffee never mind pay taxes. And free money? Please the "creditors" have NEVER given anyone "free" money. Germany never gave away anything for free (see treaties imposed on Greece to buy old German weapons). Greece was manipulated and suffered for that "free money".

          emordnilap Mark Riggle 1 Jul 2015 19:10

          I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??

          [Jun 30, 2015]Cramer Danger alert-dont buy on the market dip

          Beth

          The economic recovery of so many countries, especially the U.S. has been fueled by cheap money. Many countries do not have actual assets to support or backup that huge amount of paper. That is why you get problems like Greece, Puerto Rico, etc. These situations were caused by both the creditor and the debtor.

          B.O. Stinks

          The economy won't recover until the voters decide to put some politicians in office who represent the voters. Right now there's not a one of them that listen to the constituents.
          It's all about the super pac campaign contributions and lobbyist pumping up the politicians pockets.

          John

          Cramer is right on this one this time.

          1. Who knows how much of that Greek debt has been pledged as collateral for derivatives trades?

          2. Contagion could happen. The total debt of Greece, around $350 billion, isn't that big relative to a lot of other countries or the market capitalization of many world markets, but that isn't the whole story here.

          3. Cramer warned about the banks on July 29, 2007 in his now-famous "they know nothing rant." You may think the guy is a tout and pumper, but I would give his words some heed since he proved correct on that significant call.

          4. More damage to come? We, the public, don't know all the stuff that is going on under the radar about this general bank default. There could easily be more damage to come.

          5. Signaling from top authorities. Christine Lagarde, IMF head, publicly asked the Fed on June 4 not to raise rates until 2016. It's now clear she was signaling rough waters ahead for banking. Ordinarily the heads of major world finance organizations don't engage in such public statements. She could just pick up the phone and call Janet Yellen. Why did she make the public speech? I suggest signaling. We all just witnessed it live on TV.

          6. Q2 earnings releases will buoy up the market soon but weaker outlooks in Europe for Q3 and Q4 will drag down earnings projections for US multi nationals. That will serve as a drag on share prices.

          7. Unless you're prepared to use inverse ETFs, put options on futures, or more complex options strategies, I would consider keeping some powder dry (i.e. cash). The SP500 was at 1862 on October 14, 2014, only 8 1/2 months ago and could easily retrace most of the current gains back to that level of major support.

          jim b

          Cramer is a shill for hedge funds and banksters, obviously a few will try and day trade this but think about it, 2007 Dow 7000 today Dow 17000 you know the money will disappear and a 4000 point correction will be an evening out and then interest rates will rise and the market will be on tailspin then flat for 3 years until the next president starts to borrow more money from the fed and the charade will try to start again .

          Bat

          Summer often sees corrections and while 2% is not a correction it may be the start. The market is overvalued and while it can stay that way for years on occasion it corrects to fairer valuations.

          Fish

          Japan and US can take heed of Greece. Bailing out Japan and US will be impossible.

          James

          Keep in mind that Cramer, by virtue of having his own show, is a safety-minded entertainer. The stock market is an overpriced casino and none of the negatives have changed in the last fifteen years. If you feel lucky, go for it. Remember: winners know when to walk away.

          James

          Cramer is so full of it, just look at what he said about Greece before. They are no impact for us or Europe, it only 2% of Europe, which accounts for only 3/4% for us. He is trying to get a quick trade to the downside to make his options pay off big time, Allegedly.

          GJ

          "It is important to note that this list of warning signs does not mean that the U.S. is headed into another Lehman Brothers situation. That was systematic"
          huh! you mean "systemic' right, Cramer?

          Todd

          Cramer taught us you always buy the dip! The Federal Reserve is always going to be there! The ECB, the IMF, the JCB are printing money like mad and you always buy the dip!! Don't worry, buy the dip! Buy the dip! All the expert money managers on CNBC buy the DIP!!

          Masterblaster 1 hour ago

          You should all see the You Tube video of Cramer explaining how they manipulated the market. Priceless. In short He/they would run the futures up and then sell all day. He said it was very satisfying to say the least.

          Ed

          How about don't buy Cramer. That would be smarter!

          [Jun 30, 2015]Joseph Stiglitz: how I would vote in the Greek referendum

          "...Actually 90% of the money went off to pay the private creditors (French and German banks who had invested in Greece). Only 10% amount of the loan ever went into the Greek economy but that was more than balanced by the the damage that austerity politics did to the country."
          .
          "...So the IMF and the Eurozone have in effect been playing debt collectors for French and German banks, and have attempted to bestow the costs on Greece. Is there any way that could possibly ever have worked?"
          .
          "... Lagarde, is getting smacked and rightly so; she, Merkel et al, all thought they could dictate to and bully Greece, and Greece would roll over, well it hasn't."
          .
          "...Only because the banks were too big to fail and therefore letting them crash would have crashed the entire economy. If you ignore that, in theory holding the banks responsible for the crisis they created and making them insolvent instead of using QE to bail them out could theoretically have been something that held the right people to blame, and didn't punish ordinary people with austerity.
          It's pretty smart of the banks as they got themselves into a position where, when they screw up, other people have to pay the price."
          .
          "...Tsipras called them "criminals". I guess it is more close to the truth."
          .
          "...Greece cannot pay, but no one can say that as it undermines the whole financial system, which is based on confidence. We can't 'write off Greek debt' (as Jeremy Corbyn helpfully suggests) as no indebted countries would feel the need to pay off debts again - they'd just wait for the 'Greece' solution."
          Jun 30, 2015 | The Guardian

          colin2d -> colin2d 30 Jun 2015 10:10

          The big problem right now in Greece is lack of liquidity to operate the economy. There simply is not enough money in circulation.

          If newly issued Greek euros are not traded on international markets and they are legal tender in Greece and the Greek government accepts them as tax payments, there is no market value. You have an assigned value, like in other controlled systems. So you can have a high velocity of circulation as people spend them quickly, but no problem of devaluation - unless the Greek government would issue Greek euros to total excess.

          Suppose you are a shopkeeper in Greece and your pensioner customers pay you in Greek euros. And suppose, the Greek law says you can pay your suppliers in Greek euros and the supplier can pay his taxes in Greek euros. In that case, the Greek government will need capital controls to ration the supplier's euros to buy imports. But that's likely to stimulate local production and be a plus for the Greek economy.

          Local fiat currencies do work.

          It is a rather different and probably not very acceptable example, but the Cuban 'CUC', is not backed at 1:1 against the US dollar in an open market. Its value is the fiat of the Cuban government. No open market trading means no devaluation by market forces.

          Trumbledon 30 Jun 2015 10:03

          We never had an advanced economy actually asking for that kind of thing, delayed payment

          They still haven't - Greece is no more an advanced economy than a person who buys a houseful of luxury items using credit cards is a wealthy person.

          Greece has virtually no industry worth mentioning and virtually no agriculture; the Greek economy is almost entirely reliant on tourism.

          Greece has a smaller GDP than Thailand or Argentina, Greece's economy is roughly half the size of Vietnam's. How on earth can Greece be considered an 'Advanced economy'? That's claptrap.

          mikeyk1 Omniscience 30 Jun 2015 10:03

          Actually 90% of the money went off to pay the private creditors (French and German banks who had invested in Greece). Only 10% amount of the loan ever went into the Greek economy but that was more than balanced by the the damage that austerity politics did to the country.

          Adam Fo 30 Jun 2015 09:57

          It's probably worth adding here that Argentina did pay off it's IMF loans in full as well as the modest amount of interest charged. One of the reasons they could do that is they are a more resource based economy than Greece. Increasing commodity prices during that period helped them.
          Like Greece holders of Governments bonds saw massive haircuts. 50% (100 billion euro) in the case of Greece in 2012.

          Thalia01 ThinBanker 30 Jun 2015 09:55

          Only because the banks were too big to fail and therefore letting them crash would have crashed the entire economy.

          If you ignore that, in theory holding the banks responsible for the crisis they created and making them insolvent instead of using QE to bail them out could theoretically have been something that held the right people to blame, and didn't punish ordinary people with austerity.

          It's pretty smart of the banks as they got themselves into a position where, when they screw up, other people have to pay the price.

          Hottentot 30 Jun 2015 09:40

          Sorry, but the Guardian can't compare Argentina, Zimbabwe, Somalia and Sudan, to Greece, as none of them were / are in the Euro. Lagarde, is getting smacked and rightly so; she, Merkel et al, all thought they could dictate to and bully Greece, and Greece would roll over, well it hasn't. It's about time others started telling the IMF (interesting that it's referred to as the Washington-based organisation) and the EU who are all about 'protecting' their interests, to sod off.

          So the IMF and the Eurozone have in effect been playing debt collectors for French and German banks, and have attempted to bestow the costs on Greece. Is there any way that could possibly ever have worked?

          bonkthebonk -> Adam Fo 30 Jun 2015 09:50

          True, but how many of them are in a flawed currency union that actively contributed to their demise, saw their mainly foreign reckless, speculative lenders' liabilities socialised and how many of these poorer countries have been lent ever more money just to service the their debts and nothing more?

          CaptainGrey -> colin2d 30 Jun 2015 09:26

          Calling it a Greek Euro as opposed to a new Drachma won't make any difference. It will crash overnight. Greece has no reserves to prop it up.

          optimist99 30 Jun 2015 09:24

          The Greeks need to look hard at Argentina - once one of the richest countries in the world....

          "By 1908 it had surpassed Denmark, Canada and The Netherlands to reach 7th place-behind Switzerland, New Zealand, Australia, the United States, the United Kingdom and Belgium. Argentina's per capita income was 70% higher than Italy's, 90% higher than Spain's, 180% higher than Japan's and 400% higher than Brazil's". (Bolt & Van Zanden 2013)

          Now it is number 55....

          (At the moment Greece is at 44 - similar to Portugal).

          CaptainGrey -> EricthePenguin 30 Jun 2015 09:24

          Mexico didn't default, it devalued. Completely different. As I note above/below (depending on your settings)

          Argentina was shut out for a decade, but was able to get through it thanks to it's vast natural reserves of mining, farming and forestry, plus strict financial discipline. Greece has none of those things.

          Default could be a disaster for a generation of more.

          Actually, nobody knows for certain how bad a default will be. But it will not be a walk in the park

          ThinBanker -> Gelion 30 Jun 2015 09:24

          "But of course that's not debt, that's just a way of lowering currency values to keep your exports competitive and put your citizens into Austerity"

          Huh? Without QE, 'austerity' would have been all the greater ...

          PeterHG 30 Jun 2015 08:50

          It seems inconceivable to me that Greece will leave the Euro. The loss of face to the Brussels European Union bureaucracy would be too great for them to bear . Such a happening is beyond their imagination so they will find some means to keep Greece in. The Greek politicians sense this and that knowledge dictates their actions.

          ApfelD -> Johanes 30 Jun 2015 09:13

          Tsipras called them "criminals". I guess it is more close to the truth.


          optimist99 -> sandywinder 30 Jun 2015 09:15

          "is that borrowing and spending too much will always get you in the end. In case people have forgotten, the UK has a Ł1.5 trillion national debt."

          But the folk who lend money to the UK are perfectly happy to continue to do this... So it's not "borrowing and spending too much" in the UK... (HMG can borrow money over 30 years at less than 3% interest...).

          kentspur 30 Jun 2015 08:36

          It's a default.

          This semantic dancing on a pinhead just shows the absurdity of the situation. Greece cannot pay, but no one can say that as it undermines the whole financial system, which is based on confidence. We can't 'write off Greek debt' (as Jeremy Corbyn helpfully suggests) as no indebted countries would feel the need to pay off debts again - they'd just wait for the 'Greece' solution.

          [Jun 30, 2015] Stiglitz: Troika has Kind of Criminal Responsibility

          "...Alexis Tsipras must be stopped: the underlying message of Europe's leaders. Germany's vice-chancellor has become the first senior EU politician to voice the private views of many - that the Greek PM is a threat to the European order
          By Ian Traynor - Guardian"
          .
          "...Tsipras is only a symbol of what must be stopped. What must be stopped is democratic interference in the affairs of finance capital. What do "the people" know about such important matters? Besides, they might favor their own interests over those of the system (meaning those of the oligarchs)."
          .
          "...For finance capital, the stakes in Greece are high. They must make the Greeks pay a very high price for defiance. If not, Spain, Portugal, etc. will try the same thing.
          What good is the "will of the people" and democracy when it goes up against the banks?"

          .
          "...Finance capital now MUST take untenable speculative risks. The state now MUST bail out finance capital when their bubbles burst. The international institutions now MUST enforce draconian austerity to pay for the bailouts. ...because otherwise there wouldn't be enough value produced for the finance sector to appropriate and accumulate. This is the END GAME a perpetual smash-and-grab operation by the plutocrats. "

          Jun 30, 2015 | economistsview.typepad.com

          From Time:

          Joseph Stiglitz to Greece's Creditors: Abandon Austerity Or Face Global Fallout: ... "They have criminal responsibility," he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. "It's a kind of criminal responsibility for causing a major recession," Stiglitz tells TIME in a phone interview.
          Along with a growing number of the world's most influential economists, Stiglitz has begun to urge the troika to forgive Greece's debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.
          Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe's common currency, the euro, and put the global economy at risk of contagion. ...
          JohnH said...

          Some background on the stakes in Greece AKA why Greece must be made to heel--Aegean gas, banking and oil company profits, and, yes, the Clintons.
          http://seekingalpha.com/article/782961-the-u-s-looks-to-exploit-the-greek-re-default

          pgl said in reply to JohnH...

          Note when Stiglitz writes this:

          "Of course, the economics behind the program that the "troika" (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country's GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece's rate of youth unemployment, for example, now exceeds 60%."

          The troika economics he is condemning was the refusal of the ECB to do QE earlier. Troika's bad economics is exactly what you have been advocating for the US for a long time. Just in case you missed this.

          mulp said in reply to pgl...

          Should Congress give Puerto Rico $150 billion to get it out of debt?

          Or should Puerto Rico be forced out of the dollar zone and thus face drastic spending cuts.

          Larry said in reply to pgl...

          Agree on QE. But even that would not have fixed Greece. It doesn't belong in the EZ and never did.

          pgl said in reply to Larry...

          I agree. Cyprus made a mistake by entering the EZ as well.

          Dan Kervick said in reply to pgl...

          And yet economists have been extremely slow to react to this massive economic derailment with anything close to the kinds of bold emergency recovery plans they would be ginning up if the same disaster was taking place in their own countries.

          Why aren't the kinds of figures Stiglitz just cited the headlines here? Why has the Great Greek Depression been treated by the media, and most economists, as though it is fundamentally just a disagreement between Greece and its creditors?

          What is the plan for putting the 20% of the Greek over-15 population that is not working, but should be working, back to work?

          Maybe people think that millions and millions of Greek people without jobs is just Greece being Greece? That profound economic dysfunction and failure is a case of "well, what do you expect from those people?"

          Economists seem to have been so zombified by the inscrutable bureaucratic rhetoric and psychopathic insanity of the Eurocrats, and the bumbling incoherence of the Greek government, that most of them aren't able to think clearly. The Euros have convinced them all that any outside-the-narrow-box thinking will cause chaos, panic, unraveling, The Unthinkable, the Complete End of Europe as We Know It and the Return of the Satanic Hordes. So they sit on sidelines hoping that someone will make some deal that allows Greece to keep paying forever, grindingly, in a way that isn't too, too, too, too painful.

          Part of the problem maybe is that mainstream economists have too many buddies in the Eurocracy. They can't believe that all those nice people they went to graduate school with have gone so bonkers.

          The situation with the Eurocrats reminds me a little bit of Alec Guinness in The Bridge on the River Kwai. A noble project (in this case, the Europe project) evolves over time into a demented and fanatical religion whose ultimate purpose is forgotten by its architects, who lose the capacity to adapt to evolving circumstances with common sense.

          Larry said in reply to Dan Kervick...

          McArdle notes today that US pundits have been more supportive of Greece than the Europeans. Proximity breeds contempt?

          Dan Kervick said in reply to Larry...

          It's not surprising. European governments own most of the debt now and want to get paid; and they don't want any special deals that weren't available to them.

          And the Greeks themselves are in denial. They haven't yet come to grips with what it's going to take to rebuild their collapsed economy.

          Dan Kervick said in reply to pgl...

          Krugman has been better than most in calling out some of the bad actors, but what is Krugman's plan for ending Greece's depression?

          Is it the same plan he would recommend to American leaders if America were in Greece's position?

          Would Krugman, an expert on depressions, advocate that the US run a surplus in a depression - just not a very big one - so it can pay its creditors?

          Dan Kervick said in reply to Dan Kervick...

          His column today on crippling austerity is pretty good though. The problem, as he says, is the grip of the notion that leaving the Euro is "unthinkable".

          A lot of Europeans have gotten too tied to the idea that one country leaving the Euro is some kind of continental catastrophe. To read some of the hysteria - such as a recent Guardian piece - Greeks first leave the euro and then its back to Bolsheviks, Nazis, trench warfare slaughter or Mongol invasions or something.

          But the euro isn't the UN Charter or the Magna Carta or the Treaty of Versailles. It's just money. The unity of Europe does not stand or fall on whether a country decides to use a particular form of money. There are several EU members, in perfectly good standing, who do not use the euro. Big deal.

          I understand that most of the Greeks themselves cannot wrap their heads around this idea. But economists can easily.

          Anyway, Greece and the rest of the world have gotten themselve so tangled up in the obsessive attention to the secondary matter of the Greek "debt crisis" that they don't seem to have time to think about the primary crisis - the Nobody has a Job and Our National Output is in the Toilet Crisis.

          Benedict@Large said in reply to pgl...

          QE? Oh nonsense. The Euro banks knew Goldman had washed Greece's books, and that Greece was not a suitable candidate for the initial loans, much less the subsequent ones. This is onerous debt, and is simply uncollectible. Banks must relearn to live and die by their ability to make good loans. And if the elites get burned in the process? Maybe they'll learn to stop staffing their banks with assclowns.

          JohnH said in reply to pgl...

          The Troika won't allow Greece to use Aegean gas as collateral precisely because Greece is supposed to hand over its wealth without much if any compensation...

          pgl said in reply to JohnH...

          I despise this Troika. Whether they are evil or whether they are dumbass liquidionists like you are - it does not matter. They are being very destructive. OK, you are not evil but you are stupid with your fear of using aggregate demand stimulus. Same horrific results.

          Sandwichman said...

          Joe! Joe! Joe!

          (and as for "Chief Economist" Blanchard: M-I-T... I-M-F... M-O... U-S-E: Mickey Mouse).

          http://econospeak.blogspot.com/2015/06/m-i-teee-squeeze-you-next-week-i-m-f.html

          Sandwichman said in reply to Sandwichman...

          No to austerity! Yes to democracy!

          http://www.altersummit.eu/accueil/article/no-to-austerity-yes-to-democracy?lang=en

          "Europe is at a crossroads. The institutions of the Troika are not only trying to destroy Greece; they are trying to destroy us all. Now is the time to raise our voices against this blackmail by the European elites.

          "Next Sunday the Greek people will be able to vote to reject the blackmail that is austerity and vote for dignity – with hope for another Europe. This historic moment requires everyone in Europe to speak up and take a stand.

          "We all say NO to austerity, pension cuts, and VAT increases; We all say NO to poverty and privileges; We all say NO to blackmailing and to the dismantling of social rights; We all say NO to fear and the destruction of democracy.

          "We all say YES to dignity, sovereignty, democracy, and solidarity with the citizens of Greece.

          "This is not a conflict between Greece and Europe. It is about two antagonist visions of Europe: our Europe of solidarity and democracy, created from below and without closed borders; and their vision, which denies social justice, dismantles democracy, opposes the protection of the weakest and the taxation of the wealthy."

          Basta -- Enough -- Another Europe is possible !

          DrDick said in reply to Sandwichman...

          He certainly nailed this one. The Troika are demanding that the Greek people protect the plutocrats (mostly foreign) for paying any price for their reckless and feckless action and democracy (and the "little people" be damned.

          mulp said in reply to DrDick...

          We should not have expected debt repayment from Mexico in 1994?

          More important, all the debt of Puerto Rico should be forgiven and then we should give them all the money they ask for to keep the country afloat?

          DrDick said in reply to mulp...

          People who cannot pay their debts will not pay them. Everything else is a pipe dream. You cannot privilege capital over human welfare.

          Peter K. said in reply to Sandwichman...

          Agreed. The IMF research dept had been looking good. (And the IMF asked the Fed not to raise rates this year).

          But their behavior regarding Greece is criminal.

          anne said in reply to Paine ...

          http://time.com/3939621/stiglitz-greece/?xid=tcoshare

          If the Greek economy collapses without the euro, "you have on the edge of Europe a failed state," Stiglitz says. "That's when the geopolitics become very ugly."

          By providing financial aid, Russia and China would then be able to undermine Greece's allegiance to the E.U. and its foreign policy decisions, creating what Stiglitz calls "an enemy within."

          [ This is xenophobic rubbish, showing a mean-spirited and wrong-headed disdain for China and Russia. ]

          anne said in reply to anne...

          http://www.theguardian.com/world/2015/jun/29/alexis-tsipras-must-be-stopped-the-underlying-message-of-europes-leaders

          June 29, 2015

          Alexis Tsipras must be stopped: the underlying message of Europe's leaders. Germany's vice-chancellor has become the first senior EU politician to voice the private views of many - that the Greek PM is a threat to the European order
          By Ian Traynor - Guardian

          Sandwichman said in reply to anne...

          Except that Tsipras is only a symbol of what must be stopped. What must be stopped is democratic interference in the affairs of finance capital. What do "the people" know about such important matters? Besides, they might favor their own interests over those of the system (meaning those of the oligarchs).

          mulp said in reply to Sandwichman...

          You are saying "yes, the Greece and Puerto Rico can drain my retirement savings because Stiglitz says its democratic"?

          I speak as someone who had lots of savings in BofA which bought the bank that bought my local bank listening to people calling for BofA to be liquidated and all the debt it held written off.

          Jeffrey Stewart said...

          It never ceases to amaze the number of human lives must be destroyed through unemployment and poverty due to "austerity" so that financial capitalists are repaid in full.

          JohnH said in reply to Jeffrey Stewart...

          It's how they keep the rest of the world under their thumbs...

          Ellis said...

          For finance capital, the stakes in Greece are high. They must make the Greeks pay a very high price for defiance. If not, Spain, Portugal, etc. will try the same thing.

          What good is the "will of the people" and democracy when it goes up against the banks?

          Sandwichman said in reply to Ellis...

          "For finance capital, the stakes in Greece are high."

          Yes, the stakes are high for finance capital. The choice is between euthanasia of the rentier and suicide-bomber-style financial terrorism. Finance capital opts for the latter.

          We should all be clear on what the choices are and why finance capital chooses the reckless strategy it does. Finance capital CANNOT win this fight to the death. There is no win-win compromise that will enable the continuation of business-as-usual to be sustainable.

          'Tis the final conflict. Greece is only an episode but there will be episode after episode based on the same scenario. The "wages-rut system" no longer has the "beautiful" capacity of ensuring the continued accumulation of capital merely through an imbalance in the economic power of labor and capital.

          Sandwichman said in reply to Sandwichman...

          Finance capital now MUST take untenable speculative risks. The state now MUST bail out finance capital when their bubbles burst. The international institutions now MUST enforce draconian austerity to pay for the bailouts.

          ...because otherwise there wouldn't be enough value produced for the finance sector to appropriate and accumulate.

          This is the END GAME a perpetual smash-and-grab operation by the plutocrats.

          Glen said in reply to Ellis...

          It's well understood in modern economics that when banks and ultra rich speculators make horrible investments that wreck the world economy, then the innocent must pay. That whole capitalism risk/reward thing is so passe.

          Ellis said in reply to Glen...

          What's behind the debt? In 2004, the government paid through the nose to host the Summer Olympics. The Greek military sucks up 3 or 4 per cent of GDP buying expensive weapons and ammo from the U.S. Germany and France. When Greece entered the EU, it employed the services of Goldman Sachs to hide their debt -- paying a pretty penny for their services. And when the crisis hit in 2008, the fear that Greece might default boosted interest rates for the Greek government to usurious levels. In other words, it's pillage pure and simple.

          And now, the IMF figures that the best way forward is to starve the population even more.

          World Oil Energy Consumption by Sector, 1973-2010

          World Oil Energy Consumption by Sector, 1973-2010

          Oil can be put to a variety of uses, with transportation accounting for a growing share of the oil consumed. While the transport sector consumed 42% of the oil in in 1973 this share climbed to 61.5% in 2010. The growing level of global motorization is a core component behind this relative growth, particularly the growth of international trade. Non-energy uses mostly relate to the petrochemical industry where petroleum is used to manufacture products such as plastics or fertilizers. Other sectors concern agriculture (powering farm equipment), commercial and public services (power generation) and residential (heating oil).

          [Jun 30, 2015] Greek failure to make IMF payment deals historic blow to eurozone

          I can only imagine the intensity of "consultations" between Washington and Berlin now...
          .
          "...The present circumstances in Greece were inherited by the current government from the previous right-wing government, which managed to bring them out by faithfully following the austerity prescriptions of the Troika. However both left and right-wing governments of the past, who created and hid the enormous debt, are also to blame."
          .
          "...The documents show that the IMF's baseline estimate – the most likely outcome – is that Greece's debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded. "
          .
          "...This is nothing more than a large-scale payday loan scam. Greece will never get past the loan sharks and will constantly have to borrow just to pay off the interest. I'd rather default and eat beans for a year while starting fresh than eat beans for 20 years paying off old debt. You can call them lazy, you can call them thieves but - if they play their cards right - you can also call them "debt free"."
          .
          "...The public debt of Greece existed BEFORE the recent election. The cruel conditions inflicted upon Greece by its "partners" existed BEFORE the recent election. The crisis existed BEFORE the recent election."
          .
          "...Lending more billions to Greece so they can repay the interest on previous billions loand and those new loans repayed by cuts to pensions and more privatisation of public assets...blatant transference of cash from those who can't afford it to those who don't need it. Hopefully the Greek people give a resounding middle finger to the EU/IMF. And if I hear another muppet crack on about 'the Greeks ought to pay their taxes' I'll bloody lose my temper. D some reading for gawds sake. It really isn't that hard."
          .
          "...I would have thought that a "senior german conservative politician" telling the Times that whatever happens Tsipras must be forced from office is an historic blow to the EU. Now, at least, people know what it is and who it is for."
          .
          "...If they actually wanted payment, they'd be reasonable. But payment isn't their priority, these organisations want power over Greece."
          Jun 30, 2015 | The Guardian

          ShibbyUp -> peter nelson 30 Jun 2015 21:30

          The Greek banks and former conservative governments, you mean.

          You and plenty of other brainwashed idiots around here seem to think that individual, working class Greeks had something to do with this. Of course, as always, the banks and politicians who actually caused this got off scott free, with taxpayer money, to cause the next big financial crisis.

          HaroldP -> Nottodaymate 30 Jun 2015 21:29

          Banksters, what did you expect, honesty, morality, humanity, financial expertise? Bailouts from citizens, that's what you expected? The poor darlings can't even run a bank when they can print money. Incompetant scum. Regards, Harry.


          Jazzfunk23 -> workingclass2 30 Jun 2015 21:28

          In recent years most of this mess was presided over by liberal conservatives...

          https://en.wikipedia.org/wiki/New_Democracy_(Greece)


          PeregrineSlim 30 Jun 2015 21:25

          Germania offers a regime of permanent debt servitude to pay for its failed banks:

          The documents, drawn up by the so-called troika of lenders, support Greece's argument that it needs substantial debt relief for a lasting economic recovery.

          The documents show that the IMF's baseline estimate – the most likely outcome – is that Greece's debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded.

          clematlee Danny Sheahan 30 Jun 2015 21:25

          What you have in the USA is TENS of millions of people who don't have any US dollars while in Manhattan flats sell for millions.


          AlamoSexual 30 Jun 2015 21:20

          This is nothing more than a large-scale payday loan scam. Greece will never get past the loan sharks and will constantly have to borrow just to pay off the interest. I'd rather default and eat beans for a year while starting fresh than eat beans for 20 years paying off old debt. You can call them lazy, you can call them thieves but - if they play their cards right - you can also call them "debt free".


          UnevenSurface Danny Sheahan 30 Jun 2015 21:12

          Greece will still be here. There will of course be enormous poverty (in various forms) in the short term - but even the FT says that the GDP will bounce up 6% quite quickly. After that, they'll be the cheapest holiday destination in Europe, exporting the cheapest wine and olive oil. The GDP could expand by 25%, up to pre-austerity levels. Excluding macro economic factors out of our control, I would be truly surprised if they aren't better off - overall - within five years.

          HaroldP -> owl905 30 Jun 2015 21:12

          The public debt of Greece existed BEFORE the recent election. The cruel conditions inflicted upon Greece by its "partners" existed BEFORE the recent election. The crisis existed BEFORE the recent election. Obviously Tsipras did not "wreck his country." His fellow citizens elected his party to fix an existing crisis. He won the election with a proposal of how to do that. He has deviated only slightly from his promises. I find him to be a "hero" in that he could teach the political class of Europe the importance of keeping the agreement between the state and the citizens. It is heroic indeed to be the honest politician of Europe. He has my respect. Regards, Harry.


          Paul Collins 30 Jun 2015 21:12

          Lending more billions to Greece so they can repay the interest on previous billions loand and those new loans repayed by cuts to pensions and more privatisation of public assets...blatant transference of cash from those who can't afford it to those who don't need it. Hopefully the Greek people give a resounding middle finger to the EU/IMF.

          And if I hear another muppet crack on about 'the Greeks ought to pay their taxes' I'll bloody lose my temper. D some reading for gawds sake. It really isn't that hard.


          malenkylitso -> owl905 30 Jun 2015 21:08

          Greece was forced into a corner, then took a bailout which less than 10% went to the Greeks. The rest went to the banks.
          Sounds like a protection racket.


          SystemD 30 Jun 2015 21:07

          This is not just about Greece; the impact of a Greek default go much wider. The IMF (and the Troika) has to be seen to be taking a hard line. If they don't, then their credibility with the rest of the world diminishes, particularly in Africa. The Germans are worried about the Euro as a currency; the Deutchmark was given up on the promise of stability, and the 1920's are still - just - within living memory. There is a lot of fear behind their stance. Stock markets generally are worried about the instability the situation is causing. They don't want Greece crushed - they just want a stable situation with predictable outcomes. Volatility is not in their interest. And Greece needs money and help to try to cure the cancer of corruption in its economy.

          Greece cannot pay back its debt. Unless the creditors agree to a very long term of repayment (at least 50 years) at reasonable rates, the only real options are for Greece to leave the Euro zone and go back to the drachma, or the debt must be written off, with the proviso that there will be no new loans, and Greece will have to rebuild and finance its economy from its own resources.

          Stanley Wallings 30 Jun 2015 21:06

          I feel sorry for the Greek people - they've had 5 hard years and for nothing. Grexit will be horrible for those who have to stay in Greece. The 'haves' have already moved their money and can just hop on a flight out. I hope Tsipras isn't driving the bus over a cliff for no reason other than to piss off the Troika. I hope he has a plan C

          medicynic RobWilson73 30 Jun 2015 21:06

          What a great idea! Let's get rid of pensions worldwide, then no one has any cause for complaint. I'm pleased to see that you are one of those who, when pensions in the UK increase say: "No thanks. I don't need it and don't deserve it. It only makes me fat anyway".
          In my experience in British industry, workforces are rife with 'tax-dodging, CSA dodging, mendacious, lazy wankers', a lot of who deserve a cut in wages never mind a pension.

          Monkeybus 30 Jun 2015 21:06

          SQUEEZE THE GREEKS, WRING THEM OUT, RINSE THEM. Other xenophobic pronouncements are available. SHIFTLESS, LAZY, FECKLESS. Can't they print their own money like more advanced nations?

          We are all in this together, err, hang on.

          Imagine if Gordon Brown had taken us into the Euro after all?


          clematlee FakeyWilson 30 Jun 2015 21:06

          and the west arms heart eating loonies in North Africa and invades and kills millions of people in the process, Vietnam, Iraq, Libya, Grenada, Korea, Panama, Syria and the list goes on. Watch the EX USA secetary of state on youtube saying the starvation of 500,000 children was a price worth paying, by the west imposed on Iraq. It was starvation to death. Her name was Madalin Allbrite. Don't worry about losing some so called freedoms to stop Allbite and her ilk.


          Tappert Heintz 30 Jun 2015 21:03

          "Greek failure to make IMF payment deals historic blow to eurozone"

          Sounds like the Daily Mail. Nonsense.


          owl905 Iheartbill 30 Jun 2015 21:02

          They're not barred from international trade, but it's really scewed to cash and barter. There simply isn't the mechanism to manage the exchange rates. No one outside the country will want rapidly devaluating and 'only-good-in-Greece' drachmas. Greeks don't realize what's coming after 15 years of Euro stability.

          One big surprise from them is that pipeline deal with Russia. That needs a lot of capital - Russia is walking into even more problems if it starts forwarding debt financing to Greece to get the pipeline built.

          The tourist industry won't be hit by it (except for foreign import items that are part of the industry) - it will be hit by the drachma, that has the profit from the industry shrink to nothing.


          Danny Sheahan Justitiadroit 30 Jun 2015 21:01

          Look at the Eurozone growth rates for the last 5 years, its a basket case.

          The Greeks have messed up over the years but the Euroland is no case study in growth.


          rberger ArundelXVI 30 Jun 2015 21:00

          Actually there is very little debt servicing involved. The 29 billion actually includes debt repayments (principal, not interest). Greece is not paying any interest for most of its bailout money until after 2020, but of course needs to pay interest on the bonds that it has issued itself.


          ScanDiscNow Danny Sheahan 30 Jun 2015 21:00

          Pre Euro Greek total production increased by some 600% between 1960 and 2001 while German total production increased by a mere 255%. However, throw in the Euro and the subsequent 15 years has German total production up 20% while Greece total production is down 26%
          ZeroHedge.


          Anthony Apergis owl905 30 Jun 2015 20:57

          And herein lies the issue my friend! The strictly monetary considerations that underpin your rationale betray the disintegration of what started in Rome as a visionary peace project for the peoples of Europe to an economic, neoliberal construct whose only concern is %s and profits. Surely, you must be able to see this. I would strongly advise you to read the preamble to the Treaty of Rome (1957).

          MonsieurBoombastic FilthyRichBanker 30 Jun 2015 20:54

          The capital controls in Greece apply to cash withdrawals and overseas transfers so this won't affect things like internet banking where cash is transferred within the system. The things you mention are probably still going on in most cases.

          moderatextremist 30 Jun 2015 20:51

          When Greece joined the EU, the corrupt government went on a spending spree of EU money, and used Goldman Sachs to cover it up. It is those politicians and Goldman Sachs, the vampire squid on the face of the world, that should be put on trial. I fear this development will be hurtful to an awful lot of good people, while the arseholes that created the mess will get away with it...... yet again.


          sefertzi7 30 Jun 2015 20:48

          The worst possible outcome. Now the crooks who caused the debt mountain in the first place (Papandreou x2, Simitis, Karamanlis, Samaras et al) will come back to power, reluctantly do what they are told with the quid pro quo of a blind eye turned while they carry on in their corrupt old ways.

          Call that a revolution? More like crash and burn to me.

          raymundlully -> Kaiama 30 Jun 2015 20:45

          If the debt is forgiven and goes away.
          Greece has in arrears to private pharma companies ,I doubt they'll extend credit orwant paying in toy Drachmas.

          Cash-strapped Greece has racked up mounting debts with international drugmakers and now owes the industry more than 1.1 billion euros ($1.2 billion), a leading industry official said on Wednesday.

          The rising unpaid bill reflects the growing struggle by the nearly bankrupt country to muster cash, and creates a dilemma for companies under moral pressure not to cut off supplies of life-saving medicines.

          Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations, told Reuters his members had not been paid by Greece since December 2014. They are owed money by both hospitals and state-run health insurer EOPYY.


          MalleusSacerdotum 30 Jun 2015 20:45

          If Greece were a private or public company and continued to 're-finance' in the manner proposed by the IMF, its directors would be charged with insolvent trading.

          They are getting a lot of stick for admitting that they are effectively bankrupt.

          It is at least an honest admission of the state of play.


          Omniscience Jazzfunk23 30 Jun 2015 20:42

          They turned a primary deficit into a surplus within the last 5 years

          Greece have never run a primary surplus.
          http://www.forbes.com/sites/timworstall/2015/02/16/greece-still-has-a-vast-problem-it-doesnt-have-a-primary-budget-surplus/


          Dannybald George Purcell 30 Jun 2015 20:40

          Right wing conservative neo-libs corrupt elitists. The Troika is refusing to allow Greece to tax the wealthy corrupt tax avoider thieves, while forcing more of the workers into poverty.


          Vee1984 30 Jun 2015 20:40

          It is a well known fact that many Greeks like to avoid paying taxes just as there are many other European countries who avoid paying tax whether on an individual or on a company basis.

          The European Union has created this problem over a long period of time by allowing countries to borrow more than required and funds being used to build eg airports in Spain which are unused and unnecessary due ro their geographical location and many speculative projects undertaken throughout the EU. The reason for lending such sums, with a total disregard as to how interest payments can be repaid, never mind repaying the loans, has been done to enrich the lenders who, as we all know, love to gamble on how much money can be made. A risk game, played out every day, and, I suspect, some bets even being placed on the odds of Greece defaulting in some hedge fund offices somewhere in Europe. It should be noted that Spain and Italy have loaned money to Greece. How can this be when both countries have loans via the EU etc? Again, investors after interest on the loans with a total disregard as to their own countries finances. Greece is a democracy and should not give in to the rhetoric coming from the IMF or ECB. Why not? Neither can afford to and neither can Germany. Interesting days ahead. I truly hope that in the name of Democracy, the Greek people will vote NO in the referendum no matter the increasing hardship this will bring. The EU really need to be extremely mindful of the fact that abject poverty and the continuation of austerity gives rise to discontent and a surge in popularity to right-wing extremist views.


          Anthony Apergis Justitiadroit 30 Jun 2015 20:39

          Indeed, the EU has mutated from a union of the peoples of Europe, into a market-driven transnational institution governed by bankers and solely concerned with GDP growth rates (and I mean this in a strictly non-communist/leftist way).


          Dannybald DavidRees 30 Jun 2015 20:36

          As a German voter I would never vote for the right wing neo-lib corporatist Fascist scum in government. The hypocrisy of this regime is turning millions of Europeans against Germany and rightly so. The London conference of 1953 halved German debt owed for destroying Europe. Greek debt was 100% of GDP in 2008 and that had nothing to do with Tspiras.

          The 'Eurogroup' only cares about a tiny elitist group of Europeans and not about the majority of it's people. Wake up DavidRees and the rest of you indoctrinated half wits.
          http://www.theguardian.com/commentisfree/2013/feb/27/greece-spain-helped-germany-recover


          Omniscience 30 Jun 2015 20:35

          If the EU are the enemy now, imagine the bed wetting and howls of protest if Greece had to make real repayments.

          http://uk.reuters.com/article/2015/06/28/uk-eurozone-greece-debt-factbox-idUKKCN0P80XU20150628

          Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.


          FlashRat 30 Jun 2015 20:35

          I would have thought that a "senior german conservative politician" telling the Times that whatever happens Tsipras must be forced from office is an historic blow to the EU. Now, at least, people know what it is and who it is for.

          PennyForYourComment DavidRees 30 Jun 2015 20:35

          Which is why the Eurozone concept is fundamentally broken.

          Imagine if every time one US went into a bad recession, all the other states had to vote on whether to send them money, with all the governors having to agree... and then trying to post their own conditions on how that States economy be run before the money were delivered. It would be an unworkable mess, especially given acrimony and resentment between states and regions (North vs. Deep south vs. midwest, vs. west coast, etc)... The country would sooner or later fall apart as States started rebelling and quitting. It would be absurd.

          But somehow Europe is supposed to run on exactly this system. If you are going to have a single currency, then you need common fiscal mechanism binding the areas together, because these act as automatic financial stabilizers when there's a regional crash. If Florida's economy crashes, money automatically pours in from everywhere else to cover unemployment insurance, etc, via the Federal government. No similar thing happens with Greece in Europe.

          BunyipBluegum theoldgreyfox 30 Jun 2015 20:34

          The default you are referring to is a recent one (2014) - I was referring to the previous default in 2001, which was followed by a significant period of economic growth and recovery. I am not suggesting that a default is always the best solution in such circumstances, nor that the immediate fallout won't be problematic. However in any case the example of Iceland clearly demonstrates that a default can be the best option economically in some circumstances.

          It's the same principle as bankruptcy: if your debts reach a level that can never be paid back, it's better to wipe the slate clean and start again, even though the cost of doing this may be to slide back down the snake to the bottom of the board.


          Anthony Apergis 30 Jun 2015 20:33

          To sum up:
          Roughly €170b initial Greek debt +
          Roughly €150b financial aid to Greece aimed at repaying initial creditors (NOT the restructuring of the Greek economy) + austerity measures while doubling an already unsustainable debt = EU solidarity to a member- state.
          And the above does not even take into account whose economy did the initial debt prop up. I cannot believe that the people of Europe cannot see what the REAL problem is.
          The EU - and by extension Europe - is truly in trouble.


          raymundlully Franco87 30 Jun 2015 20:32

          UK had third world inflation in the 1970s it took the IMF medicine broke the unions in the 80s and created a home fit for bankers.

          www.whatsthecost.com/historic.cpi.aspx

          1980, 18.00%. 1979, 13.40%. 1978, 8.30%. 1977, 15.80%. 1976, 16.50%. 1975, 24.20%. 1974, 16.00%. 1973, 9.20%. 1972, 7.10%. 1971, 9.40%. 1970, 6.40%

          Danny Sheahan Omniscience 30 Jun 2015 20:31

          What about economic slums like Portugal and Italy.

          They are much worse off now than Greece was at the start of its crisis. It will not take much to have Italy in crisis.

          Portugal is heading for an abandoned state after its crisis so its not much of a threat now, how it will pay its debt in the future is anyone's guess. Though it is safe to presume that a country in such decline will have less people paying tax.

          They'll want more than billion.


          RGBargie 30 Jun 2015 20:31

          It looks like Greece might soon be sailing into uncharted waters.

          I can just imagine what the consequences will be for the EZ if Greece goes alone, and then makes a success of their new found freedom. I imagine there might well be others ready to abandon ship if that happens.

          Westmorlandia BunyipBluegum 30 Jun 2015 20:31

          Point taken, but whatever the Greeks don't pay back to the EFSF will have to be paid by other Eurozone countries, as that's how the EFSF guarantees work. So it isn't just about whether it's fair for Greeks to pay for what their government borrowed, but whether it's more fair for Greeks to pay or for everyone else in the Eurozone to pay for what elected Greek governments borrowed.

          Reality has said for some time that Greece can't pay, and therefore some of it should have been written off. But that's more about pragmatism than fairness.

          FilthyRichBanker Wily Ways 30 Jun 2015 20:30

          He could do what the rest of Europe does and make paying taxes compulsory rather than voluntary for a start.

          Cut the bloated Public sector and halve the defence budget in line with the rest of Europe - and sell off the $50bn of assets they previously agreed to.


          Bardamux Michael Richard Allen 30 Jun 2015 20:29

          Ignorant it is then. So i'll explain it to you step by step.

          1) If you deposit money in a bank, you are loaning the bank your money. And in many countries you will get a small interest rate for it.
          2) it is considered a short term loan, because you can withdraw it at (almost) any time.
          3) Remember Icesave in the UK ? That bank did not pay its depositors
          4) Other banks received hundreds of billions of euro's / pounds / dollars
          5) Banks could loan money at almost 0% even with terrible collateral to help them survive
          6) Greece will pay its debt if they receive half or even less help than the Dutch and UK banks did.

          Get it now or do you need more steps to help you out ?

          Omniscience Danny Sheahan 30 Jun 2015 20:29

          Most of the Debt is dormant thanks to the EU

          http://uk.reuters.com/article/2015/06/28/uk-eurozone-greece-debt-factbox-idUKKCN0P80XU20150628

          Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.


          Omniscience 30 Jun 2015 20:27

          To be fair, they have only been lying about reform since joining the Euro.

          2005 : Greece faces up to taxing times

          Greece plans to offset a projected shortfall this year in tax revenues with a €2bn securitisation deal, in spite of European Commission strictures against the use of one-off measures to reduce the budget deficit. George Alogoskoufis, finance minister, said in an interview with the Financial Times that the transaction would enable Greece to achieve this year's budget deficit target. He also stressed securitisation was "a temporary measure that will give us time to bring about permanent structural corrections".
          Joaquin Almunia, the European Union's budget commissioner, signalled acceptance of this year's planned transaction during a visit to Athens last week but urged Greece to accelerate structural reforms next year.

          http://www.ft.com/intl/cms/s/0/0c99809c-3abd-11da-b0d3-00000e2511c8.html


          TerryChandler OnTheRobertELee 30 Jun 2015 20:26

          The problems of Greece haven't happened since "a radical populist party" was elected. On the contrary, the present government was elected because of the problems.


          Danny Sheahan outsiderwithinsight 30 Jun 2015 20:23

          Not at all, it means that Italy and Portugal are next.

          If Greece leaves and its hard to see how they will not at this stage then the Euro has become a non-permanent currency arrangement that the EU or ECB will not defend its integrity.

          That marks it out as different from every other currency in the world. Only currencies that have allowed that in the past went on to be all failed entities.

          CambridgeAfterDark 30 Jun 2015 20:25

          Splendid, send a message to all banker gangsters everywhere.
          Best way to deal with a bully, is hit them back.
          Guess the right-wing trolls on here look pretty silly now, all saying last week the FTSE would rally upwards upon a Grexit!


          BunyipBluegum robbyevans 30 Jun 2015 20:20

          The present circumstances in Greece were inherited by the current government from the previous right-wing government, which managed to bring them out by faithfully following the austerity prescriptions of the Troika.

          However both left and right-wing governments of the past, who created and hid the enormous debt, are also to blame.

          coxinutant 30 Jun 2015 20:16

          A continued austerity programme makes it unlikely that Greece will be able to grow economically. Continued economic pain-> lower ability to repay debt. So all those people who get on their hig horse and demand that Greece repay its debts should keep in mind that debt cannot be repaid when you have 25% unemployment, when wages plummet and people cannot spend to make the economy grow. If austerity had been the miracle cure, it would have worked years ago. So stop bandying about terms like 'communist' and 'marxist' and all that BS. The current government in Greece did not create the crisis, the austerity, the 25% unemployment. The crisis was created by an irresponsible banking sector, which was then bailed out by your money (yeah ordinary Joe, looking at you). Austerity was hatched by The IMF, against the advice of sensible economists...

          And it hasn't worked. And I am sure the 'marxist' policies of Syriza did not create the enormous unemployment that Greece faces. Last time that occured in Europe, fascist governments came to power, aided by pro-fascist symptahies in France and the UK...


          BunyipBluegum -> peter nelson 30 Jun 2015 20:14

          It was the Greek governments of the mid 2000s, who were corrupt and nepotistic. If it was them and their wealthy friends who were going to carry the can for this, then I'd say well deserved.

          But the whole reason why Syriza is against the austerity program is that it doesn't greatly affect these people, but it DOES greatly affect ordinary Greeks, especially the working class, elderly and vulnerable.

          Also it hasn't worked. If you were prescribed a foul medicine by your doctor that made you feel sick and weak, and then failed to cure your problem, would you be inclined to go back for another dose?

          AtomsNest -> echoniner 30 Jun 2015 20:14

          If they actually wanted payment, they'd be reasonable. But payment isn't their priority, these organisations want power over Greece.

          [Jun 30, 2015] The Limits to Growth and Greece Systemic or Financial collapse

          Jun 30, 2015 | resilience.org

          The results of the "standard run" (or "base case") scenario of "The Limits to Growth" 1972 study. Could it be that the ongoing Greek collapse is a symptom of the more general collapse that the model generates for the first two decades of the 21st century?

          So, we have arrived to an interesting point, to be intended in the Chinese sense of a curse. It is the point where the people of Greece are being asked to choose between starvation and slavery and this is supposed to be a triumph of democracy

          As the tragedy unfolds, people take sides, aiming their impotent rage at this or that target; the Euro, the bureaucrats of Brussels, the Greek government, Mr. Tsipras, some international conspiracy, and even Mr. Putin, the usual bugaboo of everything.

          But, could it be that all the financial circus that we are seeing dancing in and around Greece is just the effect of much deeper causes? The effect of something that gnaws at the very foundations not only of Greece, but of the whole Western World?

          Let's take a step back, and take a look at the 1972 study titled "The Limits to Growth" (LTG). Look at the "base case" scenario, the one which used as input the data that seemed to be the most reliable at the time. Here it is, in the 2004 version of the study, with updated data in input.

          [Jun 30, 2015] Russian culture minister calls for tax on Hollywood films

          Jun 30, 2015 | The Guardian

          DavidEG 30 Jun 2015 00:26

          They (Hollywood staple) should be taxed the same way as tobacco or controlled substances. Full of violence, harmful to mental well-being of children an adults alike.

          HollyOldDog wereallfuckedboy 29 Jun 2015 18:54

          The UK government should have given the Hollywood WWW2 films the the J rating for JUNK.

          Doors2distant 29 Jun 2015 18:29

          What an excellent idea, the quality can only improve. No car chases, cop porn, war porn or saccharin sentimentality.

          Ieuan 29 Jun 2015 17:15

          " he wants to introduce a sales tax that will be used to increase funds for local productions."

          In just about every market Hollywood films gross the most. But in many markets (fewer and fewer as US companies take over their own local distribution) they are distributed by local distributors, who then invest some of their profits into local productions - hence some of the Hollywood blockbusters' moneymaking gets routed into supporting the local industry.

          If (as I suspect) the Russian distributors of Hollywood product are owned by Hollywood studios, and do not produce anything locally, then I think it's fair enough that the government steps in and routes some of the money made into local industry.

          olliemaple 29 Jun 2015 16:52

          Exceptionally right decision indeed. It's only fair that whoever watches that Hollywood crap should be extra taxed in favor of positive domestic productions. Not unlike cigarette sales.

          Alderbaran 29 Jun 2015 10:36

          Many Russian films could be considered to be great and to me trump much of what comes out of Hollywood. However, it was a shame that Medinsky saw no merit in Leviathan and I'm probably one of many who see Medinsky's actions as political in nature, especially given the criterea for state funding of films in Russia.

          It is a shame to see the state increasingly policing the film industry in Russia but I'm certain that creative directors will still be able to work within the constraints.

          Tilipon -> dropthemchammer 29 Jun 2015 08:24

          countries who passed through state coup. Look in root but not in a peak...

          [Jun 29, 2015] Greece crisis: markets begin to tumble as investors flee

          Jun 29, 2015 | The Guardian

          Markets suffered across Asia on Monday as Greece shut down its banks for a week ahead of an increasingly likely debt default.

          Oil prices declined and the euro edged down against the dollar, while Tokyo's Nikkei 225 index fell 2% to 20,283.98 points. The Shanghai Composite Index was off 0.4% at 4,178.56 despite China's surprise weekend interest rate cut.

          Hong Kong's Hang Seng lost 1.7% to 29,192.67. Seoul's Kospi shed 1.6% to 2,057.52 and Sydney's S&P/ASX 200 was off 1.8% to 5,447.80. Market benchmarks in Taiwan, Singapore and New Zealand also fell sharply.

          Turmoil in Asia had been widely expected after the failure of 11th-hour talks in Europe over the weekend raised the possibility of a Greek exit from the eurozone.

          More than $35bn was wiped off the Australian stock market in the first hour of trading on Monday as investors braced for what could become a torrid week.

          Earlier the euro dropped more than 3% to 133.80 yen, its lowest level for five weeks. The common currency fell as much as 1.9% to $1.0955, its lowest level in almost a month.

          More on this topicGreek debt crisis: the key points of Athens bank controls

          The US Treasury secretary, Jack Lew, stressed the need for Greece "to take necessary steps to maintain financial stability" ahead of the referendum.

          He told the Greek prime minister, Alexis Tsipras, on Sunday that Athens and its creditors needed to continue working toward a resolution ahead of a Greek referendum on 5 July on the creditors' demands for austerity.

          US stock futures dived 1.8%, hitting a three-month low, while US Treasuries futures price gained almost two points.

          A cash-strapped Greece looks certain to miss its debt repayment on Tuesday as Greece's European partners shut the door on extending a credit lifeline after Greece's surprise move to hold a referendum on bailout terms.


          robtal 29 Jun 2015 08:43

          We can print all the money we want all over the world to save every banker, financial wizard, and insurance company . But one little country like Greece is the scape goat these financial criminals use to bring fear and control to the rest of the world. These are evil less than human monsters that run these world banks.


          Paul Hawkins 29 Jun 2015 08:31

          The World is being run by a group of financial gangsters such as the Rothschilds and 30 to 40 of the richest people in the world: Karen Hudes is a graduate of Yale Law School and she worked in the legal department of the World Bank for more than 20 years. In fact, when she was fired for blowing the whistle on corruption inside the World Bank, she held the position of Senior Counsel.

          She was in a unique position to see exactly how the global elite rules the world, and the information that she is now revealing to the public is absolutely stunning. According to Hudes, the elite uses a very tight core of financial institutions and mega-corporations to dominate the planet.

          Austerity is a lie as Countries use the Fiat monetary system and can produce money when they want, such as quantitative easing. It is the greed of the banks, that had to be bailed out across the world, that is causing the problem.

          The sooner these greedy selfish power hungry bankers are brought to book the sooner the financial markets would recover.


          Mark Foster Kenneth Stephen Besig 29 Jun 2015 08:17

          A large part of Syriza wanted out of the Euro because they were sure the Troika would not compromise on it's insane 'reforms' which had already destroyed most of the economy. Debtors prison's were abolished years ago in the UK, primarily because creditors realized it meant they would never get any compensation for losses while debtors were in gaol. Yet by insisting on repayments on an odious debt, we effectively put the whole of Greece into a debtors prison, and insisted on all the wrong IMF/ECB reforms that have always failed to resurrect economies in the past. We are still caught up in the idiotic Washington consensus/Jeffrey Sachs/ Hernando de Sotos models of development.

          In truth Greece should have left the failed euro project years ago. Iceland had the sense to get out of the Banks clutches, file bankruptcy and impose capital controls and start again. For the most part that as worked very well for them. Some will say Greece isn't Iceland, or nonsense like the Greeks are lazy (they work longer hours than the Germans), Greece has deep problems for sure and i'm not saying I'm confident Syriza have the program to fix them. But I'm 100% confident the demands of the Troika would only cripple them further.


          Myrtle7 29 Jun 2015 08:14

          Save Greece! A Kind Request to the EU Leaders and Creditors (Myrtle 7)

          I am writing this because today we are hours before a bitter end, perhaps, for Greece and the beginning of problems for the EU.
          A lot has been said about the Greeks living above their income for a long time or partying for a long time and these may have been true in many cases but the Greeks should not be punished now as they followed the example and attitude of some of their leaders. And, moreover, now, it is the poorer people, those with lower income, that are suffering, those that did not have the right "connections."

          The referendum arranged by the government seems like a democratic move but in fact it will be a desperate choice as the Greek people are asked to choose between suicide by drowning and suicide by hanging.

          If Greece goes into default it will be a catastrophe for the country; there is no currency to devalue. They have to re-create the drachma (it will take perhaps a year or more) which will be immediately devalued. How would these people, who are suffering already, cope? And if Greece defaults, I am not sure whether the Creditors will get their money within the next 50 years, anyway. Most seriously, the tense situation in the defaulted country, the low morale and possible disorder, would invite & unleash unforeseen dangers for Greece first, for other European countries later and the EU eventually; as we all know such situations can spread to the detriment of the people. Historic recurrence is here: the specifics and the actors change, but the result is similar. Moreover, it is common knowledge that there are forces, (they have their own agenda) which, wish, discuss in conferences, and even envision, the break up of the European Union, even as 'we speak'. If I am aware of this, I am sure the European leaders are aware too, for, as wise leaders, are conscious (or should be) of emerging situations long before they get out of hand. With around 6 million Muslims outside its northern borders, (excluding Turkish territories), Greece, will be an open, unprotected theatre for anyone who wants an easy passage to the west.

          The Creditors are part of the leadership or the Hegemony of European Union as they form the powerful financial aspect of it; usually, leaders who push think they facilitate progress; in fact they are blocking it. Yet, there are certain characteristics that wise leaders have and magnanimity is the most important one. They do not expect a poor, proud nation to fall on their knees. They would always offer opportunities for relief and growth. Lawrence Summers, US Treasury Secretary, suggested something which sounds as a good solution: the Creditors can write off a small amount of the debt now and perhaps ask for something that Greece, could, comfortably, add to their plan that would help growth; e. g. taxing certain accounts many Greeks keep in Swiss banks. Such a move by the Creditors would be wise, intelligent and humane.

          With this magnanimous act the Greeks would feel uplifted and stronger to face the odds. In my view, the most important attitude of the Leader is to make people feel they mean something within the group, but I may be wrong.


          John Kakkos DazzlingKarina 29 Jun 2015 07:04

          Lazy Greeks is a very racisti thing to say, espesially since Greeks work-hours exceed that of oher EU countries (including Germany). War reparations agreement was not accepted. Since in 1942, the Greek Central Bank was forced by the occupying Nazi regime to loan 476 million Reichsmarks at 0% interest to Nazi Germany. In 1960, Greece accepted 115 million Marks as compensation for Nazi crimes. Nevertheless, past Greek governments have insisted that this was only a down-payment, not complete reparations. The 300 bn were not given to Greeks but to banks. 30% of Greeks are iving below the povery line. Unemployment is 26% (60% to young) and 16% cant even provide daily food needs. EU is not to blame, nor it is Greece. This financial system is just not working.


          Aboutface 29 Jun 2015 06:47

          There are "invisible hands" weaving the thread of EU-Euro through the IMF needle in this Greek tradegy. One of the comment here by Steven Tracy on the Rothschilds and Rockerfeller seems about right...a force majeure / fire sale of prime assets and not to dismiss, there are very wealthy Greeks with offshore accounts, like vultures over a soon to be cadaver. Next move, the "Alexis Tsipras surprise" call option.


          pauline7883 29 Jun 2015 06:40

          the greek people have the right to this referendum they have to decide if the deal is acceptable whether they can cope with the continuing austerity. the financial institutions of europe have acted disgracefully
          the greek government should begin an audit of the books looking at the loans/debts owed by greece to see if there was any illegality and prosecutions should follow

          SEADADDY 29 Jun 2015 06:35

          So, as Greece slips into the financial abyss, it's the common man/woman that gets the pain, the punishment and the price tag of bankers ineptitude, greed and Houdini escapism. The bankers, corporate investors and politicians get away with grand gambling and larceny of incredible scale, without so much as a slap on the wrist. It wasn't the small man in Greece that caused the crisis. It was the Niarchos's and the Onassis's & etc that caused the downfall, with getting away with not paying their fair taxes, flags of convenience, double dealing and tax havens world wide. It's high time that some government agency woke up and
          NorthernFella,29 Jun 2015 06:00

          They weren't ready to join the EU...

          I would say, weren't ready to join the euro. Interesting that you don't mention anything about the role of Goldman Sachs in this big scam.

          "Humiliation" - what idiocy.

          If accusing all the Greek of the ongoing (bank)crisis, using austerity (cuts directed to the disadvantaged groups mostly) as a medicine and calling them lazy is not humiliating I don't know what is.

          And the idea that they were being 'starved by austerity' is ridiculous. They were starved by their corrupt practices.

          Let's take measures of that how much the neoliberalist austerity policy has affected those in the most vulnerable position and let's compare it to the times before austerity. Sure the situation has been bad for a long time before the crisis but austerity brought real hell.


          Luckyspin marcus_rm 29 Jun 2015 05:34

          The Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund's own rules and is in open contradiction with five years of analysis by its own excellent research department and chief economist, Olivier Blanchard.

          Objectively, it is acting as an imperialist lackey. The IMF enforced brute liquidation without compensating stimulus or relief. It claimed that its policies would lead to a 2.6 % contraction of GDP in 2010 followed by brisk recovery.

          What in fact happened was six years of depression, a deflationary spiral, a 26 % fall in GDP, 60 % youth unemployment, mass exodus of the young and the brightest, chronic hysteretic that will blight Greece's prospects for decades to come, and to cap it all the debt ratio exploded because of the mathematical – and predictable – denominator effect of shrinking nominal GDP.


          George Vasilakakos deskandchair 29 Jun 2015 05:27

          very poorly served Greece is by its media

          That's the key point. You see the Greek media groups are run by the same oligarchs who've been buying our politicians. They owe hundreds of millions to the Greek banks, along with the political parties, between them it must be around a billion. The banks were unwilling to collect on those debts, got bailed out and we are footing the bill...

          NorthernFella Phil Murray 29 Jun 2015 05:25
          Well, that's why I'm writing about "near-racism". Greece is schizophrenically seemed as the cradle of democracy and the Western culture but as Gerold reveals the opinion of many by the comment:

          Nonsense. The Greek nation and people have failed to grow into a modern responsible state. They are still living like an Ottoman Province, trying to short-change the Sultan.

          Many are still romanticizing the ancient times and are disappointed as they see the times have changed. Many are wondering (bitterly) how the modern day Greek are so different from the ancient times. In one book (a Finnish version of Traveler's history of Greece, I think) it was written (in introduction) something like this: "are those hot-tempered noisy people really descended from the ancient Greek?".

          When adding to it Gerold's views on Greece as a nation that is still living like "an Ottoman Province" it's easy to extend near-racist stereotypes even further. Now we're talking about "lazy Greek who just lie down under the palm trees, waiting for the next bailout". Of course there are stereotypes related to each nation but they get always stronger when we are going to the south and they are told by "harder-working northerners" ...

          I'm looking forward to the Greek people correcting their previous election error

          Should the Greek vote only for "rationalist", pro-euro, business-oriented right-wing parties who are ready to starve their own people to death? It sounds travesty of democracy and would prove that economy has replaced democracy.


          Theo Krom 29 Jun 2015 05:14

          The markets. already have lost much more money than if they were agree to restructure, not necessarily write-off, the Greek debt. If we count the profits the markets would gain after such deal would have been announced then it seems that whatever is happening is a clear and utter irrational thinking orchestrated by the allegedly proponents of rational economic thinking...

          Policy for the contemporary markets, seems to be much more important than free markets. Free market is an illusion, an excuse for the banks to suffocate democracy, using pseudo-politicians as their most valuable gatekeepers....Well, the actual neo-liberalism has been implemented in a very distorted manner, exactly as happened with socialism... Actually, both lead to utter misery!!!

          29 Jun 2015 05:12 ;
          This is what the private FMI corporation owned by the private federal reserve corporation of USA has planned for ALL our countries. I's the Rothschields, the Rockfellers etc... The 1% that are behind all this.

          Can't you see USA is deep in debt and nearly bankrupt, just like most of the western countries and Africa. They lend us money, put us deeper in debt, and we pay them back only the interest of the debt ???

          This has all been carefully planned since the creation of the private federal reserve corporation in 1913 to rob our assets and control us.

          One example. Watch Karen Hudes, former lawyer of the FMI for 20 years, reveal it all : https://www.youtube.com/watch?v=MhTvsDuP-rg

          This is why the BRIC countries have come together to ditch the US dollar.

          Better than Eduard Snowden on the NSA.


          GRJones Mark Foster 29 Jun 2015 04:51

          Iceland is often held up on these pages as a shining example of the wealth and riches that flow to you if you reject austerity. It shouldn't be. Iceland suffered enormous economic contraction after its rejection of bailout conditions, and while the economy is growing, GDP is at about the level it was in 2004, unemployment is still well above pre-crash levels, and prices are 50% higher than they were before the crash. The steep devaluation of the currency by 50% meant that everyone in Iceland took an enormous hit in terms of real wages, and because most Icelandic mortgages are linked to the Euro theses have effectively doubled, while their homes have halved in value, leaving much of the population in negative equity. They have enacted massive austerity, more than any country in Europe bar Greece, slashing their deficit from 15% to less than 1%. The fall in living standards has been severe enough that the Icelandic people voted the parties that came into power after the rejection of bailout terms out of office, and reelected the party that was in power before the crash. The lesson to be learned from Iceland is that economic collapse means pain, no matter what you do.

          someoneionceknew ID5590609 29 Jun 2015 04:50

          Do you realize that the European rules prevent the ECB from funding member countries, as well as prohibiting national bailouts

          Sure. But why aren't you Germans subject to the rules too?

          The rules don't work. They can be changed fairly easily. Why not if it stops people starving and otherwise being persecuted through no fault of their own?


          ID5590609 mjmizera 29 Jun 2015 04:38

          Creditors already took a 50% haircut on Greece debt, and the conditions of Greece's bailout loans were extremely generous, with very low interest rates and exceptionally long payment terms. The terms and conditions were better than what was offered to Spain, Portugal and Ireland, and those countries actually implemented the demanded austerity reforms and are now experiencing growth.

          Greeks don't need their debt forgiven. Greeks need to start paying taxes and reforming and managing their economy like a respectable first world nation, not some banana republic. Why should Europeans and others show solidarity with Greeks when Greeks fail to show solidarity with their own people and their democratically elected government?


          Overdog81 29 Jun 2015 04:36

          The past Greek politicians are responsible for bringing this debt to current levels. There's no doubt about this.

          However, the current government found itself at the edge of a cliff. 6 months of negotiations and the issue of restructuring or writing off a non viable debt never came on the table by Greece's creditors. Basically Greece is begging for money that only go towards paying this huge debt and never into the real economy. Austerity measures are applied just to pay the debt's interest which has become huge (twice the size of Ireland's and Portugal's combined) .

          What Syriza is doing now is the only option it has in order to make the debt viable and end austerity for its people. The timing of the referendum on friday night and capital controls on Sunday night (banks closed for a week and stock market closed on Monday) point towards this way. Its a huge gamble in order to reach an agreement but possibly the only hand Greece could play in order to shake off the markets and thus its creditors.

          I truly hope an agreement is reached before the referendum so that everyone walks out happy especially Varoufakis and the Greek people who would get the best deal they could ever dream of. On the other side, a debt relief decision seems the only road for the imf and eu partners. Its a debt that could never be paid anyway so why risk?


          Arthur Buse 29 Jun 2015 04:36

          I had thought it was only Samuri that chose harakiri. But Alexis has done the EU a great kindness by throwing the Greek people to the dogs of famine. He has helped the cause of breaking up the Euro and even, dare we hope, the EU. Ever closer union was always a grave danger. It never went well for the USSR and it ended in tragedy. The EU will eventually go the same way. The USA is quite different. They adopted a common language before trying for a common currency and common Federal taxes. The EU will not manage the former and has not got the will to manage the latter. The Euro was therefore always doomed and now the EU needs to return to individual currencies and the EEC.

          > ID5590609 29 Jun 2015 04:34

          Germany is the largest net contributor to the EU. They will bear the brunt of any aid extended to Greece.

          If Germans bear any loss then it is their own foolishness for trusting their politicians. Why are Germans on the hook for bailing out their own banks?

          Greece has been an economic failure for their entire modern history, including well before they joined the Euro. They want to be live and be treated like a rich first world economy, yet run their country like banana republic. It's readily apparent that other Europeans will no longer fund or subsidize a lifestyle that Greeks cannot independently afford. Greece essentially partied on northern European largesse, but the bill is now due.

          That's just cut and paste racist cant. Germans should know better given their history.

          Your feelings about capitalism

          Oh, you still don't understand what mercantilism means? Good lord.

          but what do you think is going to happen when Greece is "independent" and has to reintroduce the Drachma.

          Depends on many factors I'd say. But what are you offering?

          ID5590609 someoneionceknew 29 Jun 2015 04:23

          Germany is the largest net contributor to the EU. They will bear the brunt of any aid extended to Greece. That is why the opinion of the Germans is so important when considering any action on Greece.

          Greece has been an economic failure for their entire modern history, including well before they joined the Euro. They want to be live and be treated like a rich first world economy, yet run their country like banana republic. It's readily apparent that other Europeans will no longer fund or subsidize a lifestyle that Greeks cannot independently afford. Greece essentially partied on northern European largesse, but the bill is now due.

          Your feelings about capitalism notwithstanding, things must drastically change in Greece. You claim to oppose the Eurogroup's and IMF's purportedly cruel demand for austerity and reform. That's fine, but what do you think is going to happen when Greece is "independent" and has to reintroduce the Drachma. Socialist solidarity is not going to fund imports of food, fuel, medicine and other essentials. There will be austerity in Greece, either organized with their European partners, or resulting from the chaos of financial incompetence. Greece is going to have to continue to painfully adjust to a lifestyle commiserate with their true GDP, earnings and economic value. The good old days are gone.

          > ID5590609 29 Jun 2015 04:05

          They're not asking for money or aid?

          They are not asking for Herr Schauble's (or his ilks') money or aid.

          major economic reforms

          More counterproductive austerity. More poverty, more privation, more labour bashing, more suicides.

          "mercantilism" (which I assume is meant as a juvenile reference to capitalism)

          So I'm dealing with an idiot.

          Germany has generally learned the political and economic lessons from their own unfortunate history, everyone from WW1 reparations and the risks of inflation, the horrors of WWII,

          Clearly it has not. Quite the opposite.


          Carlo47 29 Jun 2015 04:03

          Only the American Treasure understood the gravity of the situation, but it's odd that they don't give appropriate instructions to the IMF and namely to the chauvinist Ms Lagrande, who continues in its absurd hard line more on measures that on the debt.

          On the other end Mr Schäuble and Mr Dijsselbloem must be happy that investors flee.

          They have only have a bit of patience, until the contagion will arrive in Germany and Holland.

          Anyhow, if they are honest, both should resign for clear inability to do their job and to understand the heavy drawbacks of their dummy hard line, as supposed and false financial experts.

          The German Government and the EU heads should slap the door in their face and send them away.


          CanadaChuck ID9492736 29 Jun 2015 03:53

          I had thought that Greece was unimportant overall in the EU. What will happen when Italy and Spain collapse? I guess the UK won't have to bother leaving the EU.


          Ian Crowther slingsby1000 29 Jun 2015 03:49

          Agreed Slingsby, so a lot depends on the post management of crisis as we see in Argentina and Turkey, its not plain sailing, far from it. But being enslaved is worse, and paying on the never never, feeding German and French income is not the way to go Fault lies on both sides, nobody comes out of this smelling of roses.

          The EU construct was a nonsense form the very start, a union of unequals, instabilities and too many externalities to manage that technocrats have little idea on how to manage in complex situations.


          Lanceowenmorgan Kompe75 29 Jun 2015 03:42

          Ya the Forth Reich is coming and it seems Putin is the only one smart enough to see it


          ID9492736 29 Jun 2015 03:40

          Barely half an hour after opening, the German Stock Exchange index (DAX) is down almost 5%, which is dangerously close to a system meltdown. The German moneymasters are trying to intervene by pumping money into the exchange, but it's like putting a band-aid on the collapsing levee. The German nuclear reactor is overheating uncontrollably.


          Xenkar Stivell 29 Jun 2015 03:34

          True, ordinary people in Europe need to stand up and support the people of Greece, but sadly as spiceof so eloquently put it

          "These little conformists, the lowly prison guards of the elites, are the lowest form of humanity. Spiteful and small minded, they always want to "punish" those who dare raise their heads and complain."

          MrEurope Lupick 29 Jun 2015 03:31

          You do realize that what you wrote is beyond ignorance...? While I agree that the way market-news is brought is excessively dramatic, markets ARE for a large part a reflection of human productive activity, and productive activity tends to be... you know... the stuff that makes people money. Jobs. Earnings... roof over your head, and so forth... these things quite obviously matter.

          The problem is that humans absolutely suck at understanding the long term consequences and impact of small, tiny little (negative, but also positive) changes that accumulate over time.

          You know the famous example that if Jesus would have put one dollar in his bank account, he would (assuming 3% per annum interest) by the year 1000 he would have 7,080,467,438,104.71 dollars. (and more money than ever has or will exist in the history of Earth by 2015...) 3% does not sound like much... but all these small little additions do add up. And so if you're living in a world where every week or two there is a minor crisis here or there.... eventually it starts to matter. A lot. People put off investing. They spend less. There are less jobs... (which in turn compounds the problems...) and on it goes.

          Bottom line is - you and I know fuck all about advanced economics, just like the vast majority of posters here.


          Stivell 29 Jun 2015 03:28

          Lagarde and the European leaders have forced Greece into this corner and really should expect nothing more than the Greeks turning and baring their teeth. Ordinary people in Europe need to stand up and support the people of Greece against these relentless scaremongering money-obsessed bastards. Go Greece, bite that hand!


          Kompe75 29 Jun 2015 03:25

          If the Schaueble , Merkel and Jean Claude don't resign after the upcoming fiasco , then the investors will fire them.Remember my prediction.They will have a bitter end than DSK.


          D9492736 royaldocks 29 Jun 2015 03:16

          If you really, seriously believe that EU economy is so competitive that it can turn on the dime and adjust to the coming global economic meldown to its advantage and do so in the current political and economic timespace , I have a BIG surprise for you: you are dangerously delusional.

          First of all, the prices of ALL commodities, raw and unprocessed material EU economy needs to keep going are going to get sky-high because EUR will be hemorrhaging value until cows come home. And even if Mario Draghi and the idiots from Eurogroup come back to their senses tomorrow, it will have been too late: they already committed an act of economic suicide, and it is really too late to stop the head exit wound from bleeding to death now. Secondly, with the investors quitting the stock bubble like crazy, the amount of discretionary spending and funded demand is going to go down like a rock: Europe will be hit with AT LEAST a quadruple -whammy: (a) rigid and dogmatic austerity and money-supply strangulation (b) supply chain disruption (c) extremely weak demand and massively negative growth and (d) catastrophic consumer confidence index. Add to this list of nightmares a never-ending flow of migrants and refugees, ever-increasing pressure on social services, cost of funding of wars and military operations in Iraq, Syria, Libya, Aghanistan and elsewhere, the massive losses caused by the American-imposed sanctions against Russia (by most accounts, somewhere between $100 and $150 billion), the cost of containing the situation in Ukraine and bankrolling the bankrupt Ukrainian government and - on top of it all - servicing the sovereign debt, and you get a much clearer picture. There is absolutely no way - not even a hypothetical chance - that European economy can weather out this tsunami unaffected and unharmed. EU should consider itself lucky if they do not lose 20-30% of its entire economy in the next month or so.

          If I were a German retiree, I would be queuing up at the local ATMs as we speak. Because, yes, it's the end of the Eurozone as we know it.


          spiceof 29 Jun 2015 03:12

          Amazing how the Greek subject matter brings forth the establishment sadists out en masse, demanding that punishment, penury and the bubonic plague be visited upon that rebellious country.

          These little conformists, the lowly prison guards of the elites, are the lowest form of humanity. Spiteful and small minded, they always want to "punish" those who dare raise their heads and complain.

          iruka Lupick 29 Jun 2015 02:56

          Important point.

          Of course it's worth bearing in mind that people like StrategicVoice213 aren't really concerned with contrasting good people and bad people, lazy people and hard-working people, etc..

          Take a closer look, and 99 times out of 100 it's amply clear that their only real interest is in defending the authority and legitimacy of the institutions that they see being threatened or insulted by those they're calumnying.

          The actual behaviour or character of this person or that nation is of no real consequence to 213's . Any old lie, projection or blinkered misconstruction will do.

          It's the need to preserve sanctified hierarchies of power that engages them.

          Or more accurately (since they're clearly all sad little creatures of no importance whatsoever, and no capacity to preserve anything, for whom an identification with power provides them with something clearly lacking in their actual lives) it's the need to glorify power, and all its ways and entitlements.


          Lanceowenmorgan slingsby1000 29 Jun 2015 02:55

          Who the fuck was the dumb ass(es) who would lend Greece all that money?
          €386,000,000,000 to a country with a population of what 6-10 million? That's mathematics son you can argue with me but you can't argue with figures. Apologies to Foghorn Leghorn. But I think all comes down to greed.


          truthbetold13 borninthe80s 29 Jun 2015 02:50

          Such a pathetic cliche, a real twatcherite/conmoron lie. By bloated public sector you just mean that more things are run by the government instead of by big business. Nobody here being ripped off by utilities/ rail/private landlords etc thinks this is a better arrangement. What you have is higher prices, worse service, less equal pay within those sectors, systemic tax evasion by business and its bosses. Give me a state controlled service any day.


          JohnnyMorales 29 Jun 2015 02:45

          This should be the quote of the day:

          Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group in Tokyo, told Bloomberg News: "In the face of pressure from the eurozone to accept austerity measures, the Greeks answered that it's hard to live just on water."

          The Japanese have never been considered softies. If they are describing the EU demands as too much, then they are definitely too much.


          FactualEvidence 29 Jun 2015 02:45

          The EU needs Britain to stay in the EU for one reason only and its financial.

          The EU have ploughed in billions and billions of tax payers money into several different countries bailouts not just Greece, including Portugal, Spain, Cyprus, Ireland, Hungary, Latvia and Romania.
          A total amount of 487.75 BILLION Euros has been given to these countries and that's since just 2008.
          So rather than the EU getting stronger as united nation's it is getting worse.

          The EU Commission, MEP's, LIBLABCON parties and BBC don't tell you that information. You have to research it yourselves on Wikipedia.

          So my three questions to all those Europhiles are.
          If being in the EU is so great how come so many countries have to rely on hand out?

          If so many countries need billions to even provide essential services to survive. Where is this great trading economy?

          Why is it not working for so many millions of people?

          Go to Wikipedia and see how the monetary crisis is getting worse for all the countries not better.
          Google : European Debt Crisis, and check out the chart around the middle of a very long page.

          Were would the EU be without the billions we put in to it and on top of that all the VAT tax they get from us, YES VAT. Did you know that it was through EU ruling you pay VAT on your utility bills?


          philbo Miamijim 29 Jun 2015 02:36

          The IMF is mainly responsible for this mess.

          ID9492736 stringvestor 29 Jun 2015 02:36

          http://www.reuters.com/article/2015/06/29/markets-global-idUSL4N0ZE0IK20150629

          betrynol 29 Jun 2015 02:32

          Good thing Europe is ring-fenced to the risk of contagion....

          The ECB will have to buy more Spanish and Italian bonds this week than the entire Greek debt, and then bailout these countries so they can buy back the bonds (Greek style). Oh well, if they say they've got it covered, it's fine I suppose... (shakes head in haughty derision).

          ID9492736 29 Jun 2015 02:32

          A picture worth $60 trillion words:

          http://www.allstocks.com/markets/World_Charts/world_charts.html

          The only markets still in the black are the markets that haven't opened yet. When DAX and FTSE open, the shit tsunami is REALLY going to hit the austerity fans.


          JohnnyMorales 29 Jun 2015 02:29

          The loss of value across the world even if most of it is just temporary is many many times more than Greece's entire debt.

          Yet because the EU troika wanted to win a moral battle and teach a wayward Greece a moral lesson and make impossible demands and accept the humiliation entailed in caving they opted to create those losses.

          Greece only asked for some extra help. They did not make outrageous demands like the troika.

          If anything good comes out of this may it be the end of the careers of those who think the financial world is the proper place to stage morality plays devoid of any financial purpose which cost far more than the alternative.


          Ian Crowther 29 Jun 2015 02:28

          This is the end game, and has been Greece's plan from the new Government taking power. The left want Grexit, and they will get what they wish for now, independence from a failing political and financial EU construct.

          This may work well for Greece in the mid term, sure, its going to be tough on the people, but at least the Government will not be debt slaves now, reset the currency, devalue the economy so it can compete again, lower taxation to bring in big business, and begin to build a new economy based on what the Greek people want, rather than 85% of the money Greece leant eventually being paid back to the rentiers from which the cash came. Now zero will be repaid, and EU banks will have to suffer the losses, a drop in recapitalisation, and a hit to the recovery.


          Lanceowenmorgan ID9492736 29 Jun 2015 02:24

          I agree. FUCK ALL YOU NEOLIBERAL & NEOCON mother fuckers


          LeonardPynchon borninthe80s 29 Jun 2015 02:24

          Some perspective in the below piece - might help you:

          https://theconversation.com/greece-woes-show-how-the-politics-of-debt-failed-europe-42787

          The Financial Times' leading commentator Martin Wolf recently argued that "the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors", that is, primarily, European banks and financial institutions. After exposing the futility of austerity, ex-IMF economic advisor Jeffrey Sachs recently declared: "Europe's leaders are hiding behind a mountain of pious, nonsensical rhetoric" risking an economic and social disaster "in order to insist on collecting some crumbs from the country's pensioners".

          Describing the treatment of Greece as "the Iraq War of finance", Daily Telegraph's Ambrose Evans-Pritchard wrote: "rarely in modern times have we witnessed such a display of petulance and bad judgement by those supposed to be in charge of global financial stability."


          dzogchen 29 Jun 2015 02:23

          Five lost years for the Greeks it seems. From the market's perspective those years have been all about maneuvering the banks from out of risk. Now that work is done as the losses are laid squarely in the public lap. The markets of course don't give half a toss about Greek people, empathy isn't part of their nature, so might as well do what should have been done five years ago. All the best to the people who will pay the price for all this shenanigans. Kali tihi!

          BeamEcho Tim Roberts 29 Jun 2015 02:21

          This is not new for the IMF, their mandate includes providing policy advice to their members. They review the economic policies of their members. When they lend money they require economic policy changes...

          Ian Crowther IndependentScott 29 Jun 2015 02:18

          Greece will not have to repay the debt, they will walk away, default and never repay. It is the banking system and rehypothecated debt that will suffer, and the banks that have leant the money to France and Germany. European banks have only just been recapitalised, and losing another €300-400bn will hit the Euro recovery hard at a time when QE is being rolled out. The answer will be print more money.

          Normin 29 Jun 2015 02:17

          The banksters are just waiting for a scapegoat to pin their non sustainable economic system failure on. Meanwhile the elite will profit as the masses bleed. It can't go on like this forever it's just a matter of when.

          Kompe75 29 Jun 2015 02:14

          Juncker announces a campaign to support "YES" at the greek referendum..

          Another sign these people consist the out-of-touch neoliberal elite..

          Does he really believe Greeks , who have suffered enormously , will sign a appalling deal that's going to define the misery of generations for the next decades ? Just because he wants to remain President in the dictatorship of Brussels ? I live for the moment Juncker comes in Athens...the whole place will go up in flames.

          john4108 29 Jun 2015 02:09

          yes all going acording to plan the sacred " markets" are indulging in the usual lemmng like behaviour while the banksrs try to convince everyone that,the have the medicine that we all need . Casino capitalism writ large. Eventually, unless we want endlessly repeated crises and utter destruction on this plant, mankind will have to come up,with a more resilient economic system.

          Islam is waiting in the wings and usory is a crime in the Koran. Of course Jesus threw the money lenders out of the temple....but Judeo-christianity has conveniently forgotten that.

          [Jun 29, 2015] Shares slide as deepening Greek crisis shakes global markets

          Jun 29, 2015 | The Guardian

          The commission reiterated on Monday that the door remained open to a deal.

          Jean-Claude Juncker, the European commission president, was expected on Monday to appeal to Greece to return to the negotiating table, but would not make any fresh proposals.

          On Sunday, the commission took the unusual step of releasing the draft bailout agreement that creditors had been negotiating with Greece before talks broke down.

          "We are some centimetres away from an agreement," tweeted Pierre Moscovici, France's European commissioner, adding that there was an open door to further talks. "We must find a compromise. I want a reformed Greece to stay in the eurozone without austerity."

          A bank manager explains the situation to pensioners waiting outside a branch of the National Bank of Greece hoping to get their pensions.

          A bank manager explains the situation to pensioners waiting outside a branch of the National Bank of Greece hoping to get their pensions. Photograph: Yannis Behrakis/Reuters

          Meanwhile, Angela Merkel will hold emergency talks with senior German politicians on Monday afternoon.

          The German chancellor spoke to the US president, Barack Obama, on Sunday, with the two leaders agreeing it was "critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone", according to a White House statement.

          The US Treasury secretary, Jack Lew, spoke to his counterparts in Germany and France, as well as Tsipras and the head of the IMF, Christine Lagarde. The US is urging all sides to resolve the crisis: it has called for Greece's creditors to discuss debt relief ahead of Sunday's referendum, but is also counselling Athens to adopt "difficult measures to reach a pragmatic compromise".

          In a brief, televised address to the nation on Sunday night, Tsipras blamed the eurozone leaders. He did not say how long the banks would remain shut, nor did he give details of how much individuals and companies would be allowed to withdraw once they reopened.

          In the early hours of Monday morning, Tsipras published a decree in the official government gazette setting out the capital controls to be imposed. The decree – entitled "Bank Holiday break" – was signed by Tsipras and the Greek president, Prokopis Pavlopoulos.

          It said all banks would be kept shut until after the referendum on 5 July and that withdrawals from cash machines would be limited to €60 – about Ł40. Cash machines were not expected to reopen until later on Monday.

          Foreign transfers out of Greece are prohibited, although online transactions between Greek bank accounts are to continue as normal. Tsipras insisted that pensions and wages would be unaffected by the controls.

          Greece's finance ministry later announced that the strict ATM withdrawal limits would not apply to holders of credit or debit cards issued in foreign countries. This was viewed as a necessary move as tourists were spotted joining locals in front of ATMs on Sunday. Any similar restriction would hurt tourism, Greece's sole thriving industry, which accounts for at least a fifth of economic activity.

          Tsipras said Saturday's move by the eurozone's finance chiefs to halt Greece's bailout programme was unprecedented. He called it "a denial of the Greek public's right to reach a democratic decision".

          The commission said on Monday that Greece's capital controls were "necessary and proportionate", but free movement of capital would need to be be reinstated "as soon as possible in the interests of the Greek economy, the eurozone and the European Union's single market as a whole".

          Tsipras added that the finance ministers' initiative had prompted the ECB to curb its assistance, forcing the government's hand. The Greek prime minister, who has always insisted the crisis can only be solved at the highest political levels, said he had once again appealed for an extension of the bailout until after the referendum, sending his proposal to the president of the European council, Donald Tusk, the leaders of the other 18 member states of the single currency, the commission and the ECB.

          [Jun 29, 2015]European Leaders Insist Greek Deal Is Still Possible

          The neo-liberals running Europe have too much to lose by giving the Greeks a break -- especially the 'socialists' who have acquiesced in the suffering of their traditional supporters since the economic crisis began in 2007.
          .
          "...Austerity is precisely the opposite of policies required to revitalize a depressed economy. But it is exactly what a predatory financial cabal uses to squeeze the lifeblood out of victims it manages to snare with its promises of money now, pay later."
          .
          "...Sharpies in expensive suits take three-martini lunches at the expense of millions of people ensnared in their delightful little game and suffering to fund their luxuries for them. Debt is such a wonderful product. The gift that keeps on giving. You can even blame your victims by waging a moralistic finger at them: "You never should have borrowed the money in the first place!" What a rotten, selfish, greedy, antisocial game."
          .
          "...The theory seems to be that competing with Third World workers requires the 99% to accept Third World salaries and conditions... how else can the 0.1% keep their multi-billion dollar lifestyles?"
          Jun 29, 2015 | NYT

          Jerry Harris, Chicago

          European bankers can't stand the idea of a democratic vote on economic problems that impact millions of people. Neo-liberalism is a zombie economic policy, alive long after it should be dead. How much more suffering must the Greek people endure before anti-austerity policies are accepted as the only way out of the crisis?

          Todge, seattle 36 minutes ago

          When Merkel and Juncker say "compromise", it means " do what we tell you" . Tsipras recognizes that the creditor nations have a double standard and is calling it.

          The EU leaders are not happy. Unclear why. It's only Greek pensioners who'll have to eke out a misery on $250 a month.

          Sherry Jones, Washington 4 minutes ago

          Far too little attention has been paid to the darkest cloud on the horizon, the rise of right-wing extremism in Europe. As a result of austerity measures forced on Greek workers, such as reducing the standard minimum wage of $750 by 22 percent, people are increasingly, and quite rightly, bitter and angry. Punishing the working class and ignoring its 25 percent unemployment rate energizes destructive political forces in Greece such as the Golden Dawn party, which channels working class rage into rage against the "other", such as minority citizens and immigrants. This is a particularly bad time for anti-immigrant sentiment to take hold. It is worrisome to watch European leaders in this debt crisis fueling such nationalist and racist extremism.

          Tommy, yoopee, michigan

          It's unfortunate that the European Union will dissolve simply because European oligarchs refuse to pay higher taxes. This type of sickness that has occurred in the U.S. has apparently spread overseas.

          Sad to say, but even the rich are so blind to know that they won't have a pot to urinate in if the earth is burning up and the people are in revolt. Austerity worked in this country, meaning it worked to keep America in a prolonged depression after they first tried it in 1937. Will we ever learn? If history is a guide, the quick answer is 'no'.

          george, coastline

          Last week the Troika insisted that Greece further cut pension benefits and not raise taxes, If Syriza had agreed to that, they would have been discredited by their own electorate. One wonders if that wasn't the real goal of Europe's leaders- to send a message to the Spanish who vote in November and can express their opinion of austerity by giving power to Podemos.

          Now they're shocked and petrified that the Greeks will vote on their own destiny and say they are willing to compromise. But in the end, the neo-liberals running Europe have too much to lose by giving the Greeks a break -- especially the 'socialists' who have acquiesced in the suffering of their traditional supporters since the economic crisis began in 2007.

          condo, France

          I'm afraid today's slump in the markets has cost much much more than the money expected from Greece. Ideology has overcome economics in this instance, but pointing the finger at Ms. Merkel is not fair: the worst seem to be the visionless technocrats of the Eurogroup, not mentioning the IMF

          Jason, DC 6 minutes ago

          ""Europe cannot give permanent financial aid with no conditions," he said."

          But, they aren't asking for that. They are asking for a specific amount of aid with different conditions than what you want.

          condo, France

          I'm afraid today's slump in the markets has cost much much more than the money expected from Greece. Ideology has overcome economics in this instance, but pointing the finger at Ms. Merkel is not fair: the worst seem to be the visionless technocrats of the Eurogroup, not mentioning the IMF

          Jason, DC

          ""Europe cannot give permanent financial aid with no conditions," he said."

          But, they aren't asking for that. They are asking for a specific amount of aid with different conditions than what you want.

          Bill Appledorf, is a trusted commenter British Columbia

          Austerity is precisely the opposite of policies required to revitalize a depressed economy. But it is exactly what a predatory financial cabal uses to squeeze the lifeblood out of victims it manages to snare with its promises of money now, pay later.

          American homeowners suckered with teasers to purchase balloon mortgages that cost them their homes; college students roped into lifelong indebtedness with student loans issued by financial institutions that never in a million years would pay their fair share of taxes to fund free public education; third world countries driven to financial ruin by the tried-and-true strategy being employed in Greece: transnational PayDay loans on which interest payments are only made possible by rolling them over in perpetuity and loaning just enough to pay that interest every time another tranche is issued.

          Sharpies in expensive suits take three-martini lunches at the expense of millions of people ensnared in their delightful little game and suffering to fund their luxuries for them. Debt is such a wonderful product. The gift that keeps on giving. You can even blame your victims by waging a moralistic finger at them: "You never should have borrowed the money in the first place!"

          What a rotten, selfish, greedy, antisocial game.

          dolly patterson, silicon valley

          I really don't understand what the big deal is about keeping Greece in the Eurozone...their economy only makes up 2%. They can still stay in the EU along with 9 other countries who don't trade the euro dollar.

          If the EZ gives in to Greece, it set a precedence for others like Italy and Spain, etc., to not have to pay their dues.

          Jason, DC

          "If the EZ gives in to Greece..."

          Exactly...all those countries should be conquered, not treated like they were part of an equal union.

          Matthew, Auckland

          At least Merkel gets that berating/telling the Greek people what to vote in their own referendum proooobably won't help. The rich, angry technocrats doing the berating? Er, not so much.

          tony silver, Kopenhagen

          The Capitalist West lent billions of Dollars, for Greece to realize its Olympic Games, knowing that it was a risk, as Greece is one of the poorest country in EU.

          Now they demand their money back? Seems unrealistic.

          If Greece has no more money to pay its obligations, then someone should have transferred it to foreign banks. Money cannot evaporate like smoke.

          Billions of Dollars were driven by European and American money-men and invested in their banks.

          David, Sacramento

          Money can evaporate. Recall the Great Depression where stock prices plummeted between 1930 and 1932. That's when people jumped out of high-rise buildings, not 1929-1930.

          change, new york, ny 39 minutes ago

          Are we that careless and gullible? Greece does not have the money to pay today or at the end of the year. Kicking the can down the road is only for political reasons. Economically nothing will change.

          The Europeans are looking for something to stem the fallout, something they themselves created. The best for the Eurozone is for Greece to quietly exit from the group. The fallout will be less damaging for all if the Europeans are willing to make a simple but hard choice.

          That Greece will exit, should not be seen as a failure on the part of the Group. That is exactly what they are making this crisis to be.

          anon,

          Heather, a civil war would add MORE problems! Who wants more problems?

          I'm surprised no one has in-depth investigated a population of 11M people has over 350B euro debt in its euro lifespan. I believe savvier crooks have left them with their debts also.

          If Cyprus was offshore Asset banking, Greece appears to be offshore Debt banking. Not fair for 11M people to live like they abused the EMU by the decisions of a few. What is the history of Greek financials? Were they solvent before entering the Euro?

          What if crooks got Greece into the Euro, performed numerous financial crimes, used Greece, robbed Greece, deposited the money into Cyprus and crooked banks of Greece and Cyprus. In recent years Europe has confiscated illegal money and closed illegal banks. Greek bankers and businessmen look crooked also. So they play the part, while others ran off with over 300B euros.

          If you were to balance the funds, where did the 350B euros go? Each Greek should be a rich on the average. Only the average citizen suffers. THIS is a recurring pattern.

          KeithNJ, NJ

          Greek banks did not 'overlend'. The excessive lending to the Greek government was by non-Greek banks (perhaps the Greek banks knew better?).

          The Greek government used the money to double state worker's salaries over less than ten years and greatly expand the headcount. Some money was left over for benefits to the public.

          The Greek people, not surprisingly, apparently see their State as hopelessly corrupt and avoid funding it if at all possible. Now, other Europeans have come to the same conclusion.

          So the question was, and remains, what will the Greek people do about their State? That question does not go away regardless of whether they stick with the Euro or devalue with the Drachma. Either way the State cannot fund itself and has run our of people willing to plug the gap, whether Greek or non-Greek.

          su, ny

          As of today, If Greece leaves Eurozone, Greece some part of population will leave Greece permanently too. so Meanwhile EU incompetent bureaucrats couldn't even figure out how to deal with Mediterranean immigrants, now in their hand there is a legitimate prospective millions immigrant Greek people.

          EU is showing it's inner workings and that say only one thing :INCOMPETENT.

          su, ny

          No body in the world can say that 500 billion USD credit is given with under normal banking and financial procedures to 10,815.000 population country.

          That is not right.

          EU cannot wash its hands, this is entirely Greek's problem, EU and it's lenders are in this game and they did this to Greece knowingly and intentionally and now they are trying to capitulate a nation in pretext of World War one time Europe mentality.

          This is a very nasty game and power play, nothing else.

          German's bankers and Greek politicians collaborative work nothing else.

          P.S: some credit in this scheme also goes to Goldman Sachs.

          Carlos, Long Island, NY

          Tsipras responded to their 'take it or else' ultimatum with a referendum; what's wrong with it? What are the EU leaders afraid off? I would said that after 5 years of austerity that only shrunk their economy, Greek people have a good reason to say no more.

          They will go into a very bad couple of years but even that is better than eternal austerity with no economic growth. After the economy stabilizes, they will start growing and will do better. Just look what happened in Argentina.

          Simon, Tampa

          The Greeks need to call it a day and reject the Trioka's blackmail.

          Jon Davis, NM

          The Greeks need to exit the euro, align themselves economically with Russia, and lead NATO but remain neutral. Let the rest of Europe worry about Ukraine, ISIS and the flood of immigrants into southern Europe via Spain and Italy.

          NYCLAW, Flushing, New York

          Tsipras just called Merkel's bluff. By closing the Greek banks and stock exchange, Tsipras is signaling that he is willing to take great risk to get a deal that he and his voters can live with. Merkel, on the other hand, maybe was assuming that the Greeks would never risk an EU membership and accept further cuts.

          Caveat to Merkel: the Chinese have a old saying: "Those wear shoes are better off not stepping on the barefooted ones." Watch out, Ms. Merkel, the Greeks may have been pushed to a point that they have nothing to lose.

          Peter Czipott, is a trusted commenter San Diego

          It seems that Krugman, in his op-ed today, must be right: it's not about analysis but about power. Analysis of the problem would yield a solution that, while not ideal, minimizes losses for all parties involved -- or, equivalently, maximizes the ultimate payout to creditors over time. That alternative dictates setting up a situation facilitating the eventual regrowth of the Greek economy, to the point where it can (a) provide for its own citizens' well-being, and (b) repay as much as possible of its outside debts.

          Instead, Merkel and company, ostensibly representing the interests of their citizens, lay down terms that, as Krugman says, lead to endless Greek austerity and a depression of unforeseeable duration, which also harms the interests of the very citizens Merkel is presuming to protect.

          And all for what? To assert the moral upper hand? It's counterproductive to the point of craziness; and Merkel, as a physicist and problem-solver, used to dealing with quantitative data, should know better: perhaps better than some of her economic advisers.

          Michael Collins, Oakland

          Greece will never be able to pay it's debt with an unemployment rate of 25%. Young Greeks are leaving in droves to find opportunity elsewhere. While it's true that Greek still needs to implement some economic reforms, like cutting down on tax evasion and cutting back on pensions, it's also clear that purpose of austerity is punishment without regard to viability.

          Austerity will be the end of the Greek Economy, so why not exit?

          If the Europeans are serious about keeping Greece (and Spain, and Portugal) in the EU, they need to temper Austerity with a serious plan to raise employment and give the younger generation a reason to stay in their home country.

          John M, is a trusted commenter Oakland, CA

          Indeed - Greece has suffered through a full-on depression for 5 years, and all the Troika said in response was "more of the same." To my mind, the whole purpose of this exercise is to force massive social safety net cuts and privatization not only upon Greece, but upon all of Europe - including Germany.

          This is not merely a European perspective - look at the way pensioners were treated in Detroit, and how the Governor of Illinois proposes to treat Chicago city workers' pensions: bankruptcy, and then massive pension cuts. The theory seems to be that competing with Third World workers requires the 99% to accept Third World salaries and conditions... how else can the 0.1% keep their multi-billion dollar lifestyles?

          Bob Dobbs, Santa Cruz, CA

          In following a politically expedient course that utterly ruins a country considered "expendable," the European Community sowed the wind. And as you suggest, it may reap the whirlwind.

          Europe's leaders are apparently no wiser or better than they were in 1919, when they imposed the same sort of austerity on -- Germany. Whose leaders also seem curiously blank on the matter.

          [Jun 29, 2015] Capped

          Jesse's Café Américain

          With the VIX soaring and the US equity markets seeing their first 2% correction in many moons, the capping on the precious metals was determined and obvious.

          So much for 'Greek capitulation.'

          I think Syriza realized they were being presented an untenable solution, the 'generous offer' of extend and pretend by Merkel and the Eurocrats, with the IMF playing heavy. This bailing out of private creditors while extracting a pound of flesh from the Greek people, facilitated by corporate friendly governments, was exactly how Greece came into this situation in the first place.

          I thought forcing of a bank closure on Greece by the EU was a bit tough, and probably senseless. Showing them the lash to get them to fall to heel and all that.

          Most economic commentators in the US are completely clueless about money these days, and global economics as well.

          More surprises will therefore be coming I am sure.

          US equity markets had about a two percent correction, with the SP 500 testing its 200 DMA.

          Forget the domestic economic news, it was all geopoliticals and mostly about Greece.

          The markets do not like the uncertainty of what will happen in Greece, as well as Puerto Rico and the Ukraine, not to mention the wavering financial assets bubble in China.

          I am treading slowly through the commentary and news about Greece. The least helpful are those who are mostly projecting their egos or some ideology.

          This is primarily a political problem. Greece has a left wing government that the Western powers find unattractive compared to the puppet governments which have facilitated the bailing out of Greek's private creditors while sustaining an unsustainable economic situation.

          I am puzzled by Jeffrey Sachs who suggest that Greek default on their debt, but remain in the Eurozone. I am not quite sure how they might do that, and while Jeff says their is no mechanism to actually kick them out it does seem a bit too cute. The EU does not have a mechanism for forgiving one member's debts ...

          [Jun 29, 2015] Greek Tale(s)

          "...From a macroeconomic viewpoint, the Greek saga is one of austere budget polices imposed on the Greek government by the "troika" of the International Monetary Fund, the European Commission and the European Central Bank in an attempt to collect payment on the government's debt. "
          .
          "...The debt/GDP level, which was supposed to fall to about 155% by 2013, actually rose to 170% because of the severity of the contraction in output. The IMF subsequently published a report criticizing its participation in the 2010 program, including overly optimistic macroeconomic assumptions."
          .
          "...Moreover, government pensions are important to a wide number of people. The old-age dependency ratio is around 30%, one of the highest in Europe. The contraction in the Greek economy means that the pension is sometimes the sole income payment received by a family. It is hardly surprising, therefore, that the pension system is seen as a "red line" which can not be crossed any further in Greece."
          .
          "...... if the European governments insist that Greece must also pay back all its outstanding debt, then there is only one possible ending for this saga, and it will not be a happy one."
          June 27, 2015 | Angry Bear

          by Joseph Joyce

          No matter what new twist the Greek debt crisis takes, there can be no question that it has been a catastrophe for that country and for the entire Eurozone. The Greek economy contracted by over a quarter during the period of 2007 to 2013, the largest decline of any advanced economy since 1950. The Greek unemployment rate last year was 26.5%, and its youth unemployment rate of 52.4% was matched only by Spain's. But who is responsible for these conditions depends very much on which perspective you take.

          From a macroeconomic viewpoint, the Greek saga is one of austere budget polices imposed on the Greek government by the "troika" of the International Monetary Fund, the European Commission and the European Central Bank in an attempt to collect payment on the government's debt. The first program, enacted in 2010 in response to Greece's escalating budget deficits, called for fiscal consolidation to be achieved through cuts in government spending and higher taxes. The improvement in the primary budget position (which excludes interest payments) between 2010-11 was 8% of GDP, above its target. But real GDP, which was expected to drop between 2009 and 2012 by 5.5%, actually declined by 17%. The debt/GDP level, which was supposed to fall to about 155% by 2013, actually rose to 170% because of the severity of the contraction in output. The IMF subsequently published a report criticizing its participation in the 2010 program, including overly optimistic macroeconomic assumptions.

          To address the continuing rise in the debt ratio, a new adjustment program was inaugurated in 2012, which included a writedown of Greek debt by 75%. Further cuts in public spending were to be made, as well as improvements in tax collection. But economic conditions continued to deteriorate, which hindered the country's ability to meet the fiscal goals. The Greek economy began to expand in 2014, and registered growth for the year of 0.8%. The public's disenchantment with the country's economic and political status, however, turned it against the usual ruling parties. The left-wing Syriza party took the lead position in the parliamentary elections held this past January, and the new Prime Minister, Alexis Tsipras, pledged to undo the policies of the troika. He and Finance Minister Yanis Varoufakis have been negotiating with the IMF, the ECB and the other member governments of the Eurozone in an attempt to obtain more debt reduction in return for implementing new adjustment measures.

          The macroeconomic record, therefore, seems to support the position of those who view the Greek situation as one of imposed austerity to force payment of debt incurred in the past. But because of the continuing declines in GDP, the improvement in the debt/GDP ratio has remained an elusive (if not unattainable) goal. (For detailed comments on the impact of the macroeconomic policies undertaken in the 2010 and 2012 programs see Krugman here and Wren-Lewis here.) Another perspective, however, brings an additional dimension to the analysis. From a public finance point of view, the successive Greek governments have been unable and/or unwilling to deal with budget positions-and in particular expenditures through the pension system-that are unsustainable.

          Pension expenditures as a proportion of GDP have been relatively high when compared to other European countries, and under the pre-2010 system were projected to reach almost 25% of GDP by 2050. Workers were able to receive full benefits after 35 years of contributions, rather than 40 as in most other countries. Those in "strenuous occupations," which were broadly defined, could retire after 25 years with full benefits. The amount that a retiree received was based on the last year of salary rather than career earnings, and there were extra monthly payments at Christmas and Easter. The administration of the system, split among over 100 agencies, was a bureaucratic nightmare.

          Much of this has been changed. The minimum retirement age has been raised, the number of years needed for full benefits is now 40, and the calculation of benefits changed so as to be less generous. But some fear that the changes have not been sufficient, particularly if older workers are "sheltered" from the changes.

          Moreover, government pensions are important to a wide number of people. The old-age dependency ratio is around 30%, one of the highest in Europe. The contraction in the Greek economy means that the pension is sometimes the sole income payment received by a family. It is hardly surprising, therefore, that the pension system is seen as a "red line" which can not be crossed any further in Greece.

          The challenge, therefore, is for the government to establish its finances on a sound footing without further damaging the fragile economy. This will call for some compromises on both sides.

          ... if the European governments insist that Greece must also pay back all its outstanding debt, then there is only one possible ending for this saga, and it will not be a happy one.

          cross posted with Capital Ebbs and Flows

          [Jun 29, 2015] Top Private Equity Reporter CalPERS is Either Lying or Has a Massive Breakdown in Financial Controls

          Jun 29, 2015 | naked capitalism
          Tom Stone June 29, 2015 at 7:12 am

          These are not mutually exclusive categories, dishonesty and incompetence are frequent companions.

          Demeter June 29, 2015 at 7:44 am

          plus, it's California. What more does one expect?

          Rhondda June 29, 2015 at 7:37 am

          "The general partners have managed to convince even powerful investors like CalPERS that they must play nicely with the general partners or they'll be late on the list to be solicited for investment, which in theory could mean they'd miss being in a hot fund (in practice, this theory is absurd since private equity fund outperformance does not persist)."

          To my eyes it seems that "play nicely" really just means looks the other way while we skim off your participants' money.

          diptherio June 29, 2015 at 8:48 am

          Can't you be sued for dereliction of fiduciary duty? Can't someone be held personally accountable for being so willfully stupid? Most of the CalPERS board, for instance, seems liable…

          flora June 29, 2015 at 9:15 am

          If Yves earlier case is any indication, the CA courts seem CalPERS friendly. So a suit by pensioners would have an extra hill to climb. my opinion. But, yes, this situation does call for remedial action.

          Sluggeaux June 29, 2015 at 11:47 am

          The California Judicial Retirement System, JRS, is wholly administered by CalPERS. The state judiciary has a powerful incentive to keep CalPERS solvent, and I can assure you that the scores of California judges with whom I am personally acquainted are very aware of where their retirement contributions are going.

          TheCatSaid June 29, 2015 at 9:39 am

          Yves, the quote from Phalippou in the endnote seems very important. I don't have enough familiarity to understand what the impact would be of the various scenarios he mentions.

          Please consider posting a table with worked out simple examples for the sample scenarios, showing how the different fine-print calculation methods impact fees and/or the billed cost & return paid out to investors such as CalPERS. (And also a table showing how the various calculation methods might impact the financials of the PE firm. So we can understand what terms are in their best interest.)

          Without understanding the implications of the various fee methods, it's hard to ask questions or read a contract with sharp enough eyes to spot crucial terminology and understand what is or isn't in a pensioner's or investor's best interest.

          Such a table could be of immeasurable value to NC readers, allowing people to ask smarter questions and apply pressure more effectively on PE firms, pension fund board members, etc.

          Sluggeaux June 29, 2015 at 10:01 am

          I just love the phrase so often used here at NC: "It's a feature, not a bug."

          I've been a CalPERS contributor for over 30 years, and hope to become an annuitant in a couple of years hence. I also have colleagues who have left government employment to work with firms that place or invest CalPERS money. A dozen years ago I came to the realization that campaign contributions from placement agents and PE firms to the various Governors, Senators, and Assembly-members is the grease that lubricates the wheels at CalPERS. Staff have no intention of answering JJ Jelincic's questions - obscuring the over-paying of fees is how the graft works here in California. Investments always just happen to go to the "friends" of those in political power in Sacramento.

          Unfortunately, in the Age of ZIRP there is no more "slop" left in the system like there was during the various bubbles blown by Wall Street's looting of the economy over the past 40 years. Historic rates of return can no longer be realized. I just hope that I can draw my pension for a while before graft gets turned off and those politicians who have been living off of the corruption turn into looters themselves.

          [Jun 28, 2015] IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece

          "...Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome."
          .
          "...Mr. Tsipras and his one-night "superstar" finance minister tied up with a dog chain and paraded in front of the European political stage for all to see - utterly defeated and humiliated, with their political futures up in the air, whether they accept or reject a humiliating Greek deal."
          .
          "...as it usually happens in situations of negotiations between ordinates and subordinates, master and slave, rich and poor, strong and weak, the more compromises the latter makes, the more compromises the former demands.""

          IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece

          Jun 28, 2015 | Truthout

          ...Reflecting a political organization/party that had invited and accepted under the same roof extremely diverse political and ideological groups, the Syriza-led government not only failed to set out a clear strategic vision for getting the country out of its current crisis but walked straight into the trap that the euromasters and the "criminal IMF" were setting up for them throughout the course of the negotiations.

          Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome.

          Working in collaboration with the IMF (whom Mr. Tsipras has charged with "criminal responsibility" for the economic and social catastrophe of Greece), Germany's plan (a nation that has failed to pay its debts repeatedly in modern times and had the bigger part of its foreign debt wiped off in 1953, yet has the audacity now to try to teach moral lessons to Greece) is to have Mr. Tsipras and his one-night "superstar" finance minister tied up with a dog chain and paraded in front of the European political stage for all to see - utterly defeated and humiliated, with their political futures up in the air, whether they accept or reject a humiliating Greek deal.

          ... ... ...

          The members of the Greek government negotiation team had submitted a list of proposals for the June 22 Euro summit that were fully in line with the logic of the EU/IMF bailout program for Greece: more austerity and additional structural adjustments. All in all, the proposals they made amounted to over 8 billion euro in additional cuts between 2015 and 2016! The leftist Greek government even proposed a tax increase to incomes above 30,000 euro, thus suggesting that individuals in that income bracket rank among the wealthy! Basic food items and services were to carry a 23 percent VAT. The special VAT rate on Greek islands, which is so crucial for the tourist sector of the economy, was to be removed. The early retirement age was to be increased as of the start of 2016, and a benefit for low-income pensioners was to be gradually substituted, beginning from 2018.

          The obvious capitulation on the part of the Syriza-led government to the euromasters and the IMF thugs, which was not the first one, was made just to get a deal done as time was running out for Greece (it has a huge payment to make to the IMF at the end of June in the tune of 1.6 billion euro) and thus to remove the dark clouds of a Grexit that had begun to spread dangerously over Greece, as it had finally become clear that Germany and the IMF were calling Syriza's bluff and were ready for the unthinkable, i.e., the possibility of a Grexit.

          But as it usually happens in situations of negotiations between ordinates and subordinates, master and slave, rich and poor, strong and weak, the more compromises the latter makes, the more compromises the former demands.

          Thus, the Greek proposals were found to be inadequate, and there were demands for more blood and tears. Germany and the IMF wanted to force the Syriza-led government to cross its last and final "red line," which was over additional antisocial measures in the nation's social security and pension system. Among other things, the Lagarde/Schäuble duo wants the benefit for low-income pensioners to be completed eliminated by 2017. This would mean that a person who receives today a monthly pension for the amount of 500 euro (close to 50 percent of Greek pensioners receive pensions below the official poverty line) would be deprived of about 200 euro, which come as a welfare payment of sorts.

          ... ... ...

          Footnotes:

          1. The political babel of Syriza consists of right-wing and ultra-nationalist camps (ie., the Independent Greeks party, Syriza's coalition partner in government) to defunct social democrats and outdated Keynesians who saw primarily the crisis in Greece as a threat to capitalism itself and were suggesting, accordingly, all sort of interventionist schemes to keep Greece in the euro area and the emergence of an alternative socio-economic system at bay, including recycling unemployment schemes with the minimum wage so as not to upset the exploitation rate in the private sector (!) and IOUs, and from remnants of euro-communism and the old communist left to post-leftism, postmodernist tendencies devoid of any true understanding of contemporary political realities and without structured support at the popular, working-class level. Indicative of its political nature, not even one large, mass protest or demonstration has ever been organized or successfully carried out by Syriza. Its official organ Avgi still sells thousands of copies less on a daily and a weekly basis than the official organ of the Greek Communist Party, which in the elections of January 2015 barely got over 5 percent of the popular vote.

          2. Syriza had been converted long ago into an utterly confusing, "non-left" left political organization, and the restructuring of the Greek economy and its moribund political culture, the abandonment of outworn, antediluvian modes of political thinking and behaviors, and the transformation of capitalism and its transition to a socialist economy had been completely removed from its political radar. For an argument along those lines, see C. J. Polychroniou, "To Change Greece Requires Changing the Political Culture - and This Could Be a Tall Order, Especially for the Left." Truthout (September 1, 2013).

          ... ... ...

          C.J. Polychroniou is a research associate and policy fellow at the Levy Economics Institute of Bard College and a former columnist for a Greek major national newspaper. His main research interests are in European economic integration, globalization, the political economy of the United States and the deconstruction of neoliberalism's politico-economic project. He has taught for many years at universities in the United States and Europe and is a regular contributor to Truthout as well as a member of Truthout's Public Intellectual Project. He has published several books and his articles have appeared in a variety of journals, magazines, newspapers and popular news websites. Many of his publications have been translated into several foreign languages, including Croatian, French, Greek, Italian, Portuguese, Spanish and Turkish.

          [Jun 28, 2015] Fuck the US Imperialism -- Top German Politician Blasts Nuland Carter

          Jun 28, 2015 | Zero Hedge

          With intra-Europe relations hitting a new all-time low; and, having already been busted spying on Merkel, Obama got caught with his hand in Hollande's cookie jar this week, the following exultation from one of Germany's top politicians will hardly help Washington-Brussells relations. As Russia Insider notes, Oskar Lafontaine is a major force in German politics so it caught people's attention when he excoriated Ash Carter and Victoria Nuland on his Facebook page yesterday... "Nuland says 'F*ck the EU'. We need need an EU foreign policy that stops warmongering US imperialism... F*ck US imperialism!"

          Here is the Facebook post (in German):

          Lafontaine has been an outsized figure in German politics since the mid-70s. He was chairman of the SPD (one of Germany's two main parties) for four years, the SPD's candidate for chancellor in 1990, minister of finance for two years, and then chairman of the Left party in the 2000s. He is married to Sarah Wagenknecht, political heavyweight, who is currently co-chairman of Left party.

          Lafontaine's outburst came a day after his wife, Sarah Wagenknecht, blasted Merkel's Russia policy in an interview on RT.

          Here is the full translation of the post:

          "The US 'Defense' secretary, i.e., war minister is in Berlin. He called on Europe to counter Russian 'aggression'. But in fact, it is US aggression which Europeans should be opposing.

          "The Grandmaster of US diplomacy, George Kennan described the eastward expansion of NATO as the biggest US foreign policy mistake since WW2, because it will lead to a new cold war.

          "The US diplomat Victoria Nuland said we have spent $5 billion to destabilize the Ukraine. They stoke the flames ever higher, and Europe pays for it with lower trade and lost jobs.

          "Nuland says 'F*ck the EU'. We need need an EU foreign policy that stops warmongering US imperialism.

          "F*ck US imperialism!"

          * * *

          When he comes out swinging this way, you know something is changing.

          * * *

          America - making friends and influencing people for 238 years...

          remain calm

          I see the CIA creating a little muslim terrorism in Europe to teach them the meaning of respect.

          BlowsAgainstthe...

          "But in fact, it is US aggression which Europeans should be opposing."

          So good, it should be required reading . . .

          "Why the Ukraine Crisis Is the West's Fault

          The Liberal Delusions That Provoked Putin"

          https://www.foreignaffairs.com/articles/russia-fsu/2014-08-18/why-ukrain...

          Latina Lover

          To date, the USSA adventurism in the Ukraine has hurt Germany financially and politically, with more losses to follow.

          Instead of integrating more closely with Russia, and becoming a key part of the New Silk Road, Germany is blocked by the USSA, against her better interests. The USSA is creating a new berlin style wall of lies and propaganda between Russia and Germany claiming that Russia plans to invade the baltics, poland, moldova, blah, blah, blah.

          Fortunately, most Germans are not anti intellectuals, and see through the lies, unlike the average american shlub (30% of whom cannot name the current VP but know all of the names of the Kardashians). Eventually, Merkel will get the boot, and be replaced by a more businesslike leader.

          Not Too Important

          30% is pretty generous, don't you think? More like 3%.

          Even an aborigine in the middle of Africa with a cell phone knows more about the world than 97% of Americans.

          Tall Tom

          Fuck American Imperialism?

          Actually it is GERMAN Imperialism over the nation states of Europe, using the European Union as a subterfuge, is that which needs be quashed.

          Fuck GERMAN Imperialism and the European Union as it serves as a tool for the advancement of Germany's Imperialistic ambitions..

          saveandsound

          Oscar Lafontaine is member of the party "The Left". He used to be member of the "Social Democratic Party of Germany".

          Both parties are of rather marginal significance, since Merkel's CDU rules them all. ;-)

          Anyway, "the Left" has been opposing US Imperialism ever since, so there is not much new to see here.

          datura

          that won't help and no more false flags will help either. The latest poll showed that only 19% of Germans would fight Russians in case Russia attacked any NATO country. I repeat: if Russia attacked first. You can wonder, what would be the percentage of them willing to fight Russia just for the sake of Ukraine. Close to zero, I think. The USA overstepped all boundaries, when it began pushing EU countries into a military conflict with Russia. Continental Europeans are not Anglo-Saxons, they think differently. They will bow down to any USA pressure, except for a military conflict with Russia! Thats a big no no. Many of them still remember (especially Germans), what it was like to fight wild-spirited Russians, who never surrender no matter what. These constant talks about "Russian agression" by the USA politicians make Germans feel like a cornered animal with nothing to loose. Such animal cannot be subdued anymore, when your existence and life is so directly threatened, you bite. Or another example: try to force your slave to step on a rattlesnake. He may be forced to do many things, but this time he will turn against you. I already said it before: no war against Russia and Europe is possible, because even if the USA somehow forces us to any such war, huge amounts of people will be so angry that they will flee to the side of Russia. We are already discussing this openly. This is already happening in Ukraine. Already 10 000 Ukranian soldiers defected to the other side (to fight Kiev), plus one Ukrainian general, some members of the Ukranian intelligence service and about one and half million Ukrainians fled to Russia to avoid draft. I saw a video where three entire units of soldiers sent from Kiev to Donetsk (with tanks) changed side, threw out Ukrainian flags and put on Russian flags on their tanks under loud cheers from the brave people of Donbass. There are certain very natural limits to what you can force people to do, which bankers do not seem to understand. Yes, you can send many people to war, but they simply will not fight, unless you give them something to fight for. For example Hitler gave people something to fight for. But all bankers give us is chaos, no strong leader, no ideology strong enough....I think they hoped that Putin would invade Ukraine and that would be the reason for war (they provoked Hitler in a similar way). However, Putin is no Hitler, he is way too intelligent to play these silly games. And it is impossible to repeat exactly what was once so successful, because times change, people are different....you cant win with using old outdated strategies over and over. That is why all empires fall in the end. They get stuck in using the same tricks over and over, until they stop working. Even the old color revolutions are not as efficient now as they were in the past and the same goes for those silly false flags.

          cherry picker

          He is absolutely correct. US is surrounded by two oceans and the North and South neighbor have no intentions of invading the USA, so can anyone explain this war time nuclear, wmd, too many carriers and so forth military and paranoia.

          Can't uncle Sam keep his huge nose out of everyone's business?

          Can't America just enjoy what is theirs and leave others alone?

          Who needs a CIA except for Nazi types.

          Fuck Nuland is a good start.

          Albertarocks

          And the neighbors to the north and south are non-too-pleased with the USA either. We know WTF the USA is doing, although more and more are waking up to the fact that the USA is only being used as the war branch of the banking mafia. Because of this we hold nothing against American people.

          In fact, up north we now probably feel more kinship with "the people" of the USA more than ever before. Because we are learning how all this works. It is the global banking monsters and the fascist corporations, the military industrial complex that is in bed with the fucking bankers. It is those assholes who are causing every damned war in the world... not "the USA" as such. Putin is a saint by comparison... not to mention the only sane leader of a superpower left on earth. He is admirable, even from this side of the pond.

          Mexicans might present a problem, I don't know. Mexicans never bother Canadians so we just don't seem to have an opinion. Canadians are pretty calm, but fuck when we get mad there can be one hell of a bar fight. I don't know how all this works out but it isn't going in the right direction. I think 98% of Canadians would agree with Mr. Lafontaine. US Imperialism has got to come to an end. Or the world will. And by "US", I mean "banker".

          BI2

          If only our politicians could understand what that man is really saying. It is for our own good.

          https://biblicisminstitute.wordpress.com/2015/06/25/warmongering-vs-econ...

          Dodgy Geezer

          We need need an EU foreign policy that stops warmongering US imperialism... F*ck US imperialism!"

          You know what the problem is?

          It's not particularly the US, though they are the biggest players at the moment. It's the result of the end of the Cold War.

          Ever since WW2 the power blocs both had a big military and supporting intelligence service. When the Berlin Wall came down, the Russians collapsed theirs. The West did not. And ever since then it has been looking for a job. That's the reason we have had so much disruption. When your major arm of government is a multi-trillion dollar armed forces, every problem looks like an excuse for a war.

          The Delicate Genius

          It is not US imperialism

          http://vineyardsaker.blogspot.com/2014/09/anglozionist-short-primer-for-...

          It is the imperialism of the Anglo-Zionist cabal which has hijacked the American treasury and military.

          Neocons, Interventionist "realists" and other assorted militarist scum.

          Their control of the MSM is sound {they even acquired VICE News as that got too popular, and Orwellized it, beginning with the Zionist sent to fake stories out of Ukraine}...

          but not the internet. As younger people grow up, post comments and articles, this cleft between the pre-internet and internet informed grows more and more obvious.

          I'm sure I'm not the only one that expects aggressive moves against intent content.

          We've seen some attacks on free speech already in the Fast Track bill - but it will take time to really see how bad the TPP itself is in practice.

          But it does seem clear that .gov is hoping to make an end run around various Constitutional niceties by "treaty."

          and no - treaties do not and can not over-ride the Constitution. Only amendment, not treaty, can change the constitution.

          PrayingMantis

          ... US imperialism plus US exceptionalism is analogous to this >>> http://rt.com/usa/270268-falcon-launch-space-fail/

          ... and while the US forces the other NATO members to apply more sanctions to Russia, US hypocrisy rears its ugly head by 'allowing' products from sanctioned Russia that would benefit them ... check this out

          >>> http://rt.com/usa/270220-us-space-russian-engine/

          pupdog1

          Gotta love a guy who knows how to define a problem.

          Fuck Noodleberg.

          HTZMR

          As someone who actually lives in Germany i can tell you that Lafontaine is an absolute has-been and he plays no role in German politics, nor has he for years. His influence came to an end when Schroeder kicked him out of his government over 15 years ago. To claim he is a heavyweight is simply dead wrong.

          Wagenknecht does play a certain role, but the Left is a pure protest party full of fundamentalist hardline social democrats and former East German communists. The Left has no say on federal government matters such as foreign policy. This post is pure alarmism.

          Wild E Coyote

          Actually US and Soviet Union both went bankrupt by Cold War.
          Soviet Union accepted their fate.
          USA still refuse to accept theirs.

          Renfield

          Upvoted, but I think technically it was Vietnam that bankrupted the US.

          Then again, you could argue that it was the First World War, or the 1929 market crash -- although its bankruptcy wasn't admitted until 1933.

          [Jun 28, 2015] Keynes, The Great Depression And The Coming Great Default

          Jun 28, 2015 | Zero Hedge
          falak pema

          you guys have it ALL wrong.

          Keynes was there to check OLIGARCHY neo-feudalism. This crisis is about Oligarchy neofeudalism.

          We need a balance between state and private enterprise. Right now we have "inverted totalitarianism" :an alliance between state and private Oligarchs where, unlike Mussolini model; its private enterprise that RUNS THE WORLD; the 1%.

          The state is their slave; even FED belongs to its paymasters : the TBTF aka JP Morgan and now GS. Since Glass Steagall revoke; engineered by the GS squid cabal allowing Investment banks to rule the roost to MAXIMISE shareholder returns, the whole shooting match of supply side deregulated Reaganomics; all based on asset hiking based on short term quarterly reports; has morphed capitalism beyond recognition.

          The world of capital changed in 1981...the day all that mattered was shareholder value based on short term steroid pumping that the 1971 "our money your problem" had initiated based on petrodollar hegemony fueled on perpetual DEBT.

          The cumulative effect of 1971/1981/1991 outsourcing NWO mantra post Iraq 1 and SU default was what we have spawned today: a three step process where petrodollar debt + FIRE economy oligarchy enrichment+ NWO outsourcing based on cheap oil and cheap labour have built this casino capitalism model now compounded by derivative financialisation toxic shenanigans.

          Now tell me WHAT has KEYNES got to do with this monetarist construct based on Friedman's 1971 mantra?

          You guys deny the time line of facts and its irrefutable logic all based on petrodollar hegemony, and arms bazar supremacy.

          [Jun 28, 2015]The Troika pretends to suffocate Greece at all costs

          "...Brussels has blocked any agreement that would help Greece's recovery; debt repayments are maximum priority"
          .
          "...Alexis Tsipras, prime minister, is practically "hands tied", he can't implement an alternative economic policy, this situation is contrary to his intentions, therefore it slowly diminishes the trust citizens have put into Syriza, his political party."
          .
          "...Greece has 10 days to liquidate the four monthly maturities of debt to the IMF (1.5 billion euros) and to open a new financing plan for 5.2 billion euros. By next July, Athens will have to pay 3.5 billion euros to the European Central Bank (ECB), 465 million euros to the IMF and 2 billion euros to additional creditors."
          .
          "...There is no doubt that if Tsipras decides abandoning the Euro, the consequences will be dramatic for Greece's economy and so for the rest of economies in the region [6], including of course, Germany and France. Berlin fears a massive spread. If Greece collapses, speculators will bet against the most fragile economies: Finland, Spain, Italy, Netherlands, Portugal, etc."
          .
          "...Panic would boost interest rates, severely shrinking the financial liquidity between countries."
          .
          "...Nevertheless, the Troika seems decisive on backlashing the left's economic program. Syriza have inaugurated the electoral failure of neoliberalism in Europe and due to that, it has become the lender's favorite prey, who are ready to impose their will at any price. However, the Greeks should trust themselves, establish partnership beyond its continental borders and aim for utopia."
          Jun 28, 2015 | voltairenet.org/RT

          the Central Bank of Greece surprised everyone with the publication of their monetary politics for 2014-2015. Besides revealing the consequences of the economic suffocation imposed by Brussels, it concluded that in case of not getting to a prompt deal with its European partners, a crisis of great proportions will be detonated.

          "A crisis with a manageable debt as we are currently facing with the help of our partners will transform into an uncontrollable crisis, with great risk for the banking system and for the financial stability", it quoted [1]. It was the first time this institution seriously contemplated Greece's separation from the Eurozone.

          The most influencing media immediately began to stress that the majority of Greek's population is against abandoning the Monetary Union. Approximately a 70% according to a recent poll published by the GOP. For keeping the "common currency" the norms in the Maastricht Treaty have to be complied, therefore the occidental media concludes that the Greek citizens are willing to accept the European authorities conditions: Austerity is the price for a membership in the Eurozone.

          However, media emporiums omit mentioning that same majority opposes to measures that the Troika (formed by the International Monetary Fund, the European Central Bank and the European Commission) pretends to impose. That same majority is currently convinced that the original 245 billion euros rescue program has only brought economic affliction. The increase of inequality and poverty, lock of housing, mental illness and suicides, are evidence of the "humanitarian crisis" Greeks are daily suffering [2].

          A change regarding to economic matters in urgent. In that sense, the Greek government has insisted in solving the more immediate needs (taxes on investment, creation of employment, a better distribution of income, etc.) and less in questioning terms of the debt. Despite this, Brussels has blocked any agreement that would help Greece's recovery; debt repayments are maximum priority [3].

          Alexis Tsipras, prime minister, is practically "hands tied", he can't implement an alternative economic policy, this situation is contrary to his intentions, therefore it slowly diminishes the trust citizens have put into Syriza, his political party.

          Disqualifications between the Greek government and the Troika were quite prompt on dates near the meeting with the Eurogroup. Tsipras addressed that the International Monetary Fund (IMF) had "criminal responsibility" for the crisis. He also repeated that his government wouldn't falter before the pressure imposed by the Troika. The objective of this proposal is to "humiliate Greece" and there he committed to reject the adjustment plans at every moment [4].

          The finance minister, Yanis Varoufakis, has delivered the same message by declining on presenting proposals that would finally include a list of "credible" commitments for the creditors: raising the primary surplus, additional tax raises, dismantling the pension system, etc [5].

          As consequence, the negotiations stalled once again [on July 18th, 2015, Editor's note] The Troika remains intransigent in applying its "structural reforms" no matter what, while Tsipras declines on betraying the Greeks. Therefore this dispute is ones more to be adjourned.

          Greece has 10 days to liquidate the four monthly maturities of debt to the IMF (1.5 billion euros) and to open a new financing plan for 5.2 billion euros. By next July, Athens will have to pay 3.5 billion euros to the European Central Bank (ECB), 465 million euros to the IMF and 2 billion euros to additional creditors.

          Debt and more austerity, in the end impose more debts, this situation puts Greece in a "depressive spiral" that seems not to have an end. How will the resources for complying with these commitments de delivered?

          There is no doubt that if Tsipras decides abandoning the Euro, the consequences will be dramatic for Greece's economy and so for the rest of economies in the region [6], including of course, Germany and France. Berlin fears a massive spread. If Greece collapses, speculators will bet against the most fragile economies: Finland, Spain, Italy, Netherlands, Portugal, etc.

          Considerably affected by the weak economic growth and the deflation (price breakdown), the Eurozone would loose even more confidence from international investors. The crescent 'aversion to risk' due to Greece's exit would provoke an increase in the performance of sovereign bonds (currently at minimum levels). Panic would boost interest rates, severely shrinking the financial liquidity between countries.

          Uncertainty will increase and the capital flows would be victim of a 'butterfly effect': slight increase of volatility in sovereign bond markets, light drops in stock exchanges and any change in the monetary policy, would be enough to detonate huge turbulences in credit circuits.

          Nevertheless, the Troika seems decisive on backlashing the left's economic program. Syriza have inaugurated the electoral failure of neoliberalism in Europe and due to that, it has become the lender's favorite prey, who are ready to impose their will at any price. However, the Greeks should trust themselves, establish partnership beyond its continental borders and aim for utopia.

          Democracy was born in the ancient Greece and there is where the foundations of a new Europe, free from the 'dictatorship of the creditors' should be built, if there is any alternative…

          [Jun 28, 2015] The Greek Tragedy: Curtain Closes On Most Absurd Act

          moonofalabama.org

          Nothing was posted here so far on the Greece tragedy. I did not touch the issue as there was excellent coverage elsewhere and what the whole issue produced so far was more absurd theater than serious economic policy. But one act of the drama is now coming to a preliminary end and the tragedy may now unfold into something new with potential serious geopolitical consequences.

          Greece took up a lot of debt when banks were giving away money without caring for the ability of the debtor to pay back. When that game ran out, some six years ago, Greece could not no longer take up new credit to pay back its old debts. That is the point where it should have defaulted.

          But the Greece government was pressed on to pay back the debt to the commercial banks even when it had no money and not enough income to ever do so. Bank lobbyists pressed other EU governments to raid their taxpayers to indirectly cover the banks' losses. These other governments then pushed Greece to take on "emergency loans" from their states to pay the foreign commercial banks.

          Nothing of that money ever reached the people in need in Greece. Here is a gif that explains what happened to all those foreign taxpayer loans treats "given to the Greek".

          To get these new loans Greece had to agree to lunatic economic measures, an austerity program and neoliberal "reforms", to fix its balance of payments. But austerity has never worked, does not work and will never work. It crashes economies, lowers tax incomes and thereby further hinders a government to pay back it debts. It creates a vicious cycle that ends in an economic catastrophe.

          After six years of austerity nonsense the Greece voted for a new party that promised to end the cycle and stop the austerity measures. But the new Syriza government misjudge the situation and the nastiness and criminal energy of the other governments and organizations it was negotiating with. It early on said it would not default and thereby took away its own best negotiation argument. The negotiations failed. The creditors still demand more and more austerity. Now it will have to default but under circumstances that will make it much more difficult for Greece to get back on its feet.

          Yesterday the Syriza prime minister Tsirpas, in a speech to his people, called for an end of the blackmail and for a referendum to decide on the way forward:

          Fellow Greeks, to the blackmailing of the ultimatum that asks us to accept a severe and degrading austerity without end and without any prospect for a social and economic recovery, I ask you to respond in a sovereign and proud way, as the history of the Greek people commands.

          To authoritarianism and harsh austerity, we will respond with democracy, calmly and decisively.

          Greece, the birthplace of democracy will send a resounding democratic response to Europe and the world.

          Paul Maison of Channel 4 news sees this as a positive and likely successful step. The people will vote no to austerity and the IMF, European Central Bank and various country governments will still keep giving fresh money to Greece. Yves Smith at Naked Capitalism does not believe that this will happen. She calls the referendum a sham. Greece will default and the only thing the referendum will do is to keep Syriza in the political business. She blames Tsirpas for having misjudged the situation and for being unprepared of what is likely to come:

          Greek defiance of its creditors will make it more, not less dependent on them in the next year. How badly things turn out for Greece will depend in significant degree on how much they do to ameliorate the impact of the implosion of the banking system, whether they take extreme measures to keep Greece in the Eurozone, and if Greece tumbles out, how much they provide in humanitarian aid and targeted trade financing (most important, for petroleum imports).

          Greece should have defaulted six years ago. Tsirpas should have prepared for default immediately after he became premier. He should have used it as a threat during the negotiations. Greece will now have to default in the worst possible situation and with little thought given to the consequences of the default.

          But the consequences will not be limited to Greece.There will be consequences for the EU, for NATO and for the political balance in the Mediterranean. Greece may now decide to leave the "western" realm and thereby set an example others could follow.

          The German and other European governments promised their taxpayers that Greece will not default and that the austerity program pushed onto it will succeed. They will now rightfully lose some of their political and economic credibility. The Greece default will be a somewhat harsh and expensive lesson for the voters in those countries too. Let's hope that they will draw the right conclusions.

          Selected Skeptical Comments

          Posted by: madrone | Jun 27, 2015 10:50:12 AM | 2

          While there is nothing easy about the path forward I think finance minister Varoufakis has played things pretty well dragging it out letting the people get all those euros out of the banks to help contribute to rebuilding but most of all blocking the ability of the Banksters to "Cyprusize" Greece. The referendum obviously comes from the study of Iceland and anybody that studies Argentina can only come away thinking Syriza is doing the right thing.

          Posted by: nmb | Jun 27, 2015 11:33:51 AM | 3

          The global financial mafia fully exposed through Greece

          [Jun 28, 2015] Former Finance Minister of Cyprus on the Greek Crisis

          "...The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals...."
          .
          "...This is nothing more than a neo-liberal play. They just don't want to strip their pensions, but infrastructure as well. They should be making the requirements of the loan for deep pension cuts and money for investments which would help build up Greece's economy and the end for these bailouts. The fact they aren't doing that, but trying to confiscate it instead, which is the real issue. "
          .
          "..."IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece" "Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome." "
          .
          "...Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins."
          .
          "...There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago."
          .
          "...Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds."
          .
          "...Among the most dubious of these, was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson's hedge fund took last year in the Athens water monopoly. The company had little debt and was slated to be privatized, making it an attractive prospect at the time."
          Jun 28, 2015 | Economist's View
          Peter K.:

          Mr Sarris seems a little like a Davos Man.

          http://www.nytimes.com/2015/06/29/business/dealbook/panic-among-hedge-fund-investors-in-greece.html

          Panic Among Hedge Fund Investors in Greece

          By LANDON THOMAS Jr.

          JUNE 28, 2015

          ATHENS - For investors around the world looking at Greece, there was but one question Sunday: What is going to happen when the markets open on Monday?

          That question is particularly acute for the hedge fund investors - including luminaries like David Einhorn and John Paulson - who have collectively poured more than 10 billion euros into Greek government bonds, bank stocks and a slew of other investments.

          This weekend, Nicholas L. Papapolitis, a corporate lawyer here, was working around the clock comforting and cajoling his frantic hedge fund clients.

          "People are freaking out," said the 32-year-old Mr. Papapolitis, his eyes red and his voice hoarse. "They have made some really big bets on Greece.

          But there is no getting around the truth of the matter, he said. Without a deal with its European creditors, the country will default and Greek stocks and bonds will tank when the markets open.

          On the ground here, the surprise decision of the Greek prime minister, Alexis Tsipras, to hold a referendum has turned what was a bank jog into more of a sprint with most Greeks now fearing that the country's depleted banks will be closed on Monday.

          Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins.

          The yields on Greek government bonds, now around 12 percent are expected to soar as investors rush to unload their positions in a market that of late has become extremely hard to trade.

          Bank stocks, if the stock market, in fact, opens, will also be hit with a selling wave, as they cannot survive if the European Central Bank withdraws its emergency lending program.

          There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago.

          When it became clear that a radical Syriza government under Mr. Tsipras would come to power, many investors quickly turned heel, dumping their Greek government bonds and bank stocks in large numbers before and after the election.

          But a brave, hardy few stayed put - around 40 to 50, local brokers estimate - taking the view that while the new left-wing government could hardly be described as investor friendly, it would ultimately agree to a deal with Europe. It would be a bumpy ride for sure, but for those taking the long view that Greece would remain in the eurozone, holding onto their investments as opposed to selling them in a panic seemed the better course of action.

          For now, at least, that seems to be a terrible misjudgment, especially if Greece defaults and leaves the euro.

          Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds.

          The largest investors include Japonica Partners in Rhode Island, the French investment funds H20 and Carmignac and an assortment of other hedge funds like, Farallon, Fortress, York Capital, Baupost, Knighthead and Greylock Capital.

          A number of hedge funds have also made big bets on Greek banks, despite their thin levels of capital and nonperforming loans of around 50 percent of assets.

          They include Mr. Einhorn at Greenlight Capital and Mr. Paulson, both of whom have invested and lost considerable sums in Piraeus Bank. Fairfax Financial Holdings and the distressed investor Wilbur Ross own a large stake in Eurobank, one Greece's four main banks.

          Big positions have also been taken in some of Greece's largest companies. Fortress Capital bought $100 million in discounted debt belonging to Attica Holdings, Greece's largest ferry boat holder. York Capital has taken a 10 percent stake in GEK Terna, a prominent Greek construction and energy firm.

          In 2014, Blackstone's credit arm bought a 10 percent chunk of the Greek real estate developer Lamda Development. And Third Point, one of the earliest, most successful investors in Greek government bonds, has set up a $750 million Greek equity fund.

          Many of these forays were made during the heady days of 2013 and early 2014 when the view was that, in a rock bottom global interest rate environment, risky Greek assets looked attractive, especially if the reform process continued.

          Among the most dubious of these, was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson's hedge fund took last year in the Athens water monopoly. The company had little debt and was slated to be privatized, making it an attractive prospect at the time.

          But the privatization process is now frozen and the monopoly is struggling to collect payment on its bills from near broke government entities, making it unlikely that Mr. Paulson will get much of his money back.

          To be sure, many of these hedge funds are enormous and their Greek investments represent a fairly small slice of their overall portfolio.

          Mr. Papapolitis, who used to work at Skadden Arps law firm in New York structuring exotic real estate deals, moved back to Greece in 2008 and has led some of the biggest hedge fund deals in the market.

          Of the same age and generation as many of his clients, he feels their pain.

          "These guys are my friends," he said. "They invested in Greece when the economy was improving. And now this happens - I feel obliged to be there for them."

          He is not the only point man for hedge funds coming to Greece.

          Last week, a group of about 12 of the largest remaining hedge funds arrived in Athens to attend a seminar organized by George Linatsas, a founding partner of Axia Ventures, an investment bank that specializes in Greece, Cyprus, Portugal and Italy, as well as shipping.

          With all the large investment banks and law firms having largely given up on Greece, Mr. Linatsas and his team of analysts became the main port of call for hedge funds that started buying Greek government bonds in 2012.

          Then, the bonds were trading at 12 cents on the euro and they soon shot up to 60 cents, making billions of dollars for those early investors.

          "People made their careers on that trade," Mr. Linatsas said. "The problem now is politics and whether there is a government that can take this country to the next stage."

          The outlook seems grim.

          Indeed, in recent months these investors have spent little time breaking down balance sheets or discounting cash flows. Instead, they have spent every effort trying to figure out what the Syriza government is up to.

          Some have tried to get an edge by listening to Greek radio. Others have hired outside firms to study video clips of Mr. Tsipras and his finance minister, Yanis Varoufakis, to try and discern from body movement and voice tone whether they are telling the truth. And an increasing number have resorted to begging journalists for inside scuttlebutt.

          Because few Syriza officials will meet with the investors, a large number of them have banded together, an unusual occurrence in an industry that puts the highest of premiums on secrecy. They exchange tips and theories via emails when they are apart and over wine-soaked dinners in Athens during their frequent trips here.

          At times the swankiest hotel in town, the Hotel Grande Bretagne (or G.B. as it is commonly known) is so chock full of hedge fund executives (mostly in their 30s) that some have called it the G.G.B. - the acronym for Greek government bonds.

          In recent days, as it has become clear that the Syriza government was not going to accept the latest proposal from its creditors, stress and anxiety has, in some cases, turned to outright anger.

          "I just can't believe these guys are willing to torch their own country," one investor with a large holding of Greek bonds lamented in an email. "They thought this was a game. Now, when the supermarkets run out of food, gas stations run out of gas, hospitals have no medicine, tourists flee, salaries don't get paid because banks shut - what are they going to do?"

          Peter K. -> Peter K....

          ""I just can't believe these guys are willing to torch their own country," one investor with a large holding of Greek bonds lamented in an email."

          How ideological do you have to be to not understand that the Troika already torched the country and that the Greeks voted in Syriza becasue 5 years on there was no light at the end of the tunnel.

          I hope there's a Grexit even if the Troika forces it because the referendum took place after Monday's deadline. Syriza should really study all of the past defaults of other countries.

          Paine -> Peter K....

          This Sarris gent suggest the Syriza team should have proposed " bold reforms " early on


          List em mr S... List em

          He however seems to understands the original sin was
          The elites decision to bail the private northern banks out

          Of course the people of Greece must pay for that sin.

          RGC:

          "IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece"

          "Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome."

          http://www.truth-out.org/news/item/31596-imf-and-germany-are-hell-bent-on-finishing-off-even-a-moderate-left-in-greece

          pgl:
          Real GDP per person in Cyprus:

          http://www.tradingeconomics.com/cyprus/gdp-per-capita

          The crash has brought this done to where it was in 2000. Why did they join the Euro system in the first place? Why would anyone listen to the finance minister of this nation?

          Paine -> pgl...

          Precisely put

          Only a corporate lackey corrupted stooge or stool pigeon

          Peter K. -> Peter K....

          Greece's own central banker, Yannis Stournaras said in a statement after the European Central Bank decision on Sunday that the Greek central bank would "take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances."

          Before negotiations broke off on Saturday between Athens and its creditors, the Tsipras government had been hoping to reach terms that would free up a €7.2 billion allotment of bailout money that the country needs to meet its short-term debt obligations.

          Because European officials said on Saturday that Greece's €240 billion bailout program would not be extended, the big question had been whether the central bank's president, Mario Draghi, would continue financing the country's depleted banks.

          Guidelines of the European Central Bank dictate that it can keep supporting troubled banks as long as there is a possibility that the country in question will come to terms with its creditors on a bailout - as was the case with Cyprus.

          If Athens and its creditors do not resume talks before Tuesday, the promise of European support for Greece may no longer be on the table. But the European Commission, the executive arm of the European Union and a key broker in the debt talks, seemed on Sunday to reach out to the Greek people, unexpectedly publishing the offer made to Greece before Prime Minister Alexis Tsipras ended the negotiations and announced a national referendum.

          The publication was designed to show the lengths to which the creditors, including the I.M.F. and the European Central Bank, had gone to satisfy Athens's demands for a deal that avoided hurting ordinary Greeks, said one European Union official with direct knowledge of the decision to publish the offer. The official spoke on condition of anonymity because the institutions had not ruled out a resumption of talks with Mr. Tsipras on the sensitive issue of extending the bailout.

          "This is a last bridge we are building for them," said the official. The goal of publishing the document was also to pressure "Mr. Tsipras to change course and choose to mount a 'yes' campaign" in the upcoming referendum, the official said.

          The official acknowledged there was a slim chance that Mr. Tsipras would accede to the terms so soon after abandoning the negotiations. But if Mr. Tsipras did change course, that could lead to a meeting of leaders of the eurozone member states on Monday night to try one more time to reach a deal before the expiration of the bailout.

          On Saturday, amid intense discussions between Greece and its creditors, officials representing the I.M.F., to which Greece owes €1.6 billion on Tuesday, were trying to persuade European leaders and Mr. Draghi to keep the bank emergency assistance flowing. And on Sunday, the head of the I.M.F., Christine Lagarde, waved an olive branch toward Greece.

          In a statement, Ms. Lagarde expressed her "disappointment'' in the "inconclusive outcome of recent discussions on Greece in Brussels.''

          "I shared my disappointment and underscored our commitment to continue to engage with the Greek authorities," she said, adding that the I.M.F. would ''continue to carefully monitor developments in Greece and other countries in the vicinity and stands ready to provide assistance as needed.''

          Early Sunday, the Greek Parliament approved Mr. Tsipras's request for a public referendum on the proposal offer by Greece's creditors, with the vote to be held next Sunday. Mr. Tsipras and other Greek officials had asked European officials and Mr. Draghi to keep the central bank assistance in place until the vote.

          The European Central Bank's decision on Sunday to cap the emergency loan program, as opposed to canceling it, "allows the Greek banks to remain in a sort of coma – not functioning but not dead," said Karl Whelan, an economics professor at University College in Dublin. That way, he said, the Greek financial system might be revived if at some later point if Greece secures a deal with its creditors.

          Raoul Ruparel, an economist and co-director of Open Europe, a London-based research group, said the rupture between Greece and its creditors on Saturday was unlikely to mean a definitive end to negotiations, instead becoming "merely a prelude" to yet more talks in a week or so after Greece holds its referendum.

          "I think we are just getting started on this merry-go-round," Mr. Ruparel said, predicting that Greek voters would probably vote to endorse proposals put forward by creditors and rejected by the Tsipras government. "We would then be back where we started, only in a worse situation," he added. Because the current program will have expired by then, Greece and its creditors would need to negotiate a new bailout - most likely a short-term deal - in an atmosphere poisoned by even deeper distrust than before.

          "The whole thing is absolute nightmare,'' Mr. Ruparel said. ''I have been following this saga for five years, and it is depressingly tedious."

          leoFromChicago:

          Guy is totally business-as-usual.

          I'm hardly an expert on Greece but if you were about to make a difficult decision -- say, exit the Euro -- you might want a dramatic display of public backing say, in the form of a referendum.

          Peter K.:

          For JohnH and Mr. Roger Fox:

          http://www.cepr.net/blogs/beat-the-press/the-warnings-from-the-bank-of-international-settlements-have-been-ignored-because-they-have-been-wrong

          The Warnings from the Bank of International Settlements Have Been Ignored Because They Have Been Wrong

          by Dean Baker

          Published: 28 June 2015

          The Wall Street Journal passed along warnings from the Bank of International Settlements (BIS) that central banks should start to curtail monetary expansion and that governments need to reduce their debt levels. The piece tells readers:

          "The BIS has issued similar warnings in recent years concerning an overreliance on monetary policy, but its advice has gone largely unheeded."

          It is worth noting that the BIS has been consistently wrong in prior years, warning as early as 2011 about the prospects of higher inflation due to expansionary monetary policy:

          "But despite the obvious near-term price pressures, break-even inflation expectations at distant horizons remained relatively stable, suggesting that central banks' long-term credibility was intact, at least for the time being.

          "But controlling inflation in the long term will require policy tightening. And with short-term inflation up, that means a quicker normalisation of policy
          rates."

          Since that date, the major central banks of the world have been struggling with lower than desired inflation and doing whatever they could to raise the rate of inflation. It would have been helpful to readers to point out that the BIS has been hugely wrong in its past warnings, so people in policy positions appear to have been right to ignore them. This is likely still the case.

          anne:

          http://krugman.blogs.nytimes.com/2015/06/28/grisis/

          June 28, 2015

          Grisis
          By Paul Krugman

          OK, this is real: Greek banks closed, capital controls imposed. Grexit isn't a hard stretch from here - the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before.

          Clearly, though, some decisions now have to wait on the referendum.

          I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone - me included - the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn't create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.

          Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals.

          A strange logistical note: I'm on semi-vacation this week, doing a bicycle trip in an undisclosed location. It's only a semi-vacation because I didn't negotiate any days off the column; I'll be in tomorrow's paper (hmm, I wonder what the subject is) and have worked the logistics so as to make Friday's column doable too. I was planning to do little if any blogging, and will in any case do less than I might have otherwise given the events.

          anne -> anne...
          http://krugman.blogs.nytimes.com/2015/06/28/grisis/

          June 28, 2015

          Grisis
          By Paul Krugman

          Clearly, though, some decisions now have to wait on the referendum.

          I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone - me included - the troika * is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn't create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.

          Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals....

          * European Union Commission, EuropeanCentral Bank, and International Monetary Fund

          Paine -> anne...

          Pk has really shown a leadership side here
          Not contrarian
          Progressive leadership

          Vote no !

          Praise be to PK

          Ben Groves:

          This is nothing more than a neo-liberal play. They just don't want to strip their pensions, but infrastructure as well. They should be making the requirements of the loan for deep pension cuts and money for investments which would hel build up Greece's economy and the end for these bailouts. The fact they aren't doing that, but trying to confiscate it instead, which is the real issue. If Greece wants their fat pension system, that is their choice.

          I don't see anything different than post WWI Germany. This is what Libertarianism will bring to the West if implemented. They would dismantle the current power structure and replace it with a privately controlled syndicate dictating wealth much like today. This is not new, it has been going on since the rise of Abrahamic religions in the west.

          Fred C. Dobbs -> Lafayette...

          Greece is doomed - Matt Yglesias - June 27 http://www.vox.com/2015/6/27/8856297/greece-referendum-euro via @voxdotcom

          (Various useful links, at the link.)

          ... to understand the deeper causes of what's been going on since Tsipras' government swept to power in January, you really need to set the finance and economics aside and focus on the politics. Greece has been drawing dead this whole time, and the future outlook appears bleak for one simple reason - nobody else in Europe who holds power has any interest in making things anything other than painful for Greece.

          1) Giving Greece a better deal would be a political disaster

          Tsipras' fundamental miscalculation has been that he thought that by cloaking his specific requests for more lenient terms in the larger cause of anti-austerity politics, he could build a coalition of political support throughout Europe for his position. The reality was just the opposite. While politicians in Europe's creditor nations were naturally reluctant to grant Greece a better deal, politicians in Europe's debtor nations were even more opposed.

          After all, if electing a bunch of far-left types to parliament so they can demand a better deal actually worked, then voters in Portugal and Spain and Italy and Ireland would take note of that fact. And the last thing the current crop of elected officials in Lisbon and Madrid and Rome and Dublin want is to all be turned out in favor of a bunch of far-left types.

          2) Letting Greece default gracefully would be a disaster

          Even if Greece's European partners weren't inclined to give Greece a better financial deal, they could have at least smoothed the path to default. A Greece that doesn't pay what it owes would be instantly cut off from credit markets and forced to run a very austere fiscal policy.

          It's in Europe's interest to make things as hard as possible for Greece

          Things could have been left at that. Instead, throughout the year, the European Central Bank has been saying that it will cut the Greek banking system off from emergency funding if Greece doesn't keep paying its debts. That means default will lead to the collapse of Greek banks, and the end of Greek membership in the euro.

          That's a political decision the ECB isn't legally required to make. But politically it's the only possible decision. After all, if a default works out non-disastrously for Greece then other countries could be tempted to default. And international investors might worry that other countries could be tempted to default, raising interest rates and slowing the European economy. Only making default as painful as possible can safeguard the interests of other countries.

          3) Letting Greece leave the Eurozone gracefully would be a disaster

          Here's where the news gets really bad for Greece. Leaving the Eurozone could, in theory, go better or worse. But Europe needs it to go as badly as possible. After all, if Greece leaving goes pretty well, then other countries might be tempted to leave. And that raises the prospect of debt defaults, higher interest rates, and slowing European growth.

          Once again, it's in Europe's interest to make things as hard as possible for Greece.

          4) This is the time to fold 'em

          The tragic irony, if you are Tsipras, is that his plan very well might have worked back in 2010 when his predecessors originally agreed to the terms of a bailout. Back then, the whole situation was considerably more fluid. Greece could have threatened to default and essentially commit a murder/suicide on the entire European economy unless it got better terms. That would have been a very risky strategy and you can see why the Greek government didn't pursue it. But it might have worked.

          Yet as the song says, you need to know when to hold 'em and know when to fold 'em. ...

          (Alternatively, persuade various major German
          corps to re-locate to Greece, for tax-breaks,
          warm weather, great beaches, warm weather,
          'right-to-work' labor policies, tax breaks,
          warm weather & great beaches, and - voilŕ - problem solved!)

          Fred C. Dobbs:

          The Next Few Days Have the Potential to Transform
          Greece and Europe http://nyti.ms/1Nr7fbd via @UpshotNYT
          NYT - Neil Irwin - June 28

          As it turns out, the Greek crisis ends not with a bang, but with a referendum.

          It has been easy to ignore the doings in Greece for the last few years, with the perpetual series of summits in Brussels that never seem to resolve anything. But it's time to pay attention. These next few days are shaping up to become a transformational moment in the 60-year project of building a unified Europe. We just don't yet know what sort of transformation it will be.

          The immediate headlines that got us to this point are these: After an intractable series of negotiations over a bailout extension with Greece's creditors, the nation's left-wing government left the table Friday and said it would hold a referendum on July 5. Greek leaders think the offer on the table from European governments and the International Monetary Fund is lousy, requiring still more pension cuts and tax increases in a depressed economy, and intend to throw to voters the question of whether to accept it.

          Whatever the exact phrasing of the question (and assuming the referendum goes forward as planned), it really boils down to this simple choice:

          • A "Yes" vote means that Greece will continue the grinding era of austerity that has caused so much pain to its citizens over the last five years, in exchange for keeping the euro currency and the monetary stability it provides.
          • A "No" vote almost certainly means that the country will walk away from the euro and create its own currency (which will surely devalue sharply), bringing financial chaos in the near term, but creating the possibility of a rebound in the medium term as the country becomes more competitive with its devalued currency.

          The Greek government, led by Alexis Tsipras, disputes this framing, and argues that Greece could in fact reject the creditors' offer to extend the bailout program while sticking with the euro. Events over the weekend show how untenable that is. Thousands of Greeks lined up to withdraw euros from money machines, and the European Central Bank said it would not increase the size of the emergency lending program that Greek banks have been using to secure euros.

          Ergo, the Greek banks are, or will soon be, out of money, and the E.C.B. will be disinclined to open the floodgates again in the absence of a bailout deal. That's why the Greek government has effectively frozen its financial system, closing banks and the stock market on Monday. ...

          Greece Will Close Banks to Stem Flood of Withdrawals http://nyti.ms/1QXdEB2

          LANDON THOMAS Jr. and NIKI KITSANTONIS - JUNE 28

          ATHENS - Greece will keep its banks closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minister Alexis Tsipras said in a televised address on Sunday night, as Athens tries to avert a financial collapse.

          The government's decision to close banks temporarily and impose other so-called capital controls - and to keep the stock market closed on Monday - came hours after the European Central Bank said it would not expand an emergency loan program that has been propping up Greek banks in recent weeks while the government was trying to reach a new debt deal with international creditors. ...

          [Jun 27, 2015] Plundering Our Freedom with Abandon

          "...It would be in the interest of any rationality not to let fossil fuel and the arms industry so dominate U.S. foreign policy, particularly in the Middle East, I mean, this fueling of a Saudi-Iranian conflict. The idea that, you know, could there be a United States without a massive military, yeah, there could, but not this United States, not this economic system, not this elite. These guys aren't going to come around to some kind if view of we could be an equal, modest country."
          .
          "...the current configuration of power in America is irrational. We don't have adults watching the store. And we go from one disastrous pursuit to another. I mean, there was no reason whatsoever, if we had adults watching the store, you'd go knock off Saddam Hussein in Iraq, who had nothing to do with al-Qaeda, was a force against Iran, which--you know, we backed him in his war with Iran. So the contradictions are obvious, that we don't have adults watching the store, we don't have rational policy. "
          .
          "...The main thing that we've been effective on is this tech stuff, and our tech companies are the ones that are most concerned that our political model is not a good one. They're the ones that are out there having to sell this stuff, and this stuff involves getting confidence and knowing the culture, caring about other people, winning their confidence. And that's been endangered. "
          .
          "...You know. I mean, the Commodity Futures Modernization Act, which Bill Clinton signed off as a lame duck president in 2000, after it was already--you know, the election was over, he was now a lame duck, and he signed this bill. What was the purpose of it? It was to make all of this garbage legal. It said--I think it was Section 3 of the Commodity Futures Modernization Act--a Republican-Democratic bipartisan bill--said no existing law or regulatory agency will have jurisdiction over credit default swaps or collateralized debt obligations or any of these new financial mechanisms. Why? Because they said this is modern. We have to compete with Europe. You have to be able to do these things. We can't let--we have to give legal certainty--Lawrence Summers, you know, secretary of the Treasury--we have to have legal certainty for these financial instruments; otherwise, they won't be effective. Right? Legal certainty meant no one's going to look at it, no one's going to challenge it, no one's going to set any standards, no existing regulatory agency or law will apply. So it was a license to steal."
          .
          "...You've got a guy like Robert Rubin, okay? Robert Rubin was secretary of the Treasury under Bill Clinton. He had come from Goldman Sachs. He had convinced Clinton you could do all this stuff, this is all great, we'll do all this crap. He brings in Lawrence Summers. Timothy Geithner, who's a younger person working in there, he becomes the Treasury secretary under Obama. They do all this stuff. They get Clinton to sign off on it. He does it with Phil Gramm, the Republican, so it's bipartisan. Very few people challenge it. You know, now, I think if you ask anybody about Robert Rubin, they say, God, yeah, he wasn't too good for it. I'll bet you his own family members think he got his--you know, what happens? He leaves the Clinton administration; he goes to work for a bank that he makes legal, right? The merger of Citibank and Travelers Insurance they make legal with their reversal of Glass-Steagall, the Financial Services Modernization Act, and then they got the Commodity Futures [Modernization Act], which makes these gimmicks legal. He gets $10 million a year for the next decade. Sure, he's got money salted away. But I don't think he's got a reputation that's worth anything. I don't know. Lawrence Summers, again, I don't think people particularly treat those with respect. But they have money. You know, they can take care of their nephews and nieces. But I think it's generally accepted they caused a lot of damage to the economy."
          Jun 10, 2015 | therealnews.com

          Transcript

          Plundering Our Freedom with Abandon - Robert Scheer on Reality Asserts Itself (6/10)

          PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to Reality Asserts Itself on The Real News Network. We're continuing our discussion with Bob Scheer. Bob is a veteran U.S. journalist, currently the editor-in-chief of the Webby Award-winning online magazine Truthdig. And his whole biography you'll find beneath the video player.

          We're just going to pick up where we were.

          So here's what I'm accusing you off, that you seem to be suggesting that there's some rationality left in this system within the elites. And I'm not talking--of course there are some individuals that have some rational long-term view. I mean, even people like Soros has been crying about the lack of banking regulation. And there's people in different sectors of the elites who realize this is a train wreck and about go over a cliff. But those voices are actually marginalized. Even somebody who's got as much money as Soros within the banking and financial elite is completely marginalized. Nobody really listens to a word he says--people with power, at any rate. [1:07]

          PROF. ROBERT SCHEER, JOURNALIST AND AUTHOR: Well, they listen to--.

          JAY: Let me finish the point.

          SCHEER: They listen to Buffett.

          JAY: Well, maybe. But Buffett doesn't raise as much alarm as Soros does. But within there--they don't even seem to be able to rule in their own interest. It would be in the interest of global capitalism to have more rational banking regulations as they introduced in the 1930s. It would be in the interest of global capitalism to deal with the threat of catastrophic climate change. It would be in the interest of any rationality not to let fossil fuel and the arms industry so dominate U.S. foreign policy, particularly in the Middle East, I mean, this fueling of a Saudi-Iranian conflict. The idea that, you know, could there be a United States without a massive military, yeah, there could, but not this United States, not this economic system, not this elite. These guys aren't going to come around to some kind if view of we could be an equal, modest country.

          SCHEER: Well, you're absolutely right that the current configuration of power in America is irrational. We don't have adults watching the store. And we go from one disastrous pursuit to another. I mean, there was no reason whatsoever, if we had adults watching the store, you'd go knock off Saddam Hussein in Iraq, who had nothing to do with al-Qaeda, was a force against Iran, which--you know, we backed him in his war with Iran. So the contradictions are obvious, that we don't have adults watching the store, we don't have rational policy.

          However, I think you are not the only person that now knows that.

          JAY: Oh, I'm sure lots of--I would say most ordinary people kind of know it.

          SCHEER: No, I think even in those circles there's an awareness that we're not doing very well, and there are reminders that we're not doing well. You know, our economy is stagnant. We're up against some real problems in terms of our future. Income inequality is one. You don't have to be some wild lefty liberal to see that. I mean, the whole foundation of our country was always on a stable middle class and an expanding middle class, opportunity, equal playing field. I'm not saying that was the reality, but that was always the expectation. You know. And, you know, whether it's de Tocqueville or the founding fathers, there was always an assumption that at least for what you thought was the base population there would be this opportunity. You know. And we have been forced over the last couple of decades to recognize that no, it's going alarmingly in a different direction.

          Internationally, we know we're not doing very well. I mean, we don't produce a whole lot of products that everybody in the world is dying to get their hands on. The main thing that we've been effective on is this tech stuff, and our tech companies are the ones that are most concerned that our political model is not a good one. They're the ones that are out there having to sell this stuff, and this stuff involves getting confidence and knowing the culture, caring about other people, winning their confidence. And that's been endangered.

          So the only thing I would--I don't disagree with you at all as to whether our model is in trouble. It's in trouble. I disagree with you only on whether--the number of people who know it's in trouble.

          JAY: I would say even most of them--I would probably think most of the elite know it's in trouble. They're just going to cash in on it, and it's going to be someone else's problem to do something about it.

          SCHEER: Okay. You're putting your finger on something that I feel is very critical. And I have spent my life interviewing people generally around power, in government and so forth. I've traveled with Nelson Rockefeller and David Rockefeller. You know, I have interviewed people who became president, from Richard Nixon, Clinton, and so forth and so on.

          And if I were to try to explain, the big shift that I've seen is long-term as opposed to short-term, that most of the people I had interviewed in the first stage of my career, say somewhere up until 1970, were people that at least were concerned what their grandchildren might think. You know? There was either through family, inherited wealth, or going to certain schools, or there was some sense of social responsibility, you know, that you could find, that we have to leave our mark, we have to leave it a better place, we have to--and just for our place in history, that it mattered. Okay? So you could be concerned, oh, we'd better get with the civil rights movement, because otherwise we're going to fall apart, or we'd better care about the economic condition of the rest of the world, because otherwise it will rebel, we'd better worry about the living condition of our own people here or they'll rise up with pitchforks and toss you out.

          I think what happened is we went into this madcap period of short-term greed.

          JAY: And let me just--Bob wrote a book called The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street. And this was a kind of turning point you're talking about.

          SCHEER: Yeah, that's really what my book is about, because you had sensible rules of the road that came out of the New Deal, and there was a recognition, because of the Great Depression, that you just can't have this madcap, crazy, Gilded Age society. Again I overuse this concept of adults watching the store, but I remember going back to just being a kid in the Bronx, and you didn't leave the children to run the fruit stand, 'cause they'd give everything away or they'd go off themselves and play stickball. Somebody had to be there to make sure the stuff got sold and money was paid and things. And you lost that. You got people coming out of the law schools and the business schools that were shysters. You know, they just wanted some hustle, some scam. That's how you got into credit default swaps and collateralized debt obligations.

          JAY: Yeah, but the bubbles are euphoric,--

          SCHEER: Yeah.

          JAY: --if you're in on cashing in on the bubble.

          SCHEER: And anybody who looked at that knew. I mean, I was interviewing people during those years, and they'd say, this is, you know, as Buffett said, financial instruments of mass destruction. You know, how could you believe in any of this stuff? How could anybody believe if you--this is what my book was about--you take all these loans and you redefine them and you talk about the risk in stupid ways and you give loans to people who can't support it, and somehow, okay, and whether you were in Fannie Mae, Freddie Mac, or whether you were in the private sector, 'cause Fannie Mae and Freddie Mac were being traded on the stock market, you had to know that this was going to explode. They knew it. And they got the laws to change to make it legal. It should have been illegal.

          You know. I mean, the Commodity Futures Modernization Act, which Bill Clinton signed off as a lame duck president in 2000, after it was already--you know, the election was over, he was now a lame duck, and he signed this bill. What was the purpose of it? It was to make all of this garbage legal. It said--I think it was Section 3 of the Commodity Futures Modernization Act--a Republican-Democratic bipartisan bill--said no existing law or regulatory agency will have jurisdiction over credit default swaps or collateralized debt obligations or any of these new financial mechanisms. Why? Because they said this is modern. We have to compete with Europe. You have to be able to do these things. We can't let--we have to give legal certainty--Lawrence Summers, you know, secretary of the Treasury--we have to have legal certainty for these financial instruments; otherwise, they won't be effective. Right? Legal certainty meant no one's going to look at it, no one's going to challenge it, no one's going to set any standards, no existing regulatory agency or law will apply. So it was a license to steal.

          JAY: Now, for people that don't understand the concept, quickly.

          SCHEER: Well, quickly, what happens is they developed all these new financial gimmicks. You know, a credit default swap was something that was an insurance policy, but it was not an insurance policy. It's what AIG did and got into so much trouble. They said, you do these collateralized debt obligations, you take all these different loans, subprime mortgages--.

          JAY: Which were invented in Baltimore, by the way.

          SCHEER: Yeah, auto loans, or any of these things, and then they don't make sense on their own and they all seem quite risky, but we'll put them into a pool and we'll assess their value and we'll get these credit rating agencies that have a stake in saying, yeah, they're all good to go because they're going to get money from it. So there was no regulation. And then you pass a law that says you're allowed to do this, no one will look at it carefully, no existing regulatory agency will have control. So you've got a license to steal. Go knock yourself out. You know? And they, selling all these loans, packaging them, and then reselling them to people over the world. Right? And we can predict, you know, get this income and so forth. And then, if it looks shaky, we're going to give you these phony insurance policies, right, that will seem to back them up. But there's no money behind it. It's not like a real insurance policy. Nobody's putting any resources.

          So, suddenly, you've got this thing that's going to explode, and AIG, which is supposed to be backing up the insurance, says, hey, we can't do that; we have no money for that. So now your housing bubble has collapsed and AIG can't support it. And it's nothing more than the mafia doing a scam, only you have passed laws that say that's all legal, that's all legal.

          Now, you're absolutely right. You wouldn't do that if you were worried about how even you would appear to your grandchildren. Okay? People looking back now know these people were crooks, whether they went to--they didn't go to jail, 'cause they they get the law passed to make it that it's not a crime to defraud people. It's legal. It wipes out half of the wealth of African Americans in this country, wipes out the economic gains of the civil rights movement, 'cause they were particularly a group that was particularly victimized. It wipes out two-thirds--these are Pew Research Center figures--wipes out two-thirds of the wealth, the collected wealth over generations of Hispanics in this country because they were subject to these subprime. They lose everything when they lose their house. But the guys putting it all together, they escape with their billions. They don't go to jail. So, yes, if what you mean by your opening statement was we don't have solid, responsible people who even care how they will appear to their grandchildren--.

          You've got a guy like Robert Rubin, okay? Robert Rubin was secretary of the Treasury under Bill Clinton. He had come from Goldman Sachs. He had convinced Clinton you could do all this stuff, this is all great, we'll do all this crap. He brings in Lawrence Summers. Timothy Geithner, who's a younger person working in there, he becomes the Treasury secretary under Obama. They do all this stuff. They get Clinton to sign off on it. He does it with Phil Gramm, the Republican, so it's bipartisan. Very few people challenge it. You know, now, I think if you ask anybody about Robert Rubin, they say, God, yeah, he wasn't too good for it. I'll bet you his own family members think he got his--you know, what happens? He leaves the Clinton administration; he goes to work for a bank that he makes legal, right? The merger of Citibank and Travelers Insurance they make legal with their reversal of Glass-Steagall, the Financial Services Modernization Act, and then they got the Commodity Futures [Modernization Act], which makes these gimmicks legal. He gets $10 million a year for the next decade. Sure, he's got money salted away. But I don't think he's got a reputation that's worth anything. I don't know. Lawrence Summers, again, I don't think people particularly treat those with respect. But they have money. You know, they can take care of their nephews and nieces. But I think it's generally accepted they caused a lot of damage to the economy.

          JAY: But it's not, like, that it's just a bad group of people happened to get into power. And I'm not suggesting you're suggesting that.

          SCHEER: No, it's the best and the brightest that Halberstam wrote about in Vietnam. These are very well educated people who know what they're doing and, I believe, have to know it's going to destroy the lives of millions of people, and they go ahead and do it. It's just like--.

          JAY: Yeah, 'cause they say if it ain't me doing it, it's going to be him doing it, or her.

          SCHEER: Whatever their rationalizations, they surround themselves with lawyers and PR people who tell them this is all wonderful, and they get away with it.

          JAY: But it's the way the system has evolved that so much money is in so few hands. There's not much else for them to do with it than bet and gamble against each other, create this massive speculative sector of the economy, which is financializing everything. Even when they talk about climate change, all they really have in mind is a way to financialize it. So whether it's this group or the other group, the sort of system itself is created where there's--so much capital has become completely parasitical.

          SCHEER: Yes, but they could also be decent people. They could actually wonder about what would Jesus do. They could actually think about what does their lives mean.

          JAY: I think some do and drop out.

          SCHEER: A few.

          JAY: Some do, and they can't take it anymore, and they drop out.

          SCHEER: Yeah.

          JAY: But they're not in any position to change the course of the ship.

          SCHEER: Well, but also the question you should ask is why aren't they being observed in doing this. And the reason is because they can buy off everyone.

          JAY: Especially the media.

          SCHEER: The media, but the universities, the grants of--you know, build buildings at universities. Come on.

          JAY: I want to stress the media 'cause they have this theatrical show going in the elections -- I'm not saying there isn't a real contention for power, but when you have unlimited contributions, unlimited spending, what are they spending it on? They're spending it on TV advertising.

          SCHEER: Yeah, and they're spending it on candidates who will not give them a hard time. There's no question about it.

          But it's not just the media. I mean, I don't want to exonerate the media, but you -- you know, in the day of the internet, you should have more critical voices, right, 'cause--but even there you look at where could--you know, okay, to understand the economy or foreign policy requires a little brainwork, okay? Most people have got to take care of their job and their family and pick the kid up and how do I pay this bill and am I going to lose my job and/or how am I going to make that sale. And so their lives are taken up. And then we have a group of people, whether they're called journalists or professors or consultants or what have you who actually have the time and are really charged with figuring stuff out.

          Now, most of this stuff is not all that difficult to figure out. So then you have to ask yourself the question, why didn't you figure it out? I mean, why didn't the media--in my book I describe how The New York Times was a cheerleader for this radical deregulation. They used words like modernization. They said long overdue. Now, why? You know, because they were living in a culture and benefiting from a culture that was benefiting from the ripoff. These are the people who advertise. These are the people who invest in your venture, in your media. These are the people who buy chairs at the schools where you're teaching. These are people who support the charities or political causes that you happen to agree with. There is a culture of corruption, I mean, 'cause anyone else looking at this, they say, wait a minute, this is nonsensical, this is bad. Why are you selling--I remember writing about this stuff. I would go out to what they call the Inland Empire in California where they're building all of these--. I said, who's going to live here? How are they going to get to work? Who's paying for this? Why are they making the loans? And then you realize there is no there there. Don't confuse the thing--I remember an old advertising [incompr.] don't confuse the thing being sold with the thing itself. They're not selling a house to somebody who needs a house and is going to live and be able to afford the payment; they're selling this collateralized debt obligation that's 1,000 of those houses that you have made and chopped up and iced and diced and everything and sliced, and then you're going to make that seem like a good bet to somebody. Where? In Saudi Arabia or in France or--.

          JAY: Knowing it's all going to default.

          SCHEER: Yeah, but you're going to get in and out before it defaults.

          JAY: Yeah. So please join us for the next segment of Reality Asserts Itself with Bob Scheer on The Real News Network.


          End


          DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

          Robert Scheer is editor-in-chief of Truthdig and has built a reputation for strong social and political writing over his 30 years as a journalist and author. His latest book is They Know Everything About You: How Data-Collecting Corporations and Snooping Government Agencies Are Destroying Democracy.

          [Jun 27, 2015] The Greek PM has announced a national referendum on July 5 on the conditions of the debt deal with international creditors

          Patient Observer, June 26, 2015 at 8:10 pm

          This is big:
          http://rt.com/news/270046-greece-debt-deal-referendum/
          "The Greek PM has announced a national referendum on July 5 on the conditions of the debt deal with international creditors. It's up to the Greek people, Tsipras said, to make a fateful decision on the country's sovereignty, independence and future.

          "These proposals, which clearly violate the European rules and the basic rights to work, equality and dignity show that the purpose of some of the partners and institutions was not a viable agreement for all parties, but possibly the humiliation of an entire people," Greek Prime Minister Alexis Tsipras said in a televised address to the nation, as cited by Reuters.

          The referendum will be held on July 5, a few days past the June 30 deadline, Tsipras announced. "

          A clever move – what can EU do if the debt deal is voted down? Putin-like in its directness and effectiveness.

          yalensis, June 27, 2015 at 3:09 am
          Hallelujah!

          And holding the referendum just a week from now is smart too.

          EU/USA don't have enough time to organize election fraud.

          [Jun 27, 2015] The Bankruptcy of Americas Elites naked capitalism

          "...The wealthy's acceptance of the New Deal was always grudging, and lasted only as long as they thought their wealth/safety depended on some of the rest of us being fairly prosperous. When they found a way out of it (globalization) they were happy to toss the New Deal away."
          .
          "...What happens to the concept of economic bubbles if we do not assume that markets are self-correcting? It goes out the window because there is no norm from which to stray."
          .
          "...modern financier capitalism has no plan other than "loot while you can". The last comment of Scheer points to pyramidal or Ponzi schemes being all what is, and, if that's the backbone of the economy, we are certainly in for a massive shock that will make the 2007-08 one look almost anecdotal. "
          .
          "...Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host."
          June 26, 2015 | nakedcapitalism.com

          If someone had used the word "elites" in 2006, they would have been seen as a hair-on-fire hysteric, long on conspiracy theories and short on sober understanding of How Things Work. But as the 1% and 0.1% amass more and more of total income and wealth, so too have they come to believe their interest diverge from those of the rest of us (and in a literal sense, they often do, since in too many cases, their wealth rests at least in part on predatory conduct). And now that that gap has become obvious, it has reshaped the role of the ruling class, as in the people who are in charge of the administrative apparatus of society. While some members of these top income groups play a direct role in running powerful organizations (CEOs of large an/or strategically important businesses, for instance), it also includes much less affluent individuals, like government officials and those who influence values and collective perceptions, like major publishers and public intellectuals.

          Increasingly, these administrators, influencers, and top professionals seek to use their roles as an entry ticket to the top cohort. The prototype is the revolving door regulator, but there are plenty of other embodiments.

          A recent example is Raj Date, who was the Deputy Director at the Consumer Financial Protection Bureau after having worked at Deutsche Bank, Capital One, and McKinsey. I'm told consumer groups were never comfortable with him; he was too slick to be seen as trustworthy. And he tried to elbow Elizabeth Warren aside and he grab the directorship of the new agency before Warren put a stop to that by throwing her weight behind Richard Cordray. Date founded Fenway Summer, a "venture investment firm focused on financial services." It sought to compete with Promontory Group, a money and influence machine headed by former Comptroller of the Currency Gene Ludwig. Established readers may recall the prominent role that Promontory played in the Independent Foreclosure Review fiasco, in which Promontory walked away with over $600 million in fees for a job badly performed and never completed (for details, see Regulatory Looting, Promontory-Style: Botched Foreclosure Reviews Alone Generate More than Double Goldman's Revenues per Employee, Bank of America Foreclosure Reviews: Why the OCC Overlooked "Independent" Reviewer Promontory's Keystone Cops Act (Part VB)) and Bank of America Foreclosure Reviews: How Promontory Became a Shadow Regulator (Part VA).

          Date just sold Fenway Summer to Promontory. As a well-recognized banking expert said via e-mail:

          Not surprised. I read it as a failure of Fenway Summer. It was supposed to be a rival to Promontory, not bought out by it. I sure as hell wouldn't pay for Raj's advice.

          But members of the elite like Raj manage to fail upwards, or at worst sideways. And that helps preserve the widening gap between them and everyone else.

          This Real News Network interview with Robert Scheer, which is number six in a ten part series, discusses how the self-serving attitudes among the supposed leaders of our society became entrenched.

          PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to Reality Asserts Itself on The Real News Network. We're continuing our discussion with Bob Scheer. Bob is a veteran U.S. journalist, currently the editor-in-chief of the Webby Award-winning online magazine Truthdig. And his whole biography you'll find beneath the video player.

          We're just going to pick up where we were.

          So here's what I'm accusing you off, that you seem to be suggesting that there's some rationality left in this system within the elites. And I'm not talking–of course there are some individuals that have some rational long-term view. I mean, even people like Soros has been crying about the lack of banking regulation. And there's people in different sectors of the elites who realize this is a train wreck and about go over a cliff. But those voices are actually marginalized. Even somebody who's got as much money as Soros within the banking and financial elite is completely marginalized. Nobody really listens to a word he says–people with power, at any rate. [1:07]

          PROF. ROBERT SCHEER, JOURNALIST AND AUTHOR: Well, they listen to–.

          JAY: Let me finish the point.

          SCHEER: They listen to Buffett.

          JAY: Well, maybe. But Buffett doesn't raise as much alarm as Soros does. But within there–they don't even seem to be able to rule in their own interest. It would be in the interest of global capitalism to have more rational banking regulations as they introduced in the 1930s. It would be in the interest of global capitalism to deal with the threat of catastrophic climate change. It would be in the interest of any rationality not to let fossil fuel and the arms industry so dominate U.S. foreign policy, particularly in the Middle East, I mean, this fueling of a Saudi-Iranian conflict. The idea that, you know, could there be a United States without a massive military, yeah, there could, but not this United States, not this economic system, not this elite. These guys aren't going to come around to some kind if view of we could be an equal, modest country.

          SCHEER: Well, you're absolutely right that the current configuration of power in America is irrational. We don't have adults watching the store. And we go from one disastrous pursuit to another. I mean, there was no reason whatsoever, if we had adults watching the store, you'd go knock off Saddam Hussein in Iraq, who had nothing to do with al-Qaeda, was a force against Iran, which–you know, we backed him in his war with Iran. So the contradictions are obvious, that we don't have adults watching the store, we don't have rational policy.

          However, I think you are not the only person that now knows that.

          JAY: Oh, I'm sure lots of–I would say most ordinary people kind of know it.

          SCHEER: No, I think even in those circles there's an awareness that we're not doing very well, and there are reminders that we're not doing well. You know, our economy is stagnant. We're up against some real problems in terms of our future. Income inequality is one. You don't have to be some wild lefty liberal to see that. I mean, the whole foundation of our country was always on a stable middle class and an expanding middle class, opportunity, equal playing field. I'm not saying that was the reality, but that was always the expectation. You know. And, you know, whether it's de Tocqueville or the founding fathers, there was always an assumption that at least for what you thought was the base population there would be this opportunity. You know. And we have been forced over the last couple of decades to recognize that no, it's going alarmingly in a different direction.

          Internationally, we know we're not doing very well. I mean, we don't produce a whole lot of products that everybody in the world is dying to get their hands on. The main thing that we've been effective on is this tech stuff, and our tech companies are the ones that are most concerned that our political model is not a good one. They're the ones that are out there having to sell this stuff, and this stuff involves getting confidence and knowing the culture, caring about other people, winning their confidence. And that's been endangered.

          So the only thing I would–I don't disagree with you at all as to whether our model is in trouble. It's in trouble. I disagree with you only on whether–the number of people who know it's in trouble.

          JAY: I would say even most of them–I would probably think most of the elite know it's in trouble. They're just going to cash in on it, and it's going to be someone else's problem to do something about it.

          SCHEER: Okay. You're putting your finger on something that I feel is very critical. And I have spent my life interviewing people generally around power, in government and so forth. I've traveled with Nelson Rockefeller and David Rockefeller. You know, I have interviewed people who became president, from Richard Nixon, Clinton, and so forth and so on.

          And if I were to try to explain, the big shift that I've seen is long-term as opposed to short-term, that most of the people I had interviewed in the first stage of my career, say somewhere up until 1970, were people that at least were concerned what their grandchildren might think. You know? There was either through family, inherited wealth, or going to certain schools, or there was some sense of social responsibility, you know, that you could find, that we have to leave our mark, we have to leave it a better place, we have to–and just for our place in history, that it mattered. Okay? So you could be concerned, oh, we'd better get with the civil rights movement, because otherwise we're going to fall apart, or we'd better care about the economic condition of the rest of the world, because otherwise it will rebel, we'd better worry about the living condition of our own people here or they'll rise up with pitchforks and toss you out.

          I think what happened is we went into this madcap period of short-term greed.

          JAY: And let me just–Bob wrote a book called The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street. And this was a kind of turning point you're talking about.

          SCHEER: Yeah, that's really what my book is about, because you had sensible rules of the road that came out of the New Deal, and there was a recognition, because of the Great Depression, that you just can't have this madcap, crazy, Gilded Age society. Again I overuse this concept of adults watching the store, but I remember going back to just being a kid in the Bronx, and you didn't leave the children to run the fruit stand, 'cause they'd give everything away or they'd go off themselves and play stickball. Somebody had to be there to make sure the stuff got sold and money was paid and things. And you lost that. You got people coming out of the law schools and the business schools that were shysters. You know, they just wanted some hustle, some scam. That's how you got into credit default swaps and collateralized debt obligations.

          JAY: Yeah, but the bubbles are euphoric,–

          SCHEER: Yeah.

          JAY: –if you're in on cashing in on the bubble.

          SCHEER: And anybody who looked at that knew. I mean, I was interviewing people during those years, and they'd say, this is, you know, as Buffett said, financial instruments of mass destruction. You know, how could you believe in any of this stuff? How could anybody believe if you–this is what my book was about–you take all these loans and you redefine them and you talk about the risk in stupid ways and you give loans to people who can't support it, and somehow, okay, and whether you were in Fannie Mae, Freddie Mac, or whether you were in the private sector, 'cause Fannie Mae and Freddie Mac were being traded on the stock market, you had to know that this was going to explode. They knew it. And they got the laws to change to make it legal. It should have been illegal.

          You know. I mean, the Commodity Futures Modernization Act, which Bill Clinton signed off as a lame duck president in 2000, after it was already–you know, the election was over, he was now a lame duck, and he signed this bill. What was the purpose of it? It was to make all of this garbage legal. It said–I think it was Section 3 of the Commodity Futures Modernization Act–a Republican-Democratic bipartisan bill–said no existing law or regulatory agency will have jurisdiction over credit default swaps or collateralized debt obligations or any of these new financial mechanisms. Why? Because they said this is modern. We have to compete with Europe. You have to be able to do these things. We can't let–we have to give legal certainty–Lawrence Summers, you know, secretary of the Treasury–we have to have legal certainty for these financial instruments; otherwise, they won't be effective. Right? Legal certainty meant no one's going to look at it, no one's going to challenge it, no one's going to set any standards, no existing regulatory agency or law will apply. So it was a license to steal.

          JAY: Now, for people that don't understand the concept, quickly.

          SCHEER: Well, quickly, what happens is they developed all these new financial gimmicks. You know, a credit default swap was something that was an insurance policy, but it was not an insurance policy. It's what AIG did and got into so much trouble. They said, you do these collateralized debt obligations, you take all these different loans, subprime mortgages–.

          JAY: Which were invented in Baltimore, by the way.

          SCHEER: Yeah, auto loans, or any of these things, and then they don't make sense on their own and they all seem quite risky, but we'll put them into a pool and we'll assess their value and we'll get these credit rating agencies that have a stake in saying, yeah, they're all good to go because they're going to get money from it. So there was no regulation. And then you pass a law that says you're allowed to do this, no one will look at it carefully, no existing regulatory agency will have control. So you've got a license to steal. Go knock yourself out. You know? And they, selling all these loans, packaging them, and then reselling them to people over the world. Right? And we can predict, you know, get this income and so forth. And then, if it looks shaky, we're going to give you these phony insurance policies, right, that will seem to back them up. But there's no money behind it. It's not like a real insurance policy. Nobody's putting any resources.

          So, suddenly, you've got this thing that's going to explode, and AIG, which is supposed to be backing up the insurance, says, hey, we can't do that; we have no money for that. So now your housing bubble has collapsed and AIG can't support it. And it's nothing more than the mafia doing a scam, only you have passed laws that say that's all legal, that's all legal.

          Now, you're absolutely right. You wouldn't do that if you were worried about how even you would appear to your grandchildren. Okay? People looking back now know these people were crooks, whether they went to–they didn't go to jail, 'cause they they get the law passed to make it that it's not a crime to defraud people. It's legal. It wipes out half of the wealth of African Americans in this country, wipes out the economic gains of the civil rights movement, 'cause they were particularly a group that was particularly victimized. It wipes out two-thirds–these are Pew Research Center figures–wipes out two-thirds of the wealth, the collected wealth over generations of Hispanics in this country because they were subject to these subprime. They lose everything when they lose their house. But the guys putting it all together, they escape with their billions. They don't go to jail. So, yes, if what you mean by your opening statement was we don't have solid, responsible people who even care how they will appear to their grandchildren–.

          You've got a guy like Robert Rubin, okay? Robert Rubin was secretary of the Treasury under Bill Clinton. He had come from Goldman Sachs. He had convinced Clinton you could do all this stuff, this is all great, we'll do all this crap. He brings in Lawrence Summers. Timothy Geithner, who's a younger person working in there, he becomes the Treasury secretary under Obama. They do all this stuff. They get Clinton to sign off on it. He does it with Phil Gramm, the Republican, so it's bipartisan. Very few people challenge it. You know, now, I think if you ask anybody about Robert Rubin, they say, God, yeah, he wasn't too good for it. I'll bet you his own family members think he got his–you know, what happens? He leaves the Clinton administration; he goes to work for a bank that he makes legal, right? The merger of Citibank and Travelers Insurance they make legal with their reversal of Glass-Steagall, the Financial Services Modernization Act, and then they got the Commodity Futures [Modernization Act], which makes these gimmicks legal. He gets $10 million a year for the next decade. Sure, he's got money salted away. But I don't think he's got a reputation that's worth anything. I don't know. Lawrence Summers, again, I don't think people particularly treat those with respect. But they have money. You know, they can take care of their nephews and nieces. But I think it's generally accepted they caused a lot of damage to the economy.

          JAY: But it's not, like, that it's just a bad group of people happened to get into power. And I'm not suggesting you're suggesting that.

          SCHEER: No, it's the best and the brightest that Halberstam wrote about in Vietnam. These are very well educated people who know what they're doing and, I believe, have to know it's going to destroy the lives of millions of people, and they go ahead and do it. It's just like–.

          JAY: Yeah, 'cause they say if it ain't me doing it, it's going to be him doing it, or her.

          SCHEER: Whatever their rationalizations, they surround themselves with lawyers and PR people who tell them this is all wonderful, and they get away with it.

          JAY: But it's the way the system has evolved that so much money is in so few hands. There's not much else for them to do with it than bet and gamble against each other, create this massive speculative sector of the economy, which is financializing everything. Even when they talk about climate change, all they really have in mind is a way to financialize it. So whether it's this group or the other group, the sort of system itself is created where there's–so much capital has become completely parasitical.

          SCHEER: Yes, but they could also be decent people. They could actually wonder about what would Jesus do. They could actually think about what does their lives mean.

          JAY: I think some do and drop out.

          SCHEER: A few.

          JAY: Some do, and they can't take it anymore, and they drop out.

          SCHEER: Yeah.

          JAY: But they're not in any position to change the course of the ship.

          SCHEER: Well, but also the question you should ask is why aren't they being observed in doing this. And the reason is because they can buy off everyone.

          JAY: Especially the media.

          SCHEER: The media, but the universities, the grants of–you know, build buildings at universities. Come on.

          JAY: I want to stress the media 'cause they have this theatrical show going in the elections–I'm not saying there isn't a real contention for power, but when you have unlimited contributions, unlimited spending, what are they spending it on? They're spending it on TV advertising.

          SCHEER: Yeah, and they're spending it on candidates who will not give them a hard time. There's no question about it.

          But it's not just the media. I mean, I don't want to exonerate the media, but you–you know, in the day of the internet, you should have more critical voices, right, 'cause–but even there you look at where could–you know, okay, to understand the economy or foreign policy requires a little brainwork, okay? Most people have got to take care of their job and their family and pick the kid up and how do I pay this bill and am I going to lose my job and/or how am I going to make that sale. And so their lives are taken up. And then we have a group of people, whether they're called journalists or professors or consultants or what have you who actually have the time and are really charged with figuring stuff out.

          Now, most of this stuff is not all that difficult to figure out. So then you have to ask yourself the question, why didn't you figure it out? I mean, why didn't the media–in my book I describe how The New York Times was a cheerleader for this radical deregulation. They used words like modernization. They said long overdue. Now, why? You know, because they were living in a culture and benefiting from a culture that was benefiting from the ripoff. These are the people who advertise. These are the people who invest in your venture, in your media. These are the people who buy chairs at the schools where you're teaching. These are people who support the charities or political causes that you happen to agree with. There is a culture of corruption, I mean, 'cause anyone else looking at this, they say, wait a minute, this is nonsensical, this is bad. Why are you selling–I remember writing about this stuff. I would go out to what they call the Inland Empire in California where they're building all of these–. I said, who's going to live here? How are they going to get to work? Who's paying for this? Why are they making the loans? And then you realize there is no there there. Don't confuse the thing–I remember an old advertising [incompr.] don't confuse the thing being sold with the thing itself. They're not selling a house to somebody who needs a house and is going to live and be able to afford the payment; they're selling this collateralized debt obligation that's 1,000 of those houses that you have made and chopped up and iced and diced and everything and sliced, and then you're going to make that seem like a good bet to somebody. Where? In Saudi Arabia or in France or–.

          JAY: Knowing it's all going to default.

          SCHEER: Yeah, but you're going to get in and out before it defaults.

          JAY: Yeah

          William C, June 26, 2015 at 4:05 am

          O tempora O mores.

          Little changes really?

          Benedict@Large, June 26, 2015 at 8:08 am

          Scheer understates (just a bit) what the Commodities Futures Modernization act was all about. What all these credit default swaps and other exotic new derivative instruments were all about was recreating and expanding the list of instruments in use on Wall Street. CFMA's purpose was to insure that this parallel market was unregulated. I one fell swoop, CFMA gave Wall Street the ability to recreate itself, only the recreation was to be entirely without government oversight.

          I'm sure there were a few incompetent fools (like Alan Greenspan and Phil Gramm) who actually believed the toxic hype that this was all about leading the curve to the new Nirvana, but pretty much everyone else knew that is was nothing more than a government-sanctioned heist, because almost at once, everyone started acting like it was. Even as early as 2000, the national association of real estate appraisers was petitioning the government for relief from bankers forcing them to scam their appraisals or get kicked out of business.

          By 2002, Dean Baker was complaining that the rent-vs-own ratios that had been constant for a hundred years were careening wildly, with no apparent cause.

          By 2004, the FBI was begging Congress to fund more investigators, saying that the mortgage industry had become a swamp of corruption.

          By the end of 2005, the entire mortgage market began collapsing, and the only thing that delayed it for another 30 or so months was that the Bush administration forced Fannie and Freddie to take their hundreds of billions of wealth … OUR WEALTH … and throw it against that market's collapsing edifice.

          The only thing left was that the next President would have to owe his election to the very people who needed to be indicted, convicted, and jailed.

          LifelongLib, June 26, 2015 at 4:48 am

          The wealthy's acceptance of the New Deal was always grudging, and lasted only as long as they thought their wealth/safety depended on some of the rest of us being fairly prosperous. When they found a way out of it (globalization) they were happy to toss the New Deal away.

          Ben Johannson, June 26, 2015 at 5:45 am

          Bubble talk leads us back to the mainstream of economic thought. The notion of bubble is a deviation from some normal state of affairs, namely a growing, self-equilibrating economy and markets (called growth theory among neoliberals.) Some event, it is presumed, external to the normal state forces the economy out of kilter but once this is dealt with economic growth and employment will return to the trajectory everybody knows and loves.

          What happens to the concept of economic bubbles if we do not assume that markets are self-correcting? It goes out the window because there is no norm from which to stray.

          Maju, June 26, 2015 at 8:08 am

          Actually what happens is that we reach an overproduction crisis, which is the natural thing to do for Capitalism, at least according to Marx.

          But while we are in that overproduction crisis, the financier capitalists still grow in power and wealth, because they speculate with it, being almost the only ones able to still make a sustained profit, and use that power to contain any attempt of reform and rather promote even greater deregulation, like the triple-T secret treaties. All very natural and expectable, albeit unfortunate, in good economic and political science.

          Maju, June 26, 2015 at 6:26 am

          TRNN are generally very worth watching, thank you. Although they may have overdone the interviewer's makeup on this occasion.

          This links very well with what I was saying in another thread: modern financier capitalism has no plan other than "loot while you can". The last comment of Scheer points to pyramidal or Ponzi schemes being all what is, and, if that's the backbone of the economy, we are certainly in for a massive shock that will make the 2007-08 one look almost anecdotal.

          Another interesting comment of Scheer is that a key "rational" (or "productive") US economic sector is the technological one, what is no doubt true. I am under the strong impression that the USA could for example be leading the transition to renewables, as most technological advances in solar energies, for instance, happen in the USA. But paradoxically the republic is actually betting heavily on oil and not using that advantage to reaffirm itself as avant-guard global economic power, what could well give Washington another whole century of hegemony.

          So indeed there is no plan, only short-termism and loot-while-you-can.

          ambrit, June 26, 2015 at 6:33 am

          I'm glad that the concept of 'elites' is finally gaining widespread acceptability. It is a sorry state of affairs when a class of people develops an "us or them" worldview, but there it is. If I understand it correctly, MMT is a system based on a rational and pragmatic view of how money works. 'Elites,' as an organizing model serves a similar function in the socio political sphere of human endeavour. Each contends with 'official' ideologies promoted by the system itself.
          I agree with Feynmans' contention that the system architecture of a human institution defines and circumscribes it's functionality. His addendum to the Space Shuttle Challenger Accident Report lays out his contention. Essentially, the idea is something I've read in other accounts of how the government bureaucracies work. Functionaries are punished for presenting facts and analysis counter to the perceived desired outcome. The perceptions guiding the process are generally internally produced and shaped. No sinister 'master criminal' is required. The group as a whole develops it's own world view, and designs systems to support and expand that "World."

          It has been asserted that Bernays et. al. applied the scientific method to crowd control and manipulation. That generation is now long gone, and with them the concept of 'public service.' Even if one were to apply a maximum degree of cynicism, that bygone generation of 'elites' had an infinitely greater regard for the 'public good' than today's 'elites.' As the article above plainly states, even that degree of concern for out groups is gone.

          Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host.

          ambrit, June 26, 2015 at 6:55 am

          Blast! I forgot to append Feynmans appendix to the Rogers Report. (I've put this up once before, so please excuse the redundancy.)
          http://history.nasa.gov/rogersrep/v2appf.htm

          H. Alexander Ivey, June 26, 2015 at 11:52 pm

          Thanks for the link, interesting report.

          Am struck with the NASA managers over-riding their engineers' concerns. This is not a result of a "bureaucratic mind-set" but of people not being held responsible for their actions. The managers were paid to have a flight go on time. The engineers held to their belief that the flight should be as safe as they could make it.

          The fault is not in our stars, but in our compensation systems. I don't think any NASA manager lost their job, got demoted, or a letter of reprimand over the Challenger accident.

          ambrit, June 27, 2015 at 10:27 am

          Yes, but that very "flight go on time" consideration is a part of the "bureaucratic mind set." When a functionary believes that adherence to an even unstated expectation will determine that bureaucrats future career arc, ways will be found.

          The other dimension of this, seldom voiced, is the fact that President Reagan was scheduled to give the annual State of the Union speech the night of the launch day, January 28, 1986. Rumours have since circulated that Christina McAuliffe was scheduled to participate by remote camera link from orbit. Having a cameo in the State of the Union speech by Americas favourite teacher in space is exactly the sort of stunt a trained Hollywood actor would endorse. I blame Ronnie Reagan and "politics as usual" for this disaster.

          As for bureaucrats overriding the opinions of technocrats, well, that's life. The political actors keep pushing the envelope regarding safety, and especially cost, until someone gets killed. Then the game is reset. I have personally seen this dynamic play out several times.
          Even better than the Challenger fiasco was the outright negligence that caused the Columbia 'event' in 2003. There had been serious concern voiced by engineers about the big piece of foam that broke off of the main tank and struck the underside of the shuttle during launch. This was no love tap. The foam chunk hit the shuttle going approximately 1900 miles per hour. This made a hole in the underside left wing heat tile array. Hot gasses from re-entry entered the wing root and broke up the shuttle. The defining factor again was the mindset of the NASA bureaucracy. This excerpt from the Columbia disaster wiki shows how it happened.

          In a risk-management scenario similar to the Challenger disaster, NASA management failed to recognize the relevance of engineering concerns for safety for imaging to inspect possible damage, and failed to respond to engineer requests about the status of astronaut inspection of the left wing. Engineers made three separate requests for Department of Defense (DOD) imaging of the shuttle in orbit to more precisely determine damage. While the images were not guaranteed to show the damage, the capability existed for imaging of sufficient resolution to provide meaningful examination. NASA management did not honor the requests and in some cases intervened to stop the DOD from assisting.[11] The CAIB recommended subsequent shuttle flights be imaged while in orbit using ground-based or space-based DOD assets.[12]

          Details of the DOD's unfulfilled participation with Columbia remain secret; retired NASA official Wayne Hale stated in 2012 that "[a]ctivity regarding other national assets and agencies remains classified and I cannot comment on that aspect of the Columbia tragedy."[13]

          So, there you have it. Bureaucracies, large and small, exhibit definable and consistent patterns of behavior. The fault lies not in our stars, as you observed, but in our Chairs.

          ewmayer, June 27, 2015 at 7:40 pm

          NASA also exhibited such managerial fubar-ness in the run-up to the Hubble main mirror fiasco – here is a 1990 NYT piece on that. The punchline: For more than a year pre-launch NASA had not one but TWO fully finished main mirrors in storage – the flawed one made by Perkin-Elmer, and a perfectly sound one subcontracted by P-E to Eastman Kodak. Did NASA bother to do the simple "let's comparison-test these 2 mirrors and use the better one, if one proves superior, in the Hubble" thing? Of course not. Hell, a simple scaled-up Foucault test of the kind amateur telescope makers have been doing for over 150 years using primitive tools would have revealed the problem right quick. Classic other-people's-money insular elite stupidity.

          Vatch, June 26, 2015 at 10:16 am

          Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host.

          I like that! Biologically true, and also true in the realm of political economy.

          John Smith, June 26, 2015 at 2:57 pm

          Except the parasites think TINA and therefore are unaware that they ARE parasites and thus don't have the good sense to recognize that their lucre is filthy.

          Paul Tioxon June 26, 2015 at 9:04 am

          Capitalism. What is most exceptional about this site is its name. The mere fact that it uses the name capitalism at all, even nakedcapitalism, is the most taboo breaking aspect announcing a real discussion about a real topic. Notice how Yves preambles this discussion to pre-2006 conformity of thought:

          "If someone had used the word "elites" in 2006, they would have been seen as a hair-on-fire hysteric, long on conspiracy theories and short on sober understanding of How Things Work."

          You might as well add "capitalism" to ill chosen words.

          The apex of American power in the aftermath of the Clinton years coupling robust job creation and technological advancement of an extensive internet infrastructure to produce the capitalist propaganda theme of the coming the 21st Century: Supertanker America! Remember when the unbroken quarters of growth, low interest rates, steady stock market index rising and company after company emerging from the pages of science fiction to launch from NASDAQ into the real economy? The American Economy would ride out any boom or bust, out sail any crashing waves of stormy global contraction and lead the world economy out of any doldrums just as our military stood dominant across the oceans to the West and East of the continental hegemon. Our military might, our economic resilience and now, our triumphant ideology of capitalism would be consumed by the world more readily than any other export. There was a plan drawn up for a bold new global order of the ages, The Project for a New American Century PNAC. Of course, that failed miserably, unleashing WWIII across the Arab/Muslim world.

          But amidst all of the talk of globalization, world trade organization, international summits of G-7s and G-20s, NATO and NAFTA, we have Davos. The Woodstock for capitalists, but never spoken of any such terms. In the above TRNN interview, "the system" and its "elites" are discussed. But as usual, there is always an internalize euphemism, socialized squeamishness for giving the system a formal name and giving its actors a title. Capitalism and the capitalists who love it. There, I said it, the love that dare not speak its name! And the key to breakdown from long term perspective to short term greed came from banking deregulation. Not surprising for capitalism to turn its longing eyes to banking, the platform it was built upon 500 years ago from the banking centers of Genoa, Venice, Florence etc. Despite Simon Johnson's supposed revelation of a silent financial coup, capitalism all along has ruled implicitly, with the only silence coming from the people who master the rules of capitalism not resorting to its name.

          Giovanni Arrighi in an essay points out the disappearance of capitalism from academic research, almost in its entirety from economics. Notice, there are Marxist Economists or Keynesian Economics, and then there is just plain Economics. Not Capitalist Economics, that would not be value free positivism, the purest of methodological based scientific endeavors.

          http://krieger.jhu.edu/arrighi/wp-content/uploads/sites/29/2012/08/NewEconomicSoc_000.pdf

          Arrighi finds in an almost 800 page " THE HANDBOOK OF ECONOMIC SOCIOLOGY", sparse mention of capitalism. Basically, a small usage of the word and a single reference, but mostly, a great number of writings by Marx, Weber and what others have had to say about capitalism, but not much about capitalism by its presume supporters. Much of this Arrighi attributes to the micro focus of the social sciences and its failure and or unwillingness to deal with long term structural features of capitalism. Basically, an ahistoric or short term approach has capitalism disappearing altogether under the weakened methodology too attenuated to measure the processes that compose capitalism. It is not there because the unit of analysis is too small, too short in time or too segmented by focusing on one nation or one enterprise and not the whole economy of one nation connected with and trading with other nations in a global system.

          An entire generation of myopia induced social science, including economics has produced nothing less but the short term crisis producing best and brightest, who can't see beyond the next quarter. The motto is; "Are we there yet?". Impatience, hyper frequency trading, dedicated fiber optic fast as the speed of light trading cables from where ever to Wall St, all to shave off a few seconds or micro seconds or quantum seconds, in order to turn a profit of pennies a few billion times over a second or a minute, hour after hour, day after day. No wonder this cognitively captured educated elite can not see anything larger than a minute portion of reality that their algorithms symbolically represent.

          Jim A June 26, 2015 at 9:19 am

          There's nothing inherently wrong with managing risk by aggregation. In fact insurance companies have been doing that for centurie as the fact that the mortgage insurance business (where traditional underwriters and experts set the price for insurance) was effectively pricing the risk of default for riskier mortgages VERY differently than the bond market was pricing the exact same risk.

          Noonan June 26, 2015 at 9:23 am

          The godly person has perished from the land,
          And there is no upright person among men.
          All of them lie in wait for bloodshed;
          Each of them hunts the other with a net.
          Concerning evil, both hands do it well.
          The prince asks, also the judge, for a bribe,
          And a great man speaks the desire of his soul;
          So they weave it together.

          Micah 7: 2-3

          TG June 26, 2015 at 9:49 am

          Don't forget MIT economist Lester Thurow's classic essay "An Establishment or an Oligarchy?"

          http://www.ntanet.org/NTJ/42/4/ntj-v42n04p405-11-establishment-oligarchy.pdf

          Some if it's a little dated, but the key points remain pertinent.

          "The central goal of an establishment is to insure that the system works so that the country will in the long run be successful. An establishment is self-confident that if the system works and if their country does well, they will personally do well. Being self-confident they don't have to make their own immediate self-interest paramount when they influence public decisions."

          "In contrast an oligarchy is a group of insecure individuals who amass funds in secret Swiss bank accounts. Because they think that they must always look out for their own immediate self-interest, they aren't interested in taking time and effort to improve their country's long-run prospects. They aren't confident that if the country is successful, they will be successful."

          nat scientist June 26, 2015 at 10:13 am

          Bad science makes bad law.
          When kindness is kicked to the curb, the jungle is free to grow.

          Ivy June 26, 2015 at 10:49 am

          William K. Black at UM-KC is instructive about so much of what has gone on in regulatory and financial circles.

          For reference, see his website including archived articles

          readerOfTeaLeaves June 26, 2015 at 11:14 am

          Depressing, but important, interview

          Belongs in a time capsule

          susan the other June 26, 2015 at 11:28 am

          Sheer talks about the aftermath of going off the gold standard. After 1970 there was a long hysteria (still in motion) that translated into austerity (supply side nonsense) because maintaining the value of the dollar meant everything. If the dollar took a dive, both our military and our finance complex would begin to fail. There would be no confidence in the once great USA.

          Witness the EU today. Those guys would rather bleed Greece to death than allow the euro to slide too much. They only pretend that they are protecting the EU taxpayers. It is such a fiction to try to maintain austerity for a strong currency because it defeats itself every time, and in order to surface an economy must do bubbles because there is no economy left after austerity. So it all turns into froth. There is a reason derivatives were invented and laws were passed making them legal. Because Larry Summers et.al. all knew their own positions were at stake if capitalism no longer produced profits for the elite. As Stephanie Kelton has informed us, we do not need to worry about the "value" of the dollar – the exchange rate – all we need to do is manufacture products that people want to buy. But that won't save the bloated ranks of the elite.

          Crazy Horse June 26, 2015 at 1:57 pm

          I must say that the moral and intellectual depravity of the world's elites is great news for the planet. From the point of view of the robin building her nest in the tree outside my window, humans are a toxic cancer, poisoning the soil that produces the worms she needs to feed her hatchlings. (assuming they survive the overly thin eggshells that agricultural chemicals have caused her to produce).

          Indeed, for most of the planet's inhabitants homo sapiens are the biggest threat to their continued survival. So rapid economic collapse brought on by the Masters of the Universe's insatiable greed and the human species fatal inability to behave as part of an interconnected ecosystem is the best hope for the survival of a planet capable of supporting all the other life forms that have evolved with it.

          Lambert Strether June 26, 2015 at 3:03 pm

          Thinking back to elites past, at least civilization got some great art or architecture or literature out of the surplus. Sure, the Italian elites were adept at poisoning each other, but the world got Michelangelo and DaVinci. The Elizabethan elites had the Star Chamber, but the world got Shakespeare. The Victorians had the empire, but also Alice in Wonderland and Dickens. The Bourbons lost their heads, but the world got the Louvre. And on and on and on.

          But for this elite, I'm trying to think of one great artist and I can't come up with one. Jeff Koons?

          OK, the meta, I get it. But still. Am I wrong on this? Is there a squillionaire Medici out there somewhere?

          Stupidest, most vile, and destructive elites in the history of the world and that is saying something.

          Vatch June 26, 2015 at 4:40 pm

          Nowadays, the members of the top 0.01% just seem to buy and sell, at ever escalating prices, the art that was created in previous generations:

          https://en.wikipedia.org/wiki/List_of_most_expensive_paintings

          Jerry Denim June 26, 2015 at 5:23 pm

          I really appreciate Paul Jay insisting on calling out the media for their role in all of this. It really puts me up the wall how supposedly left wing media outlets always insist on having a right wing propagandist sit in as a counter weight to the lefty when conducting an interview, but then NOBODY calls out the right wing propagandist on his/her blatantly obvious, totally false bullshit regardless of crazy their claims.

          Perfect example was the Amy Goodman hosted "Democracy Now" segment on the TPP which was linked here yesterday. They had a guy from Public Citizen on to denounce the TPP and a professional liar from the Cato institute to defend it and no one batted an eye or piped up to say word when the Cato guy floated this howler:

          "You know, I certainly do think that the TPP, to the extent that it liberalizes trade, is going to increase wages. It's going to improve the economy of the United States. By opening markets to exports, the TPP will help create jobs. By opening up access to imports, the TPP will help create jobs. Most of the imports that come to this country are used by American manufacturers. It will increase productivity, increase wages and promote growth. So I think that for the criteria that Hillary Clinton sets out, the TPP will most likely be a good deal."

          Why in the world Amy Goodman the host of the show or her guest from Public Citizen doesn't even make an attempt to counter this blatant lie in the interest of truth or journalistic ethics is beyond me. Why not something like this: " Excuse me Bill, what did you just say? Did you just claim the TPP is going to raise wages and create jobs in the United States? My god Bill, that is the biggest fucking lie I have ever heard and you know it. As I'm sure you know Bill the entire point of the TPP and other Free Trade pacts is to open the borders of low wage, low regulation countries so companies in the United States can offshore more jobs or at least use the threat of relocating as leverage to further drive down wages, so don't you dare sit there with a straight face and your little American Flag lapel pin and insult this show and my audience with such blatantly false lies. Shame on you Bill, you're a disgrace."

          How hard would that be?

          Huh? June 26, 2015 at 8:41 pm

          Jerry, I agree with you on the Democracy Now show (I listened to it, too) … but what really got me was this lovely exchange:

          "JUAN GONZÁLEZ: And, Bill Watson of the Cato Institute, your reaction to the impending, now appears to be, passage of the fast-track legislation?

          BILL WATSON: Well, I'm really looking forward to seeing the TPP be completed, find out what's in the agreement and how well it liberalizes trade between the United States and the other 11 members in the agreement."

          Um … explain to me how you're looking forward to the TPP being completed, but you still need to "find out what's in the agreement …"

          WHAT? You don't know what's in it, but it's all good?

          different clue June 27, 2015 at 9:14 pm

          If only someone had quoted Pelosi's very words . . . . " you mean we have to pass it to find out what's in it?"

          Tony Wikrent June 26, 2015 at 8:28 pm

          I read comments like Scheers, that "these are educated people" and they knew what they were doing, and I just am not sure how correct they are. It just does not make sense to me that these people allowed what is essentially a "crimogenic environment" (as Bill Black often writes) to devolve into the open sociopathy and psychopathy we have today. Something is missing; it all just does not fit together.

          The one thing nobody ever mentions is the role of organized crime. The mergers and acquisitions and the leveraged buy outs of the 1960s through 1990s was heavily financed and influenced by organized crime. Look at Penny Pritzker's family, and its roots in The Outfit of Chicago. Look at Lord Hanson and his connections to organized crime. Look at the historical legacy of HSBC as the Hong Kong and Shanghai Bank in the opium trade and opium wars. Good lord, look at Ronald Reagan – who is fingered as organized crimes' favorite politician by Gus Russo in his book Supermob.

          Was it a good thing that organized crime "went legit"? Or is the true legacy the "crimogenic environment" we have today?

          Lambert Strether June 26, 2015 at 11:34 pm

          "heavily financed and influenced by organized crime" Sourcing?

          [Jun 27, 2015] Tsipras Bailout Referendum Sham naked capitalism

          "...not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states."
          .
          "...He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S. "
          .
          "...Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies. "
          .
          "...The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece."
          June 27, 2015 | economistsview.typepad.com

          Chris Herbert said...

          Greece doesn't need any loans. Greece doesn't need any debt. Once you are a monetary sovereign you call the shots. Just ask the United States, or China, or Japan. Or Iceland. The central bank can recapitalize the economy with a new drachma, the only currency that can be used domestically. It can fund infrastructure projects that invigorate the Greek economy without issuing debt because it is producing assets, not liabilities. It can do so by avoiding what Keynes describe as 'a bookkeepers nightmare.' Keynes: "The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation....

          National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it? The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

          anne said in reply to Chris Herbert...

          http://www.polyarchy.org/enough/texts/keynes.1933.html

          1933

          National self-sufficiency
          By John Maynard Keynes

          RC AKA Darryl, Ron said in reply to Chris Herbert...
          Terrific!
          Swedish Lex June 27, 2015 at 7:27 am

          Thanks for long analysis.

          Not sure I agree with all.

          While Tsipras, Syriza & Co. certainly are not the team that would win the Super bowl, far from it, they are nevertheless not worse than the Troika in terms of incompetence, internal inconsistencies, having made populistic and crazy promises to voters on false pretenses, etc. Greece is the unruly teenager and the Troika are supposed to be the enlightened and responsible parents, even if it means being harsh. What we have instead is one entirely dysfunctional family.

          My point is that even a 24 karat Greek Government would have an impossible task in negociating with the Ayatollahs of the Troika.

          This game is therefore (unfortunately) not about acting rationally. Doing the right and responsible thing will not make you win or at least lose less.

          Therefore I think that Tsipras move to launch a referendum is not bad. If the ECB shuts off the ELA – a couple of days before the citizens of Greece get to vote on the situation – then the ECB will (again) be confirmed at the Institution that kills democracy.

          The Greek referendum has in my view been an option for the Greeks all the time. By doing it now "Ach mein Gott, way too late", the Greeks show that the creditors, and their parliaments, do not own the agenda (and hence cannot use it as pressure point).

          What we are witnessing is clearly not a negotiation. It is political warfare with one pygmy state against a totally overwhelming force. I do not expect Greece to win this, in the end, but I hope that they will lose with dignity while the creditors win in infamy. This is not irrelevant since the next generation of Greeks will need to know that their parents refused to surrender to the, objectively, suicidal demands of the creditors....

          Swedish Lex, June 27, 2015 at 7:33 am

          I also believe that a Greek default would blow a big hole in the ECB's balance sheet, meaning that the euro states would have to inject tens of billions of new equity. Real money. TBC.

          Freddo, June 27, 2015 at 7:52 am

          I wonder how Merkel is feeling right now. I would interpret telling Tspiras to "shut up" as a sign she sees her legacy disappearing down a drain. Powerful leaders holding all the cards don't talk like that. Maybe she has suddenly realized she doesn't hold all the cards.
          ennui, June 27, 2015 at 10:06 am

          not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states. the fact that the ECB has conducted a slow bank run in Greece destroys any trust national political leaders might have in a European banking system. you can't have a central bank which is willing to destroy the banking system of a member state to advance the political aims of other member states….

          steviefinn, June 27, 2015 at 7:56 am

          Swedish Lex

          Agreed – & what is the difference in the end result between bowing & scraping & at least putting up some sort of fight ? Strikes me that it would eventually end up in much the same place anyway. Maybe morals don't count in this counting house world anymore, but however it ends, I personally am grateful to Syriza for allowing us more insight into the dealings of the EU Junta – which hopefully others will learn from, leading to a way of destoying this hydra.

          Lambert Strether, June 27, 2015 at 1:23 pm
          Not sure what mechanism you have in mind. From the post:

          [Syriza's] assumption appears to have been that the national governments would find it too politically toxic to recognize losses on the debt they had extended to Greece through the EFSF and the Greek Bailout Fund. But maturities on these facilities have been extended and payments deferred. And the national governments do not have to mark to market. They will recognize losses only if and when Greece fails to make payments, which is years down the road. And even then, the pain is spread out over decades. That means Greece's supposed nuclear weapon turns out to be a pop gun.

          Granted, these are country losses (after they were left holding the bag for German banks) but you do't explain how the ECB would lose. Would you, please?

          Cugel, June 27, 2015 at 7:42 pm

          Varoufakis last year explained everything before Syriza even took power. He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S.

          The difference of course is that the U.S. had a sovereign currency and could run deficits and FDR didn't have to answer to the Troika. So, Syriza tried to get the creditors to see reason and see that it was in their long-term best interests to grant debt-relief. They failed because of EU arrogance, blind adherence to dogma, and short-term thinking. But, they certainly didn't have any other choice.

          Yves has criticized them severely for not negotiating better. It is impossible to prove she's wrong that Syriza missed opportunities for finding a workable compromise, but I've never seen it as remotely plausible that the creditors would agree to anything Greece could accept.

          The attempt at a referendum is obvious political theater and will be rejected by the Troika. It wouldn't work anyway. It is just another political ploy by Tsipras to cast the blame on the Troika by making them look bad, but they are long past the point of caring and just want Greece out of the EU.

          Ben Johannson, June 27, 2015 at 3:35 pm

          I can see no evidence that eurozone CB's must be in positive territory regarding its balance sheet or that member states must make any "hole" whole. They may demand it anyway given the leaders of the eurogang are likely as stupid as they look but it isn't an inevitability given the ECB does not require balance sheet solvency to conduct its operations.

          ennui, June 27, 2015 at 1:15 pm

          As Varoufakis notes in his recent statement, an agreement now would leave Syriza with a Greek economy in a deep depression, a banking system that has been strangled by the ECB with no commitment to confidence building, a requirement to create a fiscal surplus and monthly reviews by the IMF culminating in a repeat performance of this whole charade in November.

          Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies.

          Whether it was intentional or not, Syriza's dogged commitment to this "negotiation" has illustrated just the degree to which the Troika are acting in bad faith. There were just two outcomes that were possible from this process: Syriza signing a deal which would be politically suicidal or Greek exit, and this was by design by the powers of Europe.

          The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece.

          [Jun 27, 2015] Breaking Greece

          Paul Krugman:

          Breaking Greece: I've been staying fairly quiet on Greece... But given reports from the negotiations in Brussels, something must be said...
          This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren't so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we're still in the business of dictating domestic policy.
          The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do - see the chart, which compares the projections in the 2010 standby agreement with reality - are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity. ...
          At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.
          Sandwichman said...

          The class nature of the IMF position is evident to anyone who chooses to see. Olivier Blanchard is the IMF's chief economist. Professor Krugman politely omits mentioning that salient fact. Professional courtesy, I presume.

          anne said in reply to Sandwichman...

          Olivier Blanchard is the IMF's chief economist.

          [ Meaning what exactly? ]

          Sandwichman said in reply to anne...

          Meaning if "unserious" Olivier (see below) was serious about his unseriousness maybe he would publicly repudiate the economics of the policy of the organization that he is presumably chief economist for.

          Sandwichman said in reply to anne...

          "The IMF's 'Tough Choices' on Greece," Jamie Galbraith

          http://www.project-syndicate.org/commentary/imf-greece-debt-restructuring-by-james-k-galbraith-2015-06#I3bKPImqEIzi2QYu.99

          "Blanchard should know better than to persist with this fiasco. Once the link between "reform" and growth is broken – as it has been in Greece – his argument collapses. With no path to growth, the creditors' demand for an eventual 3.5%-of-GDP primary surplus is actually a call for more contraction, beginning with another deep slump this year.

          "But, rather than recognizing this reality and adjusting accordingly, Blanchard doubles down on pensions. He writes:

          "'Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.'

          "Note first the damning admission: apart from pensions and wages, spending has already been "cut to the bone." And remember: the effect of this approach on growth was negative. So, in defiance of overwhelming evidence, the IMF now wants to target the remaining sector, pensions, where massive cuts – more than 40% in many cases – have already been made. The new cuts being demanded would hit the poor very hard."

          anne said in reply to Sandwichman...

          Understood completely, darn.

          Sandwichman said in reply to Sandwichman...

          So Galbraith and Krugman basically agree on the stupidity of the policy. Galbraith names the name. Krugman hesitates. Basic social psychology.

          Sandwichman said in reply to Sandwichman...

          Final paragraph of the Jamie Galbraith piece:

          "Blanchard insists that now is the time for "tough choices, and tough commitments to be made on both sides." Indeed it is. But the Greeks have already made tough choices. Now it is the IMF's turn, beginning with the decision to admit that the policies it has imposed for five long years created a disaster. For the other creditors, the toughest choice is to admit – as the IMF knows – that their Greek debts must be restructured. New loans for failed policies – the current joint creditor proposal – is, for them, no adjustment at all."

          Final two paragraphs of Krugman's:

          "Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we're not in high school here. And right now it's the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?

          "At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen."

          Do those "IMF people" have names? I guess not.

          anne said in reply to Sandwichman...

          Perfectly contrasted and argued, and important.

          pgl said in reply to Sandwichman...

          This is sounding a lot like our Federal government. Nondefense purchasing is not that high even though we need a lot more infrastructure. Republicans have bitched about Social Security retirement benefits for decades. Cut taxes to hell and then demand a balanced budget even during weak aggregate demand. OK, Greece's problems are enormous but listen to Paul Ryan enough and we will become a banana republic.

          [Jun 27, 2015] Greece: Its the Politics, Stupid!

          "...The troika had two goals from the start. First to give the banksters and plutocrats enough time to exit the country they had plundered (with help from local plutocrats). There was a large amount of privately held debt that could not be unloaded during a crisis, so they needed a pretend bailout such that most of that private risk could be transferred onto public organizations. Second they needed to keep the public in the other European countries from understanding that the fault was with their own banksters and plutocrats, not the people of Greece; and that the bailout plan (rather than immediate debt restructuring) actually was a plan to move the inevitable cost away from the banksters and onto the taxpayers."
          Jun 27, 2015 | Economist's View

          Gloomy European Economist Francesco Saraceno:

          It's the Politics, Stupid!: I have been silent on Greece, because scores of excellent economists from all sides commented at length...
          But last week has transformed in certainty what had been a fear since the beginning. The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path. No, they were interested in a complete and public defeat of the "radical" Greek government. ...
          What happened...? Well, contrary to what is heard in European circles, most of the concessions came from the Greek government. On retirement age, on the size of budget surplus (yes, the Greek government gave up its intention to stop austerity, and just obtained to soften it), on VAT, on privatizations, we are today much closer to the Troika initial positions than to the initial Greek position. Much closer.
          The point that the Greek government made repeatedly is that some reforms, like improving the tax collection capacity, actually demanded an increase of resources, and hence of public spending. Reforms need to be disconnected from austerity, to maximize their chance to work. Syriza, precisely like the Papandreou government in 2010 asked for time and possibly money. It got neither.
          Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large coroporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.
          What the past week made clear is that this, and only this was the objective of the creditors. This has been since the beginning about politics. Creditors cannot afford that an alternative to policies followed since 2010 in Greece and in the rest of the Eurozone materializes.
          Austerity and structural reforms need to be the only way to go. Otherwise people could start asking questions; a risk you don't want to run a few months before Spanish elections. Syriza needed to be made an example. You cannot survive in Europe, if you don't embrace the Brussels-Berlin Consensus. Tsipras, like Papandreou, was left with the only option too ask for the Greek people's opinion, because there has been no negotiation, just a huge smoke screen. Those of us who were discussing pros and cons of the different options on the table, well, we were wasting our time.
          And if Greece needs to go down to prove it, so be it. If we transform the euro in a club in which countries come and go, so be it.
          The darkest moment for the EU.
          RGC said...

          by MICHAEL HUDSON


          Many readers of the European and American press must be confused about what actually is happening in the negotiations between Greece (Alexis Tsipras and Yannis Varoufakis). The European Troika (the IMF, European Central Bank and European Council now object to the name and want to be called simply "the Institutions") have stepped up their demands on Syriza. What is called "negotiation" is in reality a demand for total surrender. The Troika's demand is to force Syriza to go back on the campaign promises that it made to voters who replaced the old right-wing Pasok ("socialist") and Conservative New Democracy coalition, or else simply apply the austerity program to which that coalition had agreed:cutbacks in pensions, deeper austerity, more privatization selloffs, and a tax shift off business onto labor. In short, economic suicide.

          Last weekend a group of us met in Delphi to discuss and draft the following Declaration of Support for Greece against the neoliberal Institutions. It is now clear that finance is the new mode of warfare. The creditors' objective is the same as military conquest: they want the land, the natural resource rights and monopolies, and they want tribute (in this case, debt service). And they don't want sovereign Greece to tax the economic rent from these assets. In short, the negotiation between The Institutions and Greece is a bold exercise in rent extraction.

          http://www.counterpunch.org/2015/06/26/the-delphi-declaration/

          Peter K. said...

          I agree with what Saraceno wrote. "The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path."

          The austerity program they forced Greece to follow was a failure and the troika doesn't care what Syriza was elected to do. It can overrule democracy.

          As good as the IMF research department has been regarding Keynesian policies lately, the IMF is coming off really bad here, just going along with insane policy.

          If Greece doesn't pay by the 30th do they get kicked out? If they kicked out will they hold the July 5th referendum anyway?

          Maybe the troika don't kick them out immediately and the referendum votes no on the bailout package. Then Greece defaults but possibly stays in the EU on the drachma with capital controls. Possibly Greece can rejoin the EU later on.

          anne said in reply to anne...

          What still puzzles me is whether and by what authority Greece can be forced to leave the European Union, even if Greece has to abandon the Euro.

          As for the leadership of the European Union, no matter the title of the various governing parties, there has been an increasingly conservative political-economic bent to the leadership in domestic, Europe-wide and international affairs.

          DeDude said in reply to anne...

          They can not be forced to leave the European (political) Union. The may have to abandon the Euro currency, but a number of other EU countries have their own currency (enjoying the free trade and political advantages of being an EU country). They would likely be forced to either back out of the Euro or face a complete collapse of their banks and economy (without banks no business) if the ECB close their banks access to funds. But there is no way that they could be kicked out of the Euro if they refused to leave.

          anne said in reply to Larry...

          http://www.cepr.net/blogs/beat-the-press/greece-and-the-euro

          June 26, 2015

          Greece and the Euro

          James Stewart has a piece * in the New York Times telling readers that if Greece were to leave the euro it would face a disaster. The headline warns readers, "imagine Argentina, but much worse." The article includes several assertions that are misleading or false.

          First, it is difficult to describe the default in Argentina as a disaster. The economy had been plummeting prior to the default, which occurred at the end of the year in 2001. The country's GDP had actually fallen more before the default than it did after the default. (This is not entirely clear on the graph, since the data is annual. At the point where the default took place in December of 2001, Argentina's GDP was already well below the year-round average.) While the economy did fall more sharply after the default, it soon rebounded and by the end of 2003 it had regained all the ground lost following the default.

          [Graph]

          Argentina's economy continued to grow rapidly for several more years, rising above pre-recession levels in 2004. Given the fuller picture, it is difficult to see the default as an especially disastrous event even if it did lead to several months of uncertainty for the people of Argentina. In this respect, it is worth noting that Paul Volcker is widely praised in policy circles for bringing down the inflation rate. To accomplish this goal he induced a recession that pushed the unemployment rate to almost 11 percent. So the idea that short-term pain might be a price worth paying for a longer term benefit is widely accepted in policy circles.

          At one point the piece refers to the views of Yanis Varoufakis, Greece's finance minister, on the difficulties of leaving the euro. It relies on what it describes as a "recent blogpost." Actually the post * is from 2012.

          To support the argument that Greece has little prospect for increasing its exports it quotes Daniel Gros, director of the Center for European Policy Studies in Brussels, on the impact of devaluation on tourism:

          "But they've already cut prices and tourism has gone up. But it hasn't really helped because total revenue hasn't gone up."

          Actually tourism revenue has risen. It rose by 8.0 percent from 2011 to 2013 (the most recent data available) measured in euros and by roughly 20 percent measured in dollars. In arguing that Greece can't increase revenue from fishing the piece tells readers:

          "The European Union has strict quotas to prevent overfishing."

          However the piece also tells readers that leaving the euro would cause Greece to be thrown out of the European Union. If that's true, the EU limits on fishing would be irrelevant.

          The piece also make a big point of the fact that Greece does not at present have a currency other than the euro. There are plenty of countries, including many which are poorer than Greece, who have managed to switch over to a new currency in a relatively short period of time. While this process will never be painless, it must be compared to the pain associated with an indefinite period of unemployment in excess of 20.0 percent which is almost certainly the path associated with remaining in the euro on the Troika's terms.

          In making comparisons between Greece and Argentina, it is also worth noting that almost all economists projected disaster at the time Argentina defaulted in 2001. Perhaps they have learned more about economics in the last 14 years, but this is not obviously true.

          * http://www.nytimes.com/2015/06/26/business/an-echo-of-argentina-in-greek-debt-crisis.html

          ** http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/

          -- Dean Baker

          anne said in reply to Mel at onin...

          Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large corporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.

          -- Francesco Saraceno

          [ I believe that this passage is wrong. Prime Minister Tsipras, to my understanding, was willing and had offered to increase taxes on the rich or "large corporations."

          I will try to find a reference, but I am fairly sure I read this in regard to the offer by Tsipras. I recall the insistence on preserving low pension levels came with an express proposal to increase taxes on those with relatively high incomes. ]

          DeDude said...

          The troika had two goals from the start. First to give the banksters and plutocrats enough time to exit the country they had plundered (with help from local plutocrats). There was a large amount of privately held debt that could not be unloaded during a crisis, so they needed a pretend bailout such that most of that private risk could be transferred onto public organizations. Second they needed to keep the public in the other European countries from understanding that the fault was with their own banksters and plutocrats, not the people of Greece; and that the bailout plan (rather than immediate debt restructuring) actually was a plan to move the inevitable cost away from the banksters and onto the taxpayers.

          Unfortunately, European tribalistic politics (further inflamed by the second goal) forced such austerity upon the people of Greece that they rebelled and elected a socialist government. Now there is a third goal for the troika (as dictated by their plutocrat masters); to punish the people of Greece (and scare voters in other countries) for electing socialist leaders. Be ready for an all out war of sabotaging any and all Greek economic recovery. They are desperate to set the example and scare away any thought of rebellion against economic tyranny in countries like Portugal, Spain, Ireland (Italy, France). They are not even trying to hide their sabotage of the Syriza government – just compare what they demand to what Syriza is offering. The objectives are for the same goals, it is just that Syriza has a plan that can reach those goals without sinking the Greek economy into an even deeper hole.

          Fred C. Dobbs said...


          If you owe your bank a million euros
          and can't pay, YOU have a problem.

          If it's a billion euros, THEY have a problem.

          If it's a trillion, *you* are back
          to having a problem, as it turns out.

          Who knew?

          RGC said...

          IMF policy re Greece and Ukraine:

          Greece: IMF Warns No Leeway on Payment as Merkel Urges Greece to Bow

          http://www.bloomberg.com/news/articles/2015-06-18/lagarde-affirms-greece-s-june-30-deadline-to-make-imf-payments

          Ukraine: IMF Violates IMF Rules, to Continue Ukraine Bailouts

          http://rinf.com/alt-news/editorials/imf-violates-imf-rules-to-continue-ukraine-bailouts/

          Sandwichman said...

          DS-K weighs in on the IMF not learning from mistakes

          http://fr.slideshare.net/DominiqueStraussKahn/150627-tweet-greece?ref=https://fr.slideshare.net/slideshow/embed_code/key/yT0ZJNQMSAStzy

          Reply Saturday, June 27, 2015 at 11:51 AM

          anne said in reply to Sandwichman...

          http://www.nytimes.com/2015/06/25/business/dealbook/businesses-worry-about-shouldering-burden-of-greek-debt.html

          June 24, 2015

          Businesses Worry About Shouldering Burden of Greek Debt
          By LANDON THOMAS Jr.

          THESSALONIKI, Greece - From the beginning, officials at the International Monetary Fund, one of the country's creditors, have criticized the proposal's reliance on raising corporate tax, arguing that such increases will only hurt the country's already fragile economy....

          [ This is the IMF; sacrifice ordinary already damaged Greek people for the sake of corporate or relatively rich Greeks. ]

          Reply Saturday, June 27, 2015 at 11:59 AM

          Sandwichman said in reply to Sandwichman...

          Unconfirmed rumors that DS-K was originally going to refer to "the IMF's rape of Greece" but decided that might backfire.

          Reply Saturday, June 27, 2015 at 12:04 PM

          anne said in reply to Sandwichman...

          Having read the Dominique Strauss Kahn memo carefully again, I am not sure just what is being argued other than a little more generous debt forgiveness a little earlier.

          Reply Saturday, June 27, 2015 at 02:39 PM

          Sandwichman said...

          "Jeroen Dijsselbloem, president of the eurogroup of finance ministers, said before the meeting he was 'disappointed' by the surprise plans to stage a popular vote on debt financing proposals.

          "'It's a very sad decision for Greece because it's closed the door to further talks, a door that was still open in my mind,' he said."

          Democracy? Can't have that! This is FINANCE.

          Reply Saturday, June 27, 2015 at 12:24 PM

          anne said in reply to Sandwichman...

          I am reminded of "Yes, Minister" on the EU.

          Reply Saturday, June 27, 2015 at 01:53 PM

          mrrunangun said...

          I think of my dad's friend Phil in these cases of indebtedness. Phil was a successful businessman who functioned as a lender of last resort for a number of his acquaintances. Phil wanted his money first and foremost. When a borrower could not pay on time, Phil gave a brief grace period. If the borrower still could not pay, Phil would counsel the guy to get an honest job if he didn't already have one or get a second job if he had one and only one. If the guy already had two jobs or was ineligible for honest work, he was advised to consult a pawnbroker. If necessary, stealing and fencing outside of Phil's network might be a last resort. If the borrower still could not pay, Phil was not above resorting to strong collection methods that might persuade the borrower to come up with some cash courtesy of friends and family. Like legal collection methods Phil's cost money so was only resorted to in unusual cases. If the borrower still could not come up with the money, Phil had to face the loss. Needless to say, no further credit would be forthcoming.

          It may be impossible for Greece to pay its debts because its prospects for growth are inadequate given the nature of its politics, the size of the debt, and relatively small size of its economy. If its lenders have concluded that that is the case, Greece would have to default and take the consequences. Its lenders will have to take the consequences as well. Phil would not have felt obliged to continue to make loans to a customer who had demonstrated an inability to repay his loan after the usual forbearance.

          Chris Herbert said...

          Greece doesn't need any loans. Greece doesn't need any debt. Once you are a monetary sovereign you call the shots. Just ask the United States, or China, or Japan. Or Iceland. The central bank can recapitalize the economy with a new drachma, the only currency that can be used domestically. It can fund infrastructure projects that invigorate the Greek economy without issuing debt because it is producing assets, not liabilities. It can do so by avoiding what Keynes describe as 'a bookkeepers nightmare.' Keynes:

          "The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation....

          National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it? The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

          anne said in reply to Chris Herbert...

          http://www.polyarchy.org/enough/texts/keynes.1933.html

          1933

          National self-sufficiency
          By John Maynard Keynes

          RC AKA Darryl, Ron said in reply to Chris Herbert...

          Terrific!

          anne said...

          http://krugman.blogs.nytimes.com/2015/06/27/europes-moment-of-truth/

          June 27, 2015

          Europe's Moment of Truth
          By Paul Krugman

          Until now, every warning about an imminent breakup of the euro has proved wrong. Governments, whatever they said during the election, give in to the demands of the troika; meanwhile, the ECB steps in to calm the markets. This process has held the currency together, but it has also perpetuated deeply destructive austerity - don't let a few quarters of modest growth in some debtors obscure the immense cost of five years of mass unemployment.

          As a political matter, the big losers from this process have been the parties of the center-left, whose acquiescence in harsh austerity - and hence abandonment of whatever they supposedly stood for - does them far more damage than similar policies do to the center-right.

          It seems to me that the troika - I think it's time to stop the pretense that anything changed, and go back to the old name - expected, or at least hoped, that Greece would be a repeat of this story. Either Tsipras would do the usual thing, abandoning much of his coalition and probably being forced into alliance with the center-right, or the Syriza government would fall. And it might yet happen.

          But at least as of right now Tsipras seems unwilling to fall on his sword. Instead, faced with a troika ultimatum, he has scheduled a referendum on whether to accept. This is leading to much hand-wringing and declarations that he's being irresponsible, but he is, in fact, doing the right thing, for two reasons.

          • First, if it wins the referendum, the Greek government will be empowered by democratic legitimacy, which still, I think, matters in Europe. (And if it doesn't, we need to know that, too.)
          • Second, until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it's even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way.

          If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point. But they have, and I can't at all blame Tsipras for turning to the voters, instead of turning on them.

          RGC said in reply to anne...

          "If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point."

          The US banks promoted loans that obviously could not be repaid. They committed massive fraud. They caused a horrendous debt deflation and concomitant great recession. Yet they were bailed out by Obama. Why shouldn't the European banks expect the same of their politicians?

          [Jun 23, 2015] Bill Black: A Harvard Don is Enraged that Pope Francis is Opposed to the World Economic Order

          Notable quotes:
          "... By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with http://neweconomicperspectives.org " rel="nofollow">New Economic Perspectives ..."
          "... New York Times ..."
          "... New York Times ..."
          "... laissez faire. ..."
          "... The Gospel According to St. Lloyd Blankfein ..."
          Jun 23, 2015 | www.nakedcapitalism.com
          Posted on June 23, 2015 by Yves Smith

          By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with http://neweconomicperspectives.org" rel="nofollow">New Economic Perspectives

          A New York Times article entitled "Championing Environment, Francis Takes Aim at Global Capitalism" quotes a conventional Harvard economist, Robert N. Stavins. Stavins is enraged by Pope Francis' position on the environment because the Pope is "opposed to the world economic order." The rage, unintentionally, reveals why conventional economics is the most dangerous ideology pretending to be a "science."

          Stavins' attacks on the Pope quickly became personal and dismissive. This is odd, for Pope Francis' positions on the environment are the same as Stavins' most important positions. Stavins' natural response to the Pope's views on the environment – had Stavin not been an economist – would have been along the lines of "Pope Francis is right, and we urgently need to make his vision a reality."

          Stavins' fundamental position is that there is an urgent need for a "radical restructuring" of the markets to prevent them from causing a global catastrophe. That is Pope Francis' fundamental position. But Stavins ends up mocking and trying to discredit the Pope.

          I was struck by the similarity of Stavins response to Pope Francis to the rich man's response to Jesus. The episode is reported in Matthew, Mark, and Luke in similar terms. I'll use Matthew's version (KJAV), which begins at 19:16 with the verse:

          And, behold, one came and said unto him, Good Master, what good thing shall I do, that I may have eternal life?

          Jesus responds:

          And he said unto him, Why callest thou me good? there is none good but one, that is, God: but if thou wilt enter into life, keep the commandments.

          The young rich man wants to know which commandments he needs to follow to gain eternal life.

          He saith unto him, Which? Jesus said, Thou shalt do no murder, Thou shalt not commit adultery, Thou shalt not steal, Thou shalt not bear false witness,

          Honour thy father and thy mother: and, Thou shalt love thy neighbour as thyself.

          The young man saith unto him, All these things have I kept from my youth up: what lack I yet?

          The young, wealthy man is enthused. The Rabbi that he believes has the secret of eternal life has agreed to personally answer his question as to how to obtain it. He passes the requirements the Rabbi lists, indeed, he has met those requirements since he was a child.

          But then Jesus lowers the boom in response to the young man's question on what he "lacks."

          Jesus said unto him, If thou wilt be perfect, go and sell that thou hast, and give to the poor, and thou shalt have treasure in heaven: and come and follow me.

          We need to "review the bidding" at this juncture. The young man is wealthy. He believes that Jesus knows the secret to obtaining eternal life. His quest was to discover – and comply – with the requirement to achieve eternal life. The Rabbi has told him the secret – and then gone well beyond the young man's greatest hopes by offering to make him a disciple. The door to eternal life is within the young man's power to open. All he needs to do is give all that he owns to the poor. The Rabbi goes further and offers to make the young man his disciple. In exchange, the young man will secure "treasure in heaven" – eternal life and a place of particular honor for his sacrifice and his faith in Jesus.

          Jesus' answer – the answer the young man thought he wished to receive more than anything in the world – the secret of eternal life, causes the young man great distress.

          But when the young man heard that saying, he went away sorrowful: for he had great possessions.

          The young man rejects eternal life because he cannot bear the thought of giving his "great possessions" to "the poor." Notice that the young man is not evil. He keeps the commandments. He is eager to do a "good thing" to gain eternal life. He has "great possessions" and is eager to trade a generous portion of his wealth as a good deed to achieve eternal life. In essence, he is seeking to purchase an indulgence from Jesus.

          But Jesus' response causes the young, wealthy man to realize that he must make a choice. He must decide which he loves more – eternal life or his great possessions. He is "sorrowful" for Jesus' response causes him to realize that he loves having his great possessions for his remaining span of life on earth more than eternal life itself.

          Jesus offers him not only the means to open the door to eternal life but the honor of joining him as a disciple. The young man is forced by Jesus' offer to realize that his wealth has so fundamentally changed him that he will voluntarily give up his entry into eternal life. He is not simply "sorrowful" that he will not enter heaven – he is "sorrowful" to realize that heaven is open to him – but he will refuse to enter it because of his greed. His wealth has become a golden trap of his own creation that will damn him. The golden bars of his cell are invisible and he can remove them at any time and enter heaven, but the young man realizes that his greed for his "great possessions" has become so powerful that his self-created jail cell has become inescapable. It is only when Jesus opens the door to heaven that the young man realizes for the first time in his life how completely his great possessions have corrupted and doomed him. He knows he is committing the suicide of his soul – and that he is powerless to change because he has been taught to value his own worth as a person by the extent of his great possessions.

          Jesus then makes his famous saying that captures the corrupting effects of great wealth.

          Then said Jesus unto his disciples, Verily I say unto you, That a rich man shall hardly enter into the kingdom of heaven.

          And again I say unto you, It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.

          The remainder of the passage is of great importance to Luther's doctrine of "justification by faith alone" and leads to Jesus' famous discussion of why "the last shall be first," (in which his anti-market views are made even more explicit) but the portions I have quoted are adequate to my purpose.

          Pope Francis' positions on the environment and climate are the greatest boon that Stavin has received in decades. The Pope, like Stavins, tells us that climate change is a disaster that requires urgent governmental action to fix. Stavins could receive no more joyous news. Instead of being joyous, however, Stavins is sorrowful. Indeed, unlike the wealthy man who simply leaves after hearing the Rabbi's views, Stavins rages at and heaps scorn on the prelate, Pope Francis. Stavins' email to the New York Times about the Pope's position on climate change contains this double ideological smear.

          The approach by the pope, an Argentine who is the first pontiff from the developing world, is similar to that of a "small set of socialist Latin American countries that are opposed to the world economic order, fearful of free markets, and have been utterly dismissive and uncooperative in the international climate negotiations," Dr. Stavins said.

          Stavins' work explicitly states that the "free markets" he worships are causing "mass extinction" and a range of other disasters. Stavins' work explicitly states that the same "free markets" are incapable of change – they cause incentives so perverse that they are literally suicidal – and the markets are incapable of reform even when they are committing suicide by laissez faire. That French term is what Stavins uses to describe our current markets. Pope Francis agrees with each of these points.

          Pope Francis says, as did Jesus, that this means that we must not worship "free markets," that we must think first of the poor, and that justice and fairness should be our guides to proper conduct. Stavins, like the wealthy young man, is forced to make a choice. He chooses "great possessions." Unlike the wealthy young man, however, Stavins is enraged rather than "sorrowful" and Stavins lashes out at the religious leader. He is appalled that an Argentine was made Pope, for Pope Francis holds views "that are opposed to the world economic order [and] fearful of free markets." Well, yes. A very large portion of the world's people oppose "the Washington Consensus" and want a very different "world economic order." Most of the world's top religious leaders are strong critics of the "world economic order."

          As to being "fearful of free markets," Stavins' own work shows that his use of the word "free" in that phrase is not simply meaningless, but false. Stavins explains that the people, animals, and plants that are the imminent victims of "mass extinction" have no ability in the "markets" to protect themselves from mass murder. They are "free" only to become extinct, which makes a mockery of the word "free."

          Similarly, Stavins' work shows that any sentient species would be "fearful" of markets that Stavins proclaims are literally suicidal and incapable of self-reform. Stavins writes that only urgent government intervention that forces a "radical restructuring" of the markets can save our planet from "mass extinction." When I read that I believed that he was "fearful of free markets."

          We have all had the experience of seeing the "free markets" blow up the global economy as recently as 2008. We saw there, as well, that only massive government intervention could save the markets from a global meltdown. Broad aspects of the financial markets became dominated by our three epidemics of "accounting control fraud."

          Stavins is appalled that a religious leader could oppose a system based on the pursuit and glorification of "great possessions." He is appalled that a religious leader is living out the Church's mission to provide a "preferential option for the poor." Stavins hates the Church's mission because it is "socialist" – and therefore so obviously awful that it does not require refutation by Stavins. This cavalier dismissal of religious beliefs held by most humans is revealing coming from a field that proudly boasts the twin lies that it is a "positive" "science." Theoclassical economists embrace an ideology that is antithetical to nearly every major religion.

          Stavins, therefore, refuses to enter the door that Pope Francis has opened. Stavins worships a system based on the desire to accumulate "great possessions" – even though he knows that the markets pose an existential threat to most species on this planet and even though he knows that his dogmas increasingly aid the worst, most fraudulent members of our society to become wealthy through forms of "looting" (Akerlof and Romer 1993) that make other people poorer. The result is that Stavins denounces Pope Francis rather than embracing him as his most valuable ally.

          Conclusion: Greed and Markets Kill: Suicide by Laissez Faire

          The old truths remain. The worship of "great possessions" wreaks such damage on our humanity that we come to love them more than life itself and act in a suicidal fashion toward our species and as mass destroyers of other species. Jesus' insight was that this self-corruption is so common, so subtle, and so powerful that "It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God." Today, he would probably use "economist" rather than "camel."

          Theoclassical economists are the high priests of this celebration of greed that Stavins admits poses the greatest threat to life on our planet. When Pope Francis posed a choice to Stavins, he chose to maintain his dogmatic belief in a system that he admits is suicidal and incapable of self-reform. The reason that the mythical and mystical "free markets" that Stavins worships are suicidal and incapable of self-reform even when they are producing "mass extinction" is that the markets are a system based on greed and the desire to obtain "great possessions" even if the result is to damn us and life on our planet.

          Adam Smith propounded the paradox that greed could lead the butcher and baker (in a village where everyone could judge reputation and quality) to reliably produce goods of high quality at the lowest price. The butcher and baker, therefore, would act (regardless of their actual motivations) as if they cared about their customers. Smith observed that the customer of small village merchant's products would find the merchant's self-interest a more reliable assurance of high quality than the merchant's altruism.

          But Stavins makes clear in his writing that this is not how markets function in the context of "external" costs to the environment. In the modern context, the energy markets routinely function in a manner that Stavins rightly depicts as leading to mass murder. Stavins so loves the worship of the quest for "great possessions" that he is eager to try to discredit Pope Francis as a leader in the effort to prevent "mass extinction" (Stavins' term) – suicide by laissez faire.

          (No, I am not now and never was or will be a Catholic.)

          More From UsFrom Our Partners

          Clive June 23, 2015 at 6:04 am

          The Pope's recent comments stirred an old memory from when I was a child, for some reason. Growing up in England in the 1980's, it didn't escape even my childish notice that the series "Dr. Who" was often a vehicle for what would now been deemed outrageously left wing thinking and ideas.

          One such episode was The Pirate Planet. The plot's premise was that a race had created a mechanism for consuming entire planets at a time, extracting mineral wealth from the doomed planet being destroyed in the process and using energy and resources for the benefit of a tiny ruling elite with the remnants being offered as trinkets for the masses.

          A small subset of the evil race was subliminally aware of what was happening. One of the lines spoken by a character really stuck in my mind, when he said after the reality of their existence was explained to him "so people die to make us rich?"

          At the time, it was intended I think more as an allegory on the exploitation of South African gold miners under apartheid than as a general critique of capitalism by the prevailing socialist thinking in Britain in that era (it seems impossible now for me to believe how left wing Britain was in the late 1970s and even into the very early 1980s, but that is indeed the case; it feels like it was a completely different country. Perhaps it was ). No wonder the Thatcher government aggressively targeted the BBC (who produced the show), seeing it, probably rightly, as a hotbed of Trotskyite ideology.

          But the point the show was trying to make is as valid now as it was then and is the same point the Pope Francis is making. A great deal of our material wealth and affluence is built on others' suffering. It is wrong. And the system which both perpetrates the suffering and the people who benefit from it needs to change. Us turkeys are going to have to vote for Christmas.

          Disturbed Voter June 23, 2015 at 6:43 am

          Nice post, Clive. But I thought Brits ate goose at Christmas, and Americans eat turkey at Thanksgiving ;-)

          Yes, where have all the leftists gone? Is Cornel West the only one "left" in America? Forty years ago I was moving to the Right, in reaction to the Left. The Cold War was still on, patriotism et al.

          The current paradigm is insane so nature will not allow it to continue much longer. G-d not so much. The US today is qualitatively different than it was in the 70s.

          Trotsky was one of the first people to understand Hitler. Stalin not so much. Our current crop of elder pundits of Neoliberalism originally were Jewish trotskyites back in the 60s. Neoliberalism was perhaps pragmatic back then, but has outlived its usefulness.

          vidimi June 23, 2015 at 7:59 am

          old queen vic introduced the turkey to britain and it has supplanted the goose as a christmas special. i prefer goose, though.

          James Levy June 23, 2015 at 10:36 am

          My friend Tracey and her family still had "joint of beef" for Christmas.

          James Levy June 23, 2015 at 6:47 am

          The overweening arrogance of the Thatcherites and the neoclassical ideologues that are in evidence at Harvard is their insistence that what they peddle is not a set of values, but a "science", and that their set of values is the only set of values even worth considering (TINA). The Pope's job is to remind us all of another possible set of values and organizing principles. No one said you have to believe in them. But they have a right to be on the table when we collectively chose what kind of world we want to live in.

          John Smith June 23, 2015 at 6:13 am

          "All he needs to do is give all that he owns to the poor." Bill Black

          No. He is to sell all he owns but Jesus does not say that he is to then give away ALL the money. The rich guy's problem is his possessions, not money. Note that Matthew, another rich guy, did not give away all his money yet he was a disciple of Jesus.

          As for "free markets", what is free market about government-subsidized/privileged banks?

          Patricia June 23, 2015 at 6:35 am

          Don't know if this has been linked at NC; it is another righteous rant on the subject:

          http://www.counterpunch.org/2015/06/19/in-the-usa-i-cannot-write/

          Disturbed Voter June 23, 2015 at 7:18 am

          Nice. Takeaway? "no true feelings" insightful description of the people around me. The West in a state of nervous breakdown.

          vidimi June 23, 2015 at 11:11 am

          something didn't read right about this piece to me. hard to put my finger on it, but it came across as a bit hypocritical and a lot bitter. apart from that, the style is eclectic and the thoughts are scrambled all over the place. more a rant than a coherent argument.

          It all began when I arrived. After travelling some 48 hours from South Africa to Southern California, carrying films and books for the conference, I was not even met at the airport. So I took a taxi. But nobody met me at the place where I was supposed to stay. I stood on the street for more than one hour.

          in this passage he sounds like he suffers from affluenza. in those poor but righteous third world countries, he is treated like a rockstar. in the rotten US, he is dismayed at the lack of attention. although no doubt he has a point, it smacks a bit of entitlement.

          not vltchek's best work, but then again, he did admit to writing most of it on the plane.

          Synoia June 23, 2015 at 6:42 am

          it seems impossible now for me to believe how left wing Britain was in the late 1970s and even into the very early 1980s, but that is indeed the case; it feels like it was a completely different country.

          True. And greed, as described by Bill Black. has no limits.

          Moneta June 23, 2015 at 6:56 am

          Free markets and world economic order in the same sentence?

          Disturbed Voter June 23, 2015 at 7:10 am

          Irony perhaps? But then actual free markets are only in the imagination of Adam Smith.

          William C June 23, 2015 at 7:28 am

          I seem to remember plenty in WoN about businessmen conspiring against the public.

          Eric Patton June 23, 2015 at 8:22 am

          Very awesome essay.

          Ulysses June 23, 2015 at 8:52 am

          "Theoclassical economists are the high priests of this celebration of greed that Stavins admits poses the greatest threat to life on our planet. When Pope Francis posed a choice to Stavins, he chose to maintain his dogmatic belief in a system that he admits is suicidal and incapable of self-reform. The reason that the mythical and mystical "free markets" that Stavins worships are suicidal and incapable of self-reform even when they are producing "mass extinction" is that the markets are a system based on greed and the desire to obtain "great possessions" even if the result is to damn us and life on our planet."

          This is an extremely important point. We cannot combat neoliberal ideology as if it were simply a set of rational assumptions, albeit flowing from flawed premises. No, it is a religious dogma of greed, set up to combat all of the more communitarian and gentle schools of religious thought– including the Christianity of Pope Francis, or the environmentalism of St. Francis, the patron saint of ecologists.

          diptherio June 23, 2015 at 9:39 am

          Good to see that someone else pulls out the "rich young man" bit occasionally. Not many Christians I've talked to seem to be aware of it, much less of the implications. Good on ya'.

          vidimi June 23, 2015 at 10:46 am

          fundamentalists like to take things in the bible literally, but they know that jesus didn't mean it when he said that "It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God"

          Garrett Pace June 23, 2015 at 10:05 am

          Maybe he didn't realize that his possessions owned him, but the rich young man knew that *something* was wrong. For all his virtue and good works, he could feel things weren't right inside himself.

          Vatch June 23, 2015 at 10:30 am

          Pope Francis probably hasn't read The Gospel According to St. Lloyd Blankfein. If he had read it, he would know that investment bankers are doing God's work.

          [Jun 22, 2015] A New Bank Boycott Movement Starting

          Jun 22, 2015 | naked capitalism

          One robin does not make a spring, but Harry Shearer sent a link to a new route by which Main Street interests are starting to take ground back from Wall Street. One of the county supervisors of California's Santa Cruz County recommended that the county end, to the extent possible, its business dealings with the four banks that had admitted to criminal conduct in a settlement with the Department of Justice and paid a total of $6 billion in fines. Here's the Reuters recap of the deal reached last month:

          Four major banks pleaded guilty on Wednesday to trying to manipulate foreign exchange rates and, with two others, were fined nearly $6 billion in another settlement in a global probe into the $5 trillion-a-day market.

          Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N), Barclays Plc (BARC.L), UBS AG (UBSG.VX)(UBS.N) and Royal Bank of Scotland Plc (RBS.L) were accused by U.S. and UK officials of brazenly cheating clients to boost their own profits using invitation-only chat rooms and coded language to coordinate their trades.

          All but UBS pleaded guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the FX spot market. UBS pleaded guilty to a different charge. Bank of America Corp (BAC.N) was fined but avoided a guilty plea over the actions of its traders in chatrooms…

          The misconduct occurred until 2013, after regulators started punishing banks for rigging the London interbank offered rate (Libor), a global benchmark, and banks had pledged to overhaul their corporate culture and bolster compliance.

          We've embedded the memo below, which shows it was put on the agenda for the June 9 supervisors' meeting. I do not know if it was approved or sent for further review before making a decision.

          Author Ryan Coonerty points out that it is the established policy of Santa Crux County to sever the investment relationships of the County's treasury with dealers who have been involved in bid-rigging scandals. Santa Cruz removed Barclays, JP Morgan, and Bank of America from their approved dealer list as a result of their role in earlier market-fixing scandals. Mr. Coonerty recommends strengthening the current policy by setting an explicit prohibition period of five years (rather than leaving its continuation at the discretion of the Treasurer) and unwinding other businesses relationships with these banks to the extent possible.

          Larry June 21, 2015 at 12:16 pm

          This is outstanding. I wonder how many other municipalities have similar provisions in the books? How many federal agencies? If criminal conduct started choosing banks some money, perhaps they would lean towards more ethical behavior. The other possibility is that regulators would just stop seeking any criminal indictments.

          [Jun 20, 2015] Paul Krugman Voodoo, Jeb! Style

          "...Selling tax cuts for the wealthy with unrealistic promises about growth"
          .
          "...Economists on Bush's Promise: Close to 0 Percent Chance of 4 Percent Growth
          By Josh Barro"

          .
          "...Over the last 40 years, the American economy has grown at an average of 2.8 percent per year. That's slower than the 3.7 percent average from 1948 to 1975, but the future looks even gloomier because that 2.8 figure relied on two favorable trends that are now over: women entering the work force, and baby boomers reaching their prime earning years."
          .
          "...We had a two decade continuation of the Rooseveltian spirit of can-do ambition and government leadership moving energetically to re-shape our country and build a new society. It was awesome. The US was the economic wonder of the world. Then the neolibs took over and screwed it all up."
          .
          "...If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic. But the reason people are laughing at Jeb is that he is taking his own record as Florida governor as proof that he can do it again. His record of growingthat state at 4% is based on blowing a "...catastrophic bubble"
          .
          "...And politicians who set high and ambitious economic targets for a country that has fumbled along for far too long with stagnant growth and a neglect of long-term economic development and strategic thinking should be welcomed into the discussion.
          .
          Democrats should leap at the chance to have a debate about how to get to 4% growth! That kind of ambition represents a major potential turnaround from the current radical Republican agenda of laissez faire do-nothingism.
          .
          Now we know what the Republican formula is going to be: cutting taxes, cutting red tape, cutting restrictions, de-fanging the FDA and the EPA and the Department of Labor, etc. Democrats should come back with the historical data that is on their side, and that shows that the highest levels of US growth in the 20th century coincided with an activist US government that played a much bigger role than our government currently plays. You know why America is stagnant? Because modern Republicans like Mitch McConnell, Paul Ryan and the Kochs don't have the right stuff. They're incredibly committed to selfish libertarian plans to help the fortunate keep their stuff; but they lack the vision and patriotic public spirit chutzpah of earlier generations who knew how to use the US government to mobilize resources to build the country and spread broad prosperity."
          .
          "... Way back in 1980, George H.W. Bush, running against Reagan for the presidential nomination, famously called it "voodoo economic policy." And while Reaganolatry is now obligatory in the G.O.P., the truth is that he was right. So what does it say about the state of the party that Mr. Bush's son - often portrayed as the moderate, reasonable member of the family - has chosen to make himself a high priest of voodoo economics? Nothing good.
          .
          "...Fast-forward 2000 years, and in its place we see an America floundering in an exaggerated adoration for the Really-Rich. I suggest the "Urge to Get Rich" is much more ingrained in American mentalities than any notion of correcting Income Disparity."
          Jun 20, 2015 | Economist's View

          Selling tax cuts for the wealthy with unrealistic promises about growth:

          Voodoo, Jeb! Style, by Paul Krugman, Commentary, NY Times: On Monday Jeb Bush - or I guess that's Jeb!,... gave us a first view of his policy goals. First, he says that if elected he would double America's rate of economic growth to 4 percent. Second, he would make it possible for every American to lose as much weight as he or she wants, without any need for dieting or exercise.
          O.K., he didn't actually make that second promise. But he might as well have. It would have been just as realistic as promising 4 percent growth, and considerably less irresponsible. ...
          Mr. Bush ... believes that the growth in Florida's economy during his time as governor offers a role model for the nation as a whole. Why is that funny? Because everyone except Mr. Bush knows that, during those years, Florida was booming thanks to the mother of all housing bubbles. When the bubble burst, the state plunged into a deep slump... The key to Mr. Bush's record of success, then, was good political timing: He managed to leave office before the unsustainable nature of the boom he now invokes became obvious.
          But Mr. Bush's economic promises reflect more than self-aggrandizement. They also reflect his party's habit of boasting about its ability to deliver rapid economic growth, even though there's no evidence at all to justify such boasts. It's as if a bunch of relatively short men made a regular practice of swaggering around, telling everyone they see that they're 6 feet 2 inches tall. ...
          Why, then, all the boasting about growth? The short answer, surely, is that it's mainly about finding ways to sell tax cuts for the wealthy..., low taxes on the rich are an overriding policy priority on the right - and promises of growth miracles let conservatives claim that everyone will benefit from trickle-down, and maybe even that tax cuts will pay for themselves.
          There is, of course, a term for basing a national program on this kind of self-serving (and plutocrat-serving) wishful thinking. Way back in 1980, George H.W. Bush, running against Reagan for the presidential nomination, famously called it "voodoo economic policy." And while Reaganolatry is now obligatory in the G.O.P., the truth is that he was right.
          So what does it say about the state of the party that Mr. Bush's son - often portrayed as the moderate, reasonable member of the family - has chosen to make himself a high priest of voodoo economics? Nothing good.
          Dan Kervick said in reply to pgl...

          That's the kind of short-term thinking we could use a lot less of. Clinton unleashed the banks and neutered the regulatory apparatus, which directly set the stage for the financial crisis of 2007/8. He himself has expressed regret about these policies, but many in the Clinton loyalist bloc in his party still have trouble grasping the point.

          He also happened to be sitting in the Oval Office when a (harmful) dot-com bubble and (useful) productivity surge took place, driven by tech developments coming to fruition that Bill Clinton did absolutely nothing to catalyze. Those developments were the outcome of decades of government-driven R&D in the various components of computer and internet technology. Clinton reaped the political benefits of that earlier big government investment, but presided himself over further reductions in government driven by the reigning neoliberal small government philosophy.

          The stagnation we are currently experiencing is, in part, the result of four decades of failure by both parties to accept the responsibilities of government leadership in the technological and infrastructure development ares, and to seize opportunities for transformative national and global development of the kinds that that only governments are capable of carrying out.

          Inequality also surged dramatically under Clinton. Of course this was not all attributable to Clinton himself, but was an outcome of the reigning neoliberal approach to political economy, and long term trends in finance, corporate organization and tax policies that prevailed throughout the neoliberal era under Reagan, Bush I, Clinton, and Bush II - and which have sadly continued under Obama.

          anne said in reply to anne...

          http://www.nytimes.com/2015/06/18/upshot/economists-advise-us-not-to-hold-our-breath-on-jeb-bushs-growth-target.html

          June 17, 2015

          Economists on Bush's Promise: Close to 0 Percent Chance of 4 Percent Growth
          By Josh Barro

          Jeb Bush set out an aggressive economic growth target in his campaign announcement speech Monday: four percent real G.D.P. growth, for a decade.

          "It's possible," he said. "It can be done."

          Don't bet on it.

          Over the last 40 years, the American economy has grown at an average of 2.8 percent per year. That's slower than the 3.7 percent average from 1948 to 1975, but the future looks even gloomier because that 2.8 figure relied on two favorable trends that are now over: women entering the work force, and baby boomers reaching their prime earning years.

          After 2020, with the percentage of the American population that is of prime working age shrinking, the Congressional Budget Office expects growth to stabilize at 2.2 percent. Hitting Mr. Bush's target would require nearly doubling that pace. It would mean exceeding the economic performance of every presidential administration since the Kennedy-Johnson years despite demographic headwinds caused by baby-boom retirements....

          Dan Kervick said in reply to pgl...

          It was more than that. We still had a Vietnam war post-1966, but growth began to fall. And the Iraq War never gave us growth rates of 5%, 6% and 7%. Something else was going on. Some of it was just the baby boom, but we were also carrying out massive public investment projects: GI Bill, highway plan, space program and more.

          Why are you so eager to disparage the progressive achievements of the postwar period that took place under assertive, forward-leaning government, and make it look like it was all military? Democrats should try to take credit for that stuff. We had a two decade continuation of the Rooseveltian spirit of can-do ambition and government leadership moving energetically to re-shape our country and build a new society. It was awesome. The US was the economic wonder of the world.

          Then the neolibs took over and screwed it all up.

          Stop trying to run away from all the things we did right. We can do that kind of thing again, but the challenges are different now. We have to remake the global system because otherwise we will destroy the planet. Our social system is crumbling. Water resources are in jeopardy. Our consumption patterns are irrational, inefficient and unbalanced. If we don't act now we are headed toward a future of pollution, resource wars, caste fragmentation and impoverishment.

          The Pope just sent you guys another big fat hanger to hit out of the park and you seem to want to take it off your head again.

          Wake up. Think bigger. Good lord; it's not about the freaking interest rates.

          DeDude said in reply to anne...

          If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic. But the reason people are laughing at Jeb is that he is taking his own record as Florida governor as proof that he can do it again. His record of growing that state at 4% is based on blowing a catastrophic bubble - is that what he will do to grow the national economy by 4%? The only way to grow the economy by 4% is to increase the income of the consumer class by 4% - that is not going to happen with another Bush in the white house.

          anne said in reply to DeDude...

          If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic....

          [ Population growth is 0.7% yearly, while total factor productivity growth has averaged 1.2% yearly since 1948. That leaves 2.1% growth with an employment-population ratio that is far below that of other healthy developed countries.

          China has averaged 8.6% per capita GDP growth yearly since 1977, or for 38 years, and how this has been done should be thoroughly studied. ]

          DeDude said in reply to pgl...

          Agree, the conversion of their population from dirt poor subsistence farmers to productive factory workers (and consumers) has been a substantial driver of Chinese GDP growth rates. The appear to understand that they have reached a size where they can no longer rely on mercantilism and need to transform to a true consumer economy - so they probably will be able to continue outpacing the US growth for at least another decade or two. Especially if we continue to elect people who fail to "get" such a basic concept as that economic growth originate in increased consumption.

          Peter K. said...

          This is the Krugman I don't like. I understand what he's doing - a Jeb! presidency with a Republican Congress would be a nightmare - pace Paine and Kervack - but he should spare a paragraph why Obama's growth rate sucks so bad and why long term growth rates are coming down from the Golden Era of rising living standards.

          Marco policy. Unions. Inequality. Boom/bust cycle. Obama picked Bernanke and Geithner and listened to them. That's why his growth rate sucks, not demographics. And a crappy economy doesn't help with race relations.


          Dan Kervick said...

          I responded briefly to this in the other thread where Fred Dobbs posted it, but I'll expand a bit here.

          Paul Krugman thinks we don't know how to make make long-run growth happen as a matter of deliberate policy, and that changes in long-run growth patterns are unpredictable. But I think he's much overstating the case. We know that if we shift overall spending at the national level from wasteful consumption into investment, R&D and capital development, we can build up the productive capacity of the country and achieve much higher levels of GDP growth for some years in the short term, and much higher overall GDP in the long run. It's true that we can't sustain annual growth at some arbitrarily chosen high level over a long run. But even 10 years or so of surging growth followed by a leveling off would mean we level off at a higher level of prosperity than we get from perpetuating our current pattern of sluggish growth indefinitely.

          And politicians who set high and ambitious economic targets for a country that has fumbled along for far too long with stagnant growth and a neglect of long-term economic development and strategic thinking should be welcomed into the discussion.

          Democrats should leap at the chance to have a debate about how to get to 4% growth! That kind of ambition represents a major potential turnaround from the current radical Republican agenda of laissez faire do-nothingism.

          Now we know what the Republican formula is going to be: cutting taxes, cutting red tape, cutting restrictions, de-fanging the FDA and the EPA and the Department of Labor, etc. Democrats should come back with the historical data that is on their side, and that shows that the highest levels of US growth in the 20th century coincided with an activist US government that played a much bigger role than our government currently plays. You know why America is stagnant? Because modern Republicans like Mitch McConnell, Paul Ryan and the Kochs don't have the right stuff. They're incredibly committed to selfish libertarian plans to help the fortunate keep their stuff; but they lack the vision and patriotic public spirit chutzpah of earlier generations who knew how to use the US government to mobilize resources to build the country and spread broad prosperity.

          We don't know how to create sustained high growth over many years? Tell that to the Chinese. Tell it to the economic engineers who doubled US annual output between 1939 to 1944, when failure was not an option. Tell it to the people who engineered high average growth between 1950 and 1965 by sustaining government investment at a much higher level than we do currently. Marianna Mazzucato, among others, gets this stuff. Loser liberals from the boomer generation often don't. They are stuck in the neoliberal paradigm of an economy that is "self-adjusting" over the long run, and where the only role for government is short-term stabilization and running a safety net.

          The only thing standing between us and a major American liftoff is ideological stupidity and lack of political will. The visionary engineering portfolios of the worlds creative people are overstuffed with incredible plans: entirely new kinds of cities; transoceanic tunnels, redesigns of entire energy grids and transportation systems. What is lacking is leaders with a clue and the willingness to call for the kind of organization, planning and mobilization to make these things happen.

          Suppose a president shoots for 4% and we only get 3.5%. How have we lost? And who pays the political price? The guy who set the high target and then laughs, "Hey we only got 3.5% - just shoot me." Or the snarky smart guys on the sidelines who say, "I told you we didn't have it in us."

          Krugman has been writing some good stuff lately, but these recent kneejerk columns about Jeb Bush are Krugman at his absolute worst. Whenever he puts on his blue team baseball cap and descends into this kind of shallow hackitude, his IQ goes down 50 points. If Jeb Bush said, "We're going to end cancer in our lifetime!" I now fully expect Krugman to come back with, "That's so unrealistic; we don't know where cancer comes from."

          Peter K. said in reply to Dan Kervick...

          If you push the monetary-fiscal mix (and trade) you can get higher growth and higher productivity.

          That means looser monetary policy and more fiscal policy until inflation picks up. That also means distributing income more widely, via unions and better labor laws and regulating banks effectively, including better credit policy.

          If Obama had better monetary and fiscal policy (and a competitive dollar) during his Presidency his growth rates would have been better.

          Instead they were worried about the deficit and inflation becoming "unmoored" or a problem some day.

          Phantom issues.

          Dan Kervick said in reply to Peter K....

          Yes, too much concern about restrictive target rates and parameters. And although some of the economic goals can be described in abstract macroeconomic terms, the policy instruments can't be addressed purely macroeconomically. It's a matter of choosing the world we want to live in and then building it - on purpose, deliberately. You can't just shoot for an interest rate and inflation rate and then expect that better world to emerge from from private enterprise on its own.

          Businesses have already had the most favorable credit conditions anyone can reasonably want, and still very few of them are building the future we need or expanding ambitiously. They lack courage and a sense of direction because of an absence of leadership. So their hunger for "safe assets" and rent-collection schemes is endless.

          DeDude said...

          "He managed to leave office before the unsustainable nature of the boom he now invokes became obvious."

          Yes Jeb Bush has a slightly better timing than his big brother George, who did not get out before the collapse of the bubble he had created and lived high on. Unfortunately, the only way GOP presidents can get growth is by blowing bubbles. That will create additional "money" in the system which can be used to push the main/only driver of GDP growth - consumption.

          As much as GOPsters try to avoid dealing with the "gravitational law" of economics they can only postpone it. Economic growth is driven by increases in consumption, which means either bigger government or increases in money to the consumer class.

          The only palatable way for the party of the rich to get to that is by blowing bubbles in some asset class held by the upper half of the consumer class. But then they have to time those bubbles such that they blow up during a democratic presidency (to avoid being blamed for what was their fault)

          Lafayette said...

          {PK: The short answer, surely, is that it's mainly about finding ways to sell tax cuts for the wealthy..., low taxes on the rich are an overriding policy priority on the right - and promises of growth miracles let conservatives claim that everyone will benefit from trickle-down, and maybe even that tax cuts will pay for themselves.}

          It is amazing that "getting rich" should be so ingrained as part and parcel of the "American Way of Life".

          People, since antiquity, have always wanted to praise their "heroes". Typically, Roman generals would return to Rome to parade their booty in front of the population. No doubt, those generals then got involved in Roman politics. Otherwise, why risk your life on the battle field.

          Fast-forward 2000 years, and in its place we see an America floundering in an exaggerated adoration for the Really-Rich. I suggest the "Urge to Get Rich" is much more ingrained in American mentalities than any notion of correcting Income Disparity.

          Why, otherwise, would stupendous lottery wins be such an attractive way to waste one's money ... ?

          [Jun 19, 2015] United States of Amnesia

          May 19, 2015 | jessescrossroadscafe.blogspot.com
          "We are the United States of Amnesia, we learn nothing because we remember nothing." -- Gore Vidal
          Stocks backed off their exuberant rally high from last Friday after that 'goldilocks' job number.

          The 'global bond rout' has investors nervous, and well they might be.

          We are led by narcissists and sociopaths, in a most unwholesome partnership between the public and private sector.

          And the most feral, counterproductive response of self-proclaimed 'reformers' is to eliminate government, to nullify it, so that in their very deluded and romantic imaginations the monied interests can refrain from acting as lawbreakers, since at their core these most selfish and cunning of predators and sociopaths are really yearning to be, think, and act like angels.

          And what will we do, having deregulated our markets, freed them from restraint, and eliminated the laws so that none may be lawbreakers. What will we do when the very heart of darkness has a freer reign to blow the winds of plunder and power over the lands, with nothing to provide us a foothold or an anchor, the laws which are the pillars of justice having been all overturned?

          Have a pleasant evening.

          [Jun 18, 2015] Pope encyclical, climate-change live reaction and analysis

          Notable quotes:
          "... Senior Catholic figures in the US and UK have said the Pope's central message is: what sort of world do we want to leave for future generations? ..."
          "... Kurtz deflected criticism from Republican president contenders such as Jeb Bush that the Pope was straying from the pulpit into political terrain. "I don't think he is presenting a blue print for saying this is exactly a step by step recipe," Kurtz said. "He is providing a framework and a moral call as a true moral leader to say take seriously the urgency of this matter." ..."
          The Guardian
          • The Pope has warned of an "unprecedented destruction of ecosystems" and "serious consequences for all of us" if humanity fails to act on climate change, in his encyclical on the environment, published by the Vatican on Thursday.
          • Senior Catholic figures in the US and UK have said the Pope's central message is: what sort of world do we want to leave for future generations?
          • The UN secretary general, the World Bank president, plus the heads of the UN climate talks and the UN environment programme have all welcomed the encyclical, along with scores of charities and faith groups.
          • Church leaders will brief members of Congress on the encyclical on Thursday, and the White House on Friday on the encyclical. "It is our marching orders for advocacy," said Joseph Kurtz, the president of the US Conference of Catholic Bishop

          3.00pm BST10:00

          Our Rome correspondent Stephanie Kirchgaessner has filed a new report on the encyclical and reaction to it. Here's an extract:
          Cardinal Peter Turkson, the pope's top official on social and justice issues, flatly rejected arguments by some conservative politicians in the US that the pope ought to stay out of science.

          "Saying that a pope shouldn't deal with science sounds strange since science is a public domain. It is a subject matter that anyone can get in to," Turkson said at a press conference on Thursday.

          The pontiff's upcoming document is being hailed as a major intervention in the climate change debate – but what exactly is an encyclical?

          In an apparent reference to comments by Republican presidential contender Jeb Bush, who said he did not take economic advice from the pope, Turkson said that politicians had the right to disregard Francis's statement, but said it was wrong to do so based on the fact that the pope was not a scientist.

          "For some time now it has been the attempt of the whole world to kind of try to de-emphasise the artificial split between religion and public life as if religion plays no role," he said. Then, quoting an earlier pope, he said the best position was to "encourage dialogue between faith and reason".

          I'm going to finish up the liveblog now and we'll be switching to rolling news coverage on the Guardian's environment site.

          Ban Ki-moon reacts:
          The secretary-general welcomes the papal encyclical released today by His Holiness Pope Francis which highlights that climate change is one of the principal challenges facing humanity, and that it is a moral issue requiring respectful dialogue with all parts of society. The secretary-general notes the encyclical's findings that there is "a very solid scientific consensus" showing significant warming of the climate system and that most global warming in recent decades is "mainly a result of human activity".

          Ban called on governments to "place the global common good above national interests and to adopt an ambitious, universal climate agreement" at the UN climate summit in Paris this December.

          There are shades of the Pope's own language there. In the encyclical, he says: "International [climate] negotiations cannot make significant progress due to positions taken by countries which place their national interests above the global common good".

          2.38pm BST09:38

          Suzanne Goldenberg

          US church leaders said they saw the message as an urgent call for dialogue and action – one they intend to amplify on social media and in the pulpit.

          "It is our marching orders for advocacy," Joseph Kurtz, the president of the US Conference of Catholic Bishops and the Archbishop of Louisville. "It really brings about a new urgency for us." Church leaders will brief members of Congress on Thursday, and the White House tomorrow on the encyclical.

          Kurtz deflected criticism from Republican president contenders such as Jeb Bush that the Pope was straying from the pulpit into political terrain. "I don't think he is presenting a blue print for saying this is exactly a step by step recipe," Kurtz said. "He is providing a framework and a moral call as a true moral leader to say take seriously the urgency of this matter."

          2.33pm BST09:33

          Suzanne Goldenberg

          Here's a selection of some more US faith group reaction: Most Reverend Stephen E. Blaire, Bishop of the Catholic Diocese of Stockton:

          This document written for all people of good will challenges institutions and individuals to preserve and respect creation as a gift from God to be used for the benefit of all.

          Rabbi Marvin Goodman, Rabbi in Residence, Jewish Community Federation and Endowment Fund, San Francisco:

          I'm inspired and grateful for the Pope's high profile leadership and commitment to environmental justice.

          Imam Taha Hassane, Islamic Center of San Diego:

          Local and National Muslim Leadership support policies that both halt environmental degradation and repair that which has already occurred. We stand with any leader, secular or spiritual, who is willing to speak out against this issue.

          2.23pm BST09:23

          Cardinal Vincent Nichols in the UK has echoed US Archbishop Joseph Edward Kurtz in his view of what the Pope's central message is: what sort of world do we want to leave for future generations to inherit? The Press Association reports:
          Speaking at Our Lady & St Joseph's Catholic Primary School, in Poplar, east London, against the backdrop of the skyscrapers of Canary Wharf, Cardinal Vincent Nichols said one of the key messages of the document was asking "what kind of world we want to leave to those who come afterwards".

          The pope's message challenged the idea that infinite material progress was possible, with more goods and more consumption, that "we have to have the latest phone", said the cardinal, who is head of the Catholic Church in England and Wales.

          2.13pm BST09:13

          The US House of Representatives' Sustainable Energy and Environment Coalition says – in an apparent reference to climate denial on the US right – that "the political will of many is still askew" when it comes to tackling global warming. It hopes the Pope's encyclical might change that:
          For those unmoved by the science of climate change, we hope that Pope Francis' encyclical demonstrates the virtue and moral imperative for action. Today's announcement further aligns the scientific and moral case for climate action, yet the political will of many is still askew. The time to act on climate is now, and failure to do so will further damage the planet, its people, and our principles.

          Michael Brune, the executive director of the US-based Sierra Club, which has more than 2m members, and has waged a very effective campaign against coal power plants, said:

          Pope Francis's guidance as a pastor and a teacher shines a light on the moral obligation we all share to address the climate crisis that transcends borders and politics. This Encyclical underscores the need for climate action not just to protect our environment, but to protect humankind and the most vulnerable communities among us. The vision laid out in these teachings serves as inspiration to everyone across the world who seeks a more just, compassionate, and healthy future.

          Updated at 2.16pm BST

          2.06pm BST09:06

          And talking of short reads, I've written a little piece on eight things we learned from the encyclical.

          1.54pm BST08:54

          In case you don't have enough time to read the 100+ page encyclical itself (the length varies depending on the language and font size of the versions kicking around),

          1.53pm BST08:53

          Some more reaction from UK charities on how governments meeting in Paris later this year should listen to the Pope.

          Adriano Campolina, chief executive of ActionAid International, said:

          The Pope's message highlights the important links between climate change, poverty and overconsumption. They are part of the same problem and any lasting solution to climate change must tackle these fundamental issues.

          The powerful truth in Pope Francis' message reaches far beyond the Catholic Church or climate campaigners. Action on climate requires both environmental and social justice. As negotiators work on a climate deal for Paris, our leaders must show the same moral and political courage that Pope Francis has.

          Christian conservation group A Rocha said: "national governments should follow the Pope's example and take 'meaningful action' on climate change".

          One of the most senior figures in the US Catholic church, Joseph Edward Kurtz, Archbishop of Louisville, has been speaking at a US press conference. He said that that perhaps the central message of the encyclical is: what kind of world do we want to leave to those who come after us?

          Here are some highlights from Kurtz:

          It's really a very beautiful and very extensive treatment of what Pope Francis has called our common home.

          ...

          The Pope over and over again says that care for the things of this Earth is necessarily bound with care for one another and especially those who are poor. He calls it an interdependency.

          ...

          He speaks on very indivudal choices as well as the public sphere

          ...

          Over and over again he talks about the world as a gift

          ...

          He uses a phrase he's used very often: to reject a throwaway culture.

          ...

          He talks about very specific things, about slums in which people are forced to live, the lack of clean water, about the consumerism mentality.

          And that perhaps this is the centre of his message: what kind of world do we want to leave to those who come after us?

          ...

          Our pope is speaking with a very much pastor's voice and with a deep respect for the role of science.

          Three essential areas that our Catholic community is being called to being involved in:

          1) to advocate, a local, national and global level, to advocate for the common good. We know that faith if done well, actually enriches public life. And we know that technology tells us what we can do, but we need moral voices that tell us what we should do

          2) [the video cut out at this point so I'm afraid I missed his second point]

          3) The use of our resources, in whole we build buildings, should honour the Earth

          Here's the Pope himself on that issue of what we leave future generations:

          Leaving an inhabitable planet to future generations is, first and foremost, up to us. The issue is one which dramatically affects us, for it has to do with the ultimate meaning of our earthly sojourn.

          We may well be leaving to coming generations debris, desolation and filth. The pace of consumption, waste and environmental change has so stretched the planet's capacity that our contemporary lifestyle, unsustainable as it is, can only precipitate catastrophes, such as those which even now periodically occur in different areas of the world. The effects of the present imbalance can only be reduced by our decisive action, here and now.

          Summary

          Updated at 2.21pm BST

          1.20pm BST08:20

          World Bank group president Jim Yong Kim said:
          Today's release of Pope Francis' first encyclical should serve as a stark reminder to all of us of the intrinsic link between climate change and poverty. We know the scientific, business and economic case for action to combat climate change and I welcome the pope's emphasis on our moral obligation to act.

          He added:

          The pope's encyclical comes at a pivotal moment in the lead up to December's Paris meeting on climate change.

          1.06pm BST08:06

          Here's some more reaction from religious groups, who say people should heed the Pope's call to action.

          Dr Guillermo Kerber of the World Council of Churches, which has previously promised to rule out future investments in fossil fuels, said:

          The World Council of Churches welcomes Pope Francis' encyclical which catalyses what churches and ecumenical organizations have been doing for decades on caring for the earth and climate justice issues. By affirming human induced climate change and its impacts on the poorest and most vulnerable communities, the Encyclical is an important call to urgently act as individuals, citizens and also at the international level to effectively respond to the climate crisis.

          Dr. Steven Timmermans, executive director of the Christian Reformed Church in North America, said:

          We affirm Pope Francis' moral framing of the threats posed by climate change. We have too many brothers and sisters around the world living on the edge of poverty whose livelihoods are threatened-and too many little ones in our congregations set to inherit a dangerously broken world-to believe otherwise. For too long the church has been silent about the moral travesty of climate change. Today, the Pope has said, 'Enough is enough,' and the Christian Reformed Church welcomes his voice.

          Sister Pat McDermott, president of the Sisters of Mercy of the Americas, said:

          We welcome Pope Francis' critique of the current, dominant economic model that prioritizes the market, profit and unharnessed consumption and regards Earth as a resource to be exploited.

          Updated at 3.49pm BST

          1.02pm BST08:02

          Rev. Mitch Hescox, president of the US-based Evangelical Environmental Network, which lobbies American politicians on environmental issues, welcomed the Pope's encyclical. He said:
          It's time to make hope happen by fuelling the unstoppable clean energy transition, stopping the ideological battles, and working together.

          Creating a new energy economy that benefits all and addresses climate change is not about a political party but living as a disciple of Jesus Christ. We urge all people of good will, especially fellow Christian conservatives to read and study these timely words from Pope Francis.

          12.55pm BST07:55

          The New York Times' Justin Gillis says (fairly, in my opinion) that the Pope is more cautious on the science behind climate change than many scientists.
          ...amid all his soaring rhetoric, did the pope get the science right?

          The short answer from climate and environmental scientists is that he did, at least to the degree possible in a religious document meant for a broad audience. If anything, they say, he may have bent over backward to offer a cautious interpretation of the scientific facts.

          For example, a substantial body of published science says that human emissions have caused all the global warming that has occurred over the past century. Yet in his letter, Francis does not go quite that far, citing volcanoes, the sun and other factors that can influence the climate before he concludes that "most global warming in recent decades is due to the great concentration of greenhouse gases" released mainly by human activity.

          The world's most authoritative body on climate science, the UN's Intergovernmental Panel on Climate Change, found in its landmark report last year that global warming is "unequivocal" and humanity's role in causing it is "clear".

          12.47pm BST07:47

          The Pope is surprisingly specific on what he does like, and sees as part of the solutions to climate change.

          For instance, he name-checks energy storage, something that Tesla's Elon Musk made waves with over his recent announcement of a home battery, and is seen in some quarters as important to help alleviate the intermittent nature of some renewable power.

          Worldwide there is minimal access to clean and renewable energy. There is still a need to develop adequate storage technologies.

          And he likes community green energy schemes, akin to one in a UK village that was the site of the country's biggest anti-fracking protests but now hopes to build a sizeable solar power installation:

          In some places, cooperatives are being developed to exploit renewable sources of energy which ensure local self-sufficiency and even the sale of surplus energy. This simple example shows that, while the existing world order proves powerless to assume its responsibilities, local individuals and groups can make a real difference.

          12.16pm BST07:16

          Bob Perciasepe of US thinktank Center for Climate and Energy Solutions, has blogged on the unique role the Pope can play in the climate change arena and how he might influence American minds:
          Scientists, environmentalists, politicians, business executives, and military leaders have all raised concerns for years about the real risks of climate change. But few individuals are as influential as the pope. By calling on people to act on their conscience, Pope Francis provides a powerful counterpoint to what has become a largely ideologically-driven debate, especially here in the United States.

          12.12pm BST07:12

          Nicholas Stern, the economist and author of an influential report on climate change, said the encyclical was of "enormous significance".
          The publication of the Pope's encyclical is of enormous significance. He has shown great wisdom and leadership. Pope Francis is surely absolutely right that climate change raises vital moral and ethical issues. It is poor people around the world who are most vulnerable to the impacts of climate change, such as an intensification of extreme weather events. And the decisions that we make about managing the risks of climate change matter not only for us, but also for our children, grandchildren and future generations.

          He added:

          Moral leadership on climate change from the Pope is particularly important because of the failure of many heads of state and government around the world to show political leadership.

          And here's what the Pope himself says about world leaders' failure to act on climate change and environmental problems:

          Many of those who possess more resources and economic or political power seem mostly to be concerned with masking the problems or concealing their symptoms, simply making efforts to reduce some of the negative impacts of climate change.

          Updated at 12.12pm BST

          12.09pm BST07:09

          John Hooper

          The pope's effort to sever the link between population growth and environmental deterioration should not, however, detract from the importance of what else he has to say. This is the first encyclical to be devoted entirely to environmental issues, though it is certainly not the first time a pope has spoken out on the destruction of the environment.

          As the encyclical notes, Paul VI first raised the issue as long ago as 1971, describing it as a "tragic consequence" of uncontrolled human activity. Saint John Paul II and his successor, Benedict XVI, inveighed against mankind's ill-treatment of nature – or as they viewed it, creation.

          Far more explicitly than his predecessors, however, Francis heaps the blame on to the part of humanity that is rich. He accepts that the poorer nations should "acknowledge the scandalous level of consumption in some privileged sectors of their population and combat corruption more effectively." They ought also to develop less pollutant sources of energy.

          12.00pm BST07:00

          The Pope suggests that you can't care about nature and support abortion, which the Catholic church strongly opposes:
          Since everything is interrelated, concern for the protection of nature is also incompatible with the justification of abortion. How can we genuinely teach the importance of concern for other vulnerable beings, however troublesome or inconvenient they may be, if we fail to protect a human embryo, even when its presence is uncomfortable and creates difficulties?

          The other elephant in the room is birth control and overpopulation, though the Pope seems to have anticipated criticism on that. He takes the line, supported by many environmentalists, that consumption is the problem, not overpopulation. The encyclical says:

          To blame population growth instead of extreme and selective consumerism on the part of some, is one way of refusing to face the issues.

          Updated at 1.14pm BST

          11.56am BST06:56

          The head of the UN's environment programme, Achim Steiner, has echoed the UN's climate chief in saying today's text should be a clarion call for action.
          This encyclical is a clarion call that resonates not only with Catholics, but with all of the Earth's peoples. Science and religion are aligned on this matter: The time to act is now.

          We (UNEP) share Pope Francis' view that our response to environmental degradation and climate change cannot only be defined by science, technology or economics, but is also a moral imperative. We must not overlook that the world's poorest and most vulnerable suffer most from the changes we are seeing. Humanity's environmental stewardship of the planet must recognise the interests of both current and future generations.

          Updated at 12.02pm BST

          11.53am BST06:53

          The Pope on biodiversity loss, GM and more

          On the loss of species and ecosystems

          Each year sees the disappearance of thousands of plant and animal species which we will never know, which our children will never see, because they have been lost for ever. The great majority become extinct for reasons related to human activity.

          ...

          a sober look at our world shows that the degree of human intervention, often in the service of business interests and consumerism, is actually making our earth less rich and beautiful, ever more limited and grey, even as technological advances and consumer goods continue to abound limitlessly. We seem to think that we can substitute an irreplaceable and irretrievable beauty with something which we have created ourselves.

          On GM
          It is difficult to make a general judgement about genetic modification (GM) ... The risks involved are not always due to the techniques used, but rather to their improper or excessive application ... This is a complex environmental issue
          On water quality
          One particularly serious problem is the quality of water available to the poor. Every day, unsafe water results in many deaths and the spread of water-related diseases, including those caused by microorganisms and chemical substances.
          On fossil fuels
          We know that technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay. Until greater progress is made in developing widely accessible sources of renewable energy, it is legitimate to choose the lesser of two evils or to find short-term solutions.

          Updated at 11.58am BST

          11.49am BST06:49

          At the Vatican press conference, Peter Turkson, a Ghanian cardinal of the Catholic church, says US climate sceptics are entitled to their view.

          "The other big thing about Republicans and presidential figures saying they will not listen to the Pope is that is their freedom, their freedom of choice," he said, in an apparent reference to Jeb Bush (see 11:21).

          He said "it's easy to say because the Pope is not a scientist he shouldn't talk about science", and said "I would not attach much credibility" to those criticisms.

          11.42am BST06:42

          At 1.30pm BST, Donald William Wuerl, one of five cardinals who lead the US archdiocese, will be holding a press conference on the encyclical. I'll try to summarise some of it here on the blog.

          11.39am BST06:39

          The pontiff included a personal handwritten note in his communication. It ended with a plea for help: "United in the lord, and please do not forget to pray for me."
          - Rocco Palmo (@roccopalmo) June 18, 2015

          "In bond of unity, charity and peace," Pope entrusts #LaudatoSi to world's bishops w/ personal note, asks prayers: pic.twitter.com/bJ9fXGvbnC

          11.37am BST06:37

          On technology and business

          One recurring motif throughout the encyclical is a general scepticism or outright hostility to technological solutions to environmental challenges, and to the role that big business should play in tackling climate change.

          For example:

          Technology, which, linked to business interests, is presented as the only way of solving these problems, in fact proves incapable of seeing the mysterious network of relations between things and so sometimes solves one problem only to create others

          ...

          To seek only a technical remedy to each environmental problem which comes up is to separate what is in reality interconnected and to mask the true and deepest problems of the global system.

          He doesn't like carbon trading either. In this passage he seems to be referring to the only current global carbon trading scheme, the CDM:

          The strategy of buying and selling "carbon credits" can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.

          And some sections sound like they could have been ghostwritten by Guardian columnist George Monbiot:

          Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage which they will leave behind for future generations?

          11.33am BST06:33

          The Pope isn't just concerned about climate change. He has some very colourful turns of phrase about other environmental problems, such as pollution and waste:
          The earth, our home, is beginning to look more and more like an immense pile of filth. In many parts of the planet, the elderly lament that once beautiful landscapes are now covered with rubbish.

          11.31am BST06:31

          The Pope on climate change and the science

          Here's the English version of the encyclical on the Vatican's site.

          The Pope makes reference to the huge body of work by national science academies and international bodies such as the IPCC on climate science:

          A very solid scientific consensus indicates that we are presently witnessing a disturbing warming of the climatic system.

          He warns of serious consequences if we don't act on climate change:

          If present trends continue, this century may well witness extraordinary climate change and an unprecedented destruction of ecosystems, with serious consequences for all of us.

          As many studies have already pointed out, the Pope notes that the world's poor are expected to suffer most from global warming:

          It [climate change] represents one of the principal challenges facing humanity in our day. Its worst impact will probably be felt by developing countries in coming decades. Many of the poor live in areas particularly affected by phenomena related to warming, and their means of subsistence are largely dependent on natural reserves and ecosystemic services such as agriculture, fishing and forestry.

          11.28am BST06:28

          Suzanne Goldenberg

          Suzanne Goldenberg

          The message brought an outpouring of support from environmental groups, climate scientists, and leaders of all religions, eager to counter a series of pre-emptive attacks on the Pope from conservatives.

          The response was a first glimpse of a vast and highly organised mobilisation effort around the letter visit, and a papal visit to the US in September.

          The Pope will get an another chance to exhort leaders to act – this time in person – when he addresses both houses of Congress.

          With that high profile visit in mind, campaigners argued the Pope's intervention had re-set the parameters of the discussion surrounding climate change, from narrow political agenda to broader morality. The Pope's message was above religion, they said.

          "The Pope's message applies to all of us," said Rhea Suh, president of the Natural Resources Defense Council. "He is imploring people of good will everywhere to honour our moral obligation to protect future generations from the dangers of further climate chaos by embracing our ethical duty to act," she said.

          Cafod, the Catholic charity went so far as to suggest that that was the Pope's design all along.

          "The Pope has deliberately released the encyclical in a year of key UN moments that will affect humanity," said Neil Thomas, director of advocacy. "He is reading the signs of his times and telling us that the human and environmental costs of our current way of life are simply too high."

          Ray Bradley, the climate scientist, said: "He has no political agenda. He speaks from the heart (not the Heartland) with unimpeachable moral authority. Who else can address this issue without the taint of politics? Moreover, Pope Francis has a particular responsibility to those without a voice at the centres of power in affluent countries.

          But the Pope's message is expected to resonate most strongly among the environmental campaigners operating within the Church.

          For activist priests and nuns, who have lobbied oil companies and called on their own parishes to divest, the encyclical puts the Vatican's stamp of approval on years of effort, often at the sidelines.

          That on its own has galvanised campaigners, said Sister Joan Brown, a Franciscan in New Mexico who has worked on climate change for more than 20 years.

          "I've never seen anything like this in the faith community or otherwise," she said.

          The pope's message set off a flood of new activity that has been more than a year in the planning.

          In deference to the Pope, mainstream environmental groups will be operating in the background.

          "We've been asking environmental groups to hold back on this...so that the message isn't one that would maybe cause more polarisation, rather than less," Sister Joan said.

          But the Catholic church – and activist wings among other religious communities – are jumping in to try and amplify thePope's message and build momentum for action on climate.

          The archbishop's office in Atlanta signed up scientists and engineers to help parishes, and parishioners, reduce their carbon footprint. The Bishop of Des Moines is planning to hold a press conference at a wind farm.

          The Evangelical Environmental Network also came out strongly behind the Pope.

          More than 300 rabbis signed on to a letter calling on Jewish institutions and individuals to divest from "carbon Pharaohs" or coal-based electric power, and buy wind power instead.

          Updated at 11.48am BST

          11.27am BST06:27

          Observers of the climate talks and Christian, development and environment groups have warmly welcomed the Pope's encyclical.

          Former UN general secretary Kofi Annan, said:

          As Pope Francis reaffirms, climate change is an all-encompassing threat: it is a threat to our security, our health, and our sources of fresh water and food ... I applaud the Pope for his strong moral and ethical leadership. We need more of such inspired leadership. Will we see it at the climate summit in Paris?

          Penny Lawrence, Oxfam's deputy chief executive, said:

          The Pope is right – climate change is a problem for all of humanity that is hitting the world's poorest hardest. His words could and should add real urgency to efforts to protect people and planet. World leaders meeting at the UN climate talks in Paris later this year should be in no doubt that the world expects them to put aside short-term national interest and move us all closer to a safer and more prosperous future.

          Andrew Steer, president and chief executive of the US-based World Resources Institute:

          The pope's message brings moral clarity that the world's leaders must come together to address this urgent human challenge. This message adds to the global drumbeat of support for urgent climate action. Top scientists, economists, business leaders and the pope can't all be wrong.

          Updated at 11.54am BST

          11.21am BST06:21

          The encyclical is unimpressed by those who deny the science of climate change:
          regrettably, many efforts to seek concrete solutions to the environmental crisis have proved ineffective, not only because of powerful opposition but also because of a more general lack of interest. Obstructionist attitudes, even on the part of believers, can range from denial of the problem to indifference, nonchalant resignation or blind confidence in technical solutions.

          The pushback from Republican and the rest of the US right, where climate scepticism is a badge of honour, has already begun. Jeb Bush, the Republican presidential candidate, said yesterday: "I hope I'm not going to get castigated for saying this by my priest back home, but I don't get economic policy from my bishops or my cardinal or my pope."

          And as our US environment correspondent Suzanne Goldenberg found out last week at a gathering of US climate sceptics, the Pope's encyclical is at the top of their list of concerns.

          Suzanne Goldenberg visits the Heartland Institute's conference in Washington, an annual gathering of climate sceptics, to hear what delegates – including US senator James Inhofe and blogger Marc Morano – think about the Pope's encyclical on the environment and climate change

          11.14am BST06:14

          The Pope has invited his 6m Twitter followers to take notice of his encyclical today, too:
          - Pope Francis (@Pontifex) June 18, 2015

          I invite all to pause to think about the challenges we face regarding care for our common home. #LaudatoSi

          As a mock movie trailer for the encyclical put it earlier this week, he's "an easy man to follow and a hard man to silence".

          11.12am BST06:12

          The Pope on UN climate talks

          Christiana Figueres, the UN's climate chief, says the Pope's intervention should act as a "clarion call" for a strong deal at Paris:

          Pope Francis' encyclical underscores the moral imperative for urgent action on climate change to lift the planet's most vulnerable populations, protect development, and spur responsible growth. This clarion call should guide the world towards a strong and durable universal climate agreement in Paris at the end of this year. Coupled with the economic imperative, the moral imperative leaves no doubt that we must act on climate change now.
          Christiana Figueres. Photograph: Martin Godwin/Martin Godwin

          But the Pope isn't very impressed by more than 20 years of UN climate talks. He says the annual summits have produced "regrettably few" advances on efforts to cut carbon emissions and rein in global warming. The encyclical says:

          It is remarkable how weak international political responses have been. The failure of global summits on the environment make it plain that our politics are subject to technology and finance. There are too many special interests, and economic interests easily end up trumping the common good and manipulating information so that their own plans will not be affected.
          I've just uploaded the English version of the encyclical on Scribd. I'll be posting some of the highlights here on the live blog shortly.

          11.02am BST06:02

          John Schellnhuber, Angela Merkel's climate adviser and a leading climate change scientist, is punning his way through a presentation at the encyclical's launch, "praying" his Powerpoint will work.

          Of the encyclical, he said:

          it is very unique in the sense that it brings together two strong powers in the world, namely faith and moral and on the other reason and ingenuity. It's an environmental crisis but also a social crisis. These two things together pose an enormouse challenge. Only if these two things work together, faith and reason, can we overcome it

          10.58am BST05:58

          A spokesman for the Vatican told a packed press conference in the Vatican audience hall this morning that in his 25 years there he has worked there, he has never seen as much prolonged, global and intense anticipation for a single document, AP reports.

          The press conference is being live-streamed on YouTube:

          10.54am BST05:54

          At 11am the Vatican will publish the Pope's long-awaited encyclical on the environment, following its leak earlier this week by an Italian magazine.

          The more-than-100 page text is wide-ranging, majoring on climate change, but also touching on pollution, biodiversity loss, the oceans, man's modern relationship with nature, the dangers of relying on the markets and technology, and overconsumption.

          In case you're wondering what an encyclical is, our southern Europe editor John Hooper, has a great Q&A here on their history and the importance the documents carry.

          The more than 190 countries involved in the international climate change will be keenly watching the text too – it could have a big impact on the talks ahead of a major summit in Paris later this year.

          Updated at 1.32pm BST

          View all comments >

          [Jun 18, 2015] Pope Blames Markets for Environments Ills

          Notable quotes:
          "... "Humanity is called to recognize the need for changes of lifestyle, production and consumption, in order to combat this warming or at least the human causes which produce or aggravate it," he adds. ..."
          June 18, 2015 WSJ

          Pope Blames Markets for Environment's Ills. Pontiff condemns global warming as outgrowth of global consumerism. Pope Francis said human activity is the cause of climate change, which threatens the poor and future generations.

          ROME- Pope Francis in his much-awaited encyclical on the environment offered a broad and uncompromising indictment of the global market economy, accusing it of plundering the Earth at the expense of the poor and of future generations.

          In passionate language, the pontiff attributed global warming to human activity, blamed special interests for holding back policy responses and said the global North owes the South "an ecological debt."

          The 183-page document, which Pope Francis addresses to "every person living on this planet," includes pointed critiques of globalization and consumerism, which he says lead to environmental degradation.

          "The Earth, our home, is beginning to look more and more like an immense pile of filth," he writes.

          The encyclical's severe language stirred immediate controversy, signaling the weight the pontiff's stance could have on the pitched debate over how to respond to climate change.

          "Economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain," he writes. "As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified market, which become the only rule."

          The Vatican published the document, titled "Laudato Si" ("Be praised"), on Thursday. The official release came three days after the online publication of a leaked version by an Italian magazine.

          The Vatican spokesman, the Rev. Federico Lombardi, had described the leaked Italian text as a draft, but the final document, published in eight languages, differed only in minor ways, while the pope's main points were identical. An encyclical is considered one of the most authoritative forms of papal writing.

          In the encyclical, Pope Francis wades into the debate over the cause of global warming, lending high-profile support to those who attribute it to human activity.

          A "very solid scientific consensus indicates that we are presently witnessing a disturbing warming of the climactic system," contributing to a "constant rise in the sea level" and an "increase of extreme weather events," he writes.

          "Humanity is called to recognize the need for changes of lifestyle, production and consumption, in order to combat this warming or at least the human causes which produce or aggravate it," he adds.

          While acknowledging natural causes for climate change, including volcanic activity and the solar cycle, Pope Francis writes that a "number of scientific studies indicate that most global warming in recent decades is due to the great concentration of greenhouse gases (carbon dioxide, methane, nitrogen oxides and others) released mainly as a result of human activity."

          The pontiff goes on to argue that there is "an urgent need" for policies to drastically cut the emission of carbon dioxide and other gases and promote the switch to renewable sources of energy.

          Related Coverage

          Five Things to Know About 'Laudato Si'
          Latest Critic of Too-Big-To-Fail: Pope Francis
          Past Encyclicals That Had an Impact on the World
          'Laudato Si' in Full
          Excerpts From Pope Francis' Encyclical on the Environment
          On Global Warming, Pope Francis Is Clear but U.S. Catholics are Divided
          Scientists Back Pope Francis on Global Warming

          [Jun 15, 2015] Academics Who Defend Wall St. Reap Reward

          "... What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found. ..."
          "... The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton. ..."
          December 27, 2013 | NYTimes.com

          Signs of the energy business are inescapable in and around Houston - the pipelines, refineries and tankers that crowd the harbor, and the gleaming office towers where oil companies and energy traders have transformed the skyline.

          And in a squat glass building on the University of Houston campus, a measure of the industry's pre-eminence can also be found in the person of Craig Pirrong, a professor of finance, who sits at the nexus of commerce and academia.

          As energy companies and traders have reaped fortunes by buying and selling oil and other commodities during the recent boom in the commodity markets, Mr. Pirrong has positioned himself as the hard-nosed defender of financial speculators - the combative, occasionally acerbic academic authority to call upon when difficult questions arise in Congress and elsewhere about the multitrillion-dollar global commodities trade.

          Do financial speculators and commodity index funds drive up prices of oil and other essentials, ultimately costing consumers? Since 2006, Mr. Pirrong has written a flurry of influential letters to federal agencies arguing that the answer to that question is an emphatic no. He has testified before Congress to that effect, hosted seminars with traders and government regulators, and given countless interviews for financial publications absolving Wall Street speculation of any appreciable role in the price spikes.

          What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found.

          While his university's financial ties to speculators have been the subject of scrutiny by the news media and others, it was not until last month, after repeated requests by The Times under the Freedom of Information Act, that the University of Houston, a public institution, insisted that Mr. Pirrong submit disclosure forms that shed some light on those financial ties.

          Governments and regulatory agencies in the United States and Europe have been gradually moving to restrict speculation by major banks. The Federal Reserve, concerned about the risks, is reviewing whether it should tighten regulations and limit the activities of banks in the commodities world.

          But interviews with dozens of academics and traders, and a review of hundreds of emails and other documents involving two highly visible professors in the commodities field - Mr. Pirrong and Professor Scott H. Irwin at the University of Illinois - show how major players on Wall Street and elsewhere have been aggressive in underwriting and promoting academic work.

          The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton.

          Professors Pirrong and Irwin say that industry backing did not color their opinions.

          Mr. Pirrong's research was cited extensively by the plaintiffs in a lawsuit filed by Wall Street interests in 2011 that for two years has blocked the limits on speculation that had been approved by Congress as part of the Dodd-Frank financial reform law. During that same time period, Mr. Pirrong has worked as a paid research consultant for one of the lead plaintiffs in the case, the International Swaps and Derivatives Association, according to his disclosure form.

          While he customarily identifies himself solely as an academic, Mr. Pirrong has been compensated in the last several years by the Chicago Mercantile Exchange, the commodities trading house Trafigura, the Royal Bank of Scotland, and a handful of companies that speculate in energy, according to the disclosure forms.

          The disclosure forms do not require Mr. Pirrong to reveal how much money he made from his consulting work, and a university spokesman said that the university believed it was strengthened by the financial support it received from the business community. When asked about the financial benefits of his outside activities, Mr. Pirrong replied, "That's between me and the I.R.S."

          Debating to a Stalemate

          No one disputes that a substantial portion of price increases in oil and food over the last decade were caused by fundamental market factors: increased demand from China and other industrializing countries, extreme weather, currency fluctuations and the diversion of grain to biofuel.

          But so much speculative money poured into markets - from $13 billion in 2003 to $317 billion at a peak in 2008 - that many economists, and even some commodities traders and investment banks, say the flood became a factor of its own in distorting prices.

          Others assert that commodities markets have historically gone through intermittent price bubbles and that the most recent gyrations were not caused by the influx of speculative money. Mr. Pirrong has also argued that the huge inflow of Wall Street money may actually lower costs by decreasing what commodities producers pay to manage their risk.

          Mr. Pirrong and the University of Houston are not alone in publicly defending speculation while accepting financial help from speculators. Other researchers have received funding or paid consulting jobs courtesy of major commodities traders including AIG Financial Products, banks including the Royal Bank of Canada or financial industry groups like the Futures Industry Association.

          One of the most widely quoted defenders of speculation in agricultural markets, Mr. Irwin of the University of Illinois, Urbana-Champaign, consults for a business that serves hedge funds, investment banks and other commodities speculators, according to information received by The Times under the Freedom of Information Act. The business school at the University of Illinois has received more than a million dollars in donations from the Chicago Mercantile Exchange and several major commodities traders, to pay for scholarships and classes and to build a laboratory that resembles a trading floor at the commodities market.

          Mr. Irwin, the University of Illinois and the Chicago exchange all say that his research is not related to the financial support.

          Underwriting researchers and academic institutions is one part of Wall Street's efforts to fend off regulation.

          The industry has also spent millions on lobbyists and lawyers to promote its views in Congress and with government regulators. Major financial companies have also funded magazines and websites to promote academics with friendly points of view. When two studies commissioned by the Commodity Futures Trading Commission, the financial regulatory agency, raised questions about the possible drawbacks of speculation and of high-frequency trading, lawyers for the Chicago exchange wrote a letter of complaint, saying that its members' proprietary trading information was at risk of disclosure, and the research program was shut down.

          The result of the various Wall Street efforts has been a policy stalemate that has allowed intensive speculation in commodities to continue despite growing concern that it may harm consumers and, for example, worsen food shortages. After a two-year legal delay, the futures trading commission this month introduced plans for new limits on speculation. Some European banks have stopped speculating in food, fearing it might contribute to worldwide hunger.

          Mr. Pirrong, Mr. Irwin and other scholars say that financial considerations have not influenced their work. In some cases they have gone against the industry's interests. They also say that other researchers with no known financial ties to the industry have also raised doubts about any link involving speculation and soaring prices.

          But ethics experts say that when academics fail to disclose financial ties, they do a disservice to the public and undermine the perception of impartiality.

          "If those that are creating the culture around financial regulation also have a significant, if hidden, conflict of interest, our public is not likely to be well served," said Gerald Epstein, an economics professor at the University of Massachusetts, Amherst, who in 2010 released a study about conflicts of interest among academics who advised the federal government after the financial crisis.

          Speculation in the Market

          Financial ties among professors promoting speculation and the banks and trading firms that profit from it date back to the beginning of the recent commodities boom, which got an intellectual kick-start from academia.

          After Congress and the Clinton administration deregulated the commodities markets in 2000, and the Securities and Exchange Commission lowered capital requirements on investment banks in 2004, the financial giants began developing new funds to capitalize on the opportunity.

          AIG Financial Products commissioned two highly respected Yale University professors in 2004 to analyze the performance of commodities markets over a half-century. The professors - who prominently acknowledged the financial support - concluded that commodities markets "work well when they are needed most," namely when the stock and bond markets falter.

          Money flowed into the commodities markets, and although the markets have cooled in the last two years, the price of oil is now four times what it was a decade ago, and corn, wheat and soybeans are all more than twice as expensive.

          A public uproar about the rising prices became heated in the spring of 2008, as oil soared and gas prices became an issue in the presidential campaign. Congress scheduled public hearings to explore whether speculation had become so excessive it was distorting prices.

          Financial speculators are investors who bet on price swings without any intention of taking delivery of the physical commodity. They can help smooth the volatility of the market by adding capital, spreading risk and offering buyers and sellers a kind of price insurance. But an assortment of studies by academics, congressional committees and consumer advocate groups had found evidence suggesting that the wave of speculation that accelerated in 2003 had at times overwhelmed the market.

          Financial speculators accounted for 30 percent of commodities markets in 2002, and 70 percent in 2008. As gasoline topped $4 a gallon in the summer of 2008, Congress tried to soothe angry motorists by pushing for restrictions on oil speculation.

          Mr. Pirrong jumped into the fray. He wrote papers, blog posts and opinion pieces for publications like The Wall Street Journal, calling the concern about speculation "a witch hunt."

          Mr. Pirrong also testified before the House of Representatives in 2008 and, identifying himself as an academic who had worked for commodities exchanges a decade earlier, he warned that congressional plans to rein in speculators would only make matters worse.

          "Indeed, such policies are likely to harm U.S. consumers and producers," he said. When oil company executives, traders and investment banks cited speculation as a major cause of surging prices which, by some estimates, was costing American consumers more than $300 billion a year, Mr. Pirrong dutifully contradicted them.

          Mr. Pirrong's profile grew as he sat on advisory panels and hosted conferences with senior executives from the trading world as well as top federal regulators. Last year, Blythe Masters, head of commodity trading at JPMorgan Chase, approached him to write a report for a global bank lobbying group, the Global Financial Markets Association.

          The report was completed in July 2012, but the association declined to release it. Mr. Pirrong said it was because he had reached the conclusion that banks should be regulated more heavily than other commodity traders. "I wouldn't change the call, so they sat on the report," he wrote on his blog, The Streetwise Professor.

          What Mr. Pirrong did not reveal in his public statements about the report is that he had financial ties to both sides of that debate: the commodities traders as well as the banks. Ms. Masters declined to comment. Over the years, Mr. Pirrong has resisted releasing details of his own financial dealings with speculators, and when The Times first requested his disclosure forms in March, the University of Houston said that none were required of him. The disclosure forms Mr. Pirrong ultimately filed in November indicate that since 2011, he has been paid for outside work involving 11 different clients. Some fees are for his work as an expert witness, testifying in court cases on behalf of the Chicago Mercantile Exchange and a bank and a company that makes futures-trading software. The commodities firm Trafigura contracted him to conduct a research project.

          Mr. Pirrong is also a member of the advisory board for TruMarx Partners, a company that sells software to energy traders, a position that entitles him to a stock option package.

          It was reported in The Nation magazine in November that the University of Houston's Global Energy Management Institute, where Mr. Pirrong serves as a director, has also received funding from the Chicago exchange, as well as financial institutions that profit from speculation, including Citibank and Bank of America.

          On his blog, Mr. Pirrong has dismissed suggestions that his work for a school that trains future oil industry executives creates a conflict of interest.

          "Uhm, no, dipstick," he wrote in 2011, replying to a reader who had questioned his objectivity. "I call 'em like I see 'em." In a telephone interview last week, Mr. Pirrong said that his consulting work gave him insight into the kind of real-world case studies that improve his research and teaching. "My compensation doesn't depend on my conclusions," he said.

          When asked about Mr. Pirrong's disclosure, Richard Bonnin, a university spokesman said only that all employees were given annual training on the school's policy, which requires researchers to report paid outside consultant work.

          Professors as Pitchmen

          Concerns about academic conflicts of interest have become a major issue among business professors and economists since the financial crisis. In 2010, the documentary "Inside Job" blasted a handful of prominent academic economists who did not reveal Wall Street's financial backing of studies which, in some cases, extolled the virtues of financially unsound assets. Two years later, the American Economic Association adopted tougher disclosure rules.

          Even with the guidelines, however, financial firms have been able to use the resources and credibility of academia to shape the political debate.

          The Chicago Mercantile Exchange and the University of Illinois at Urbana-Champaign, for example, at times blur the line between research and public relations.

          The exchange's public relations staff has helped Mr. Irwin shop his pro-speculation essays to newspaper op-ed pages, according to emails reviewed by The Times. His studies, writings, videotaped speeches and interviews have been displayed on the exchange's website and its online magazine.

          In June 2009, when a Senate subcommittee released a report about speculation in the wheat market that raised concerns about new regulations, executives at the Chicago exchange turned to Mr. Irwin and his University of Illinois colleagues to come up with a response.

          Dr. Paul Ellinger, department head of agriculture and consumer economics, said, "The interactions that have occurred here are common among researchers."

          A spokesman for the exchange said that Mr. Irwin was just one of a "large and growing pool of esteemed academics, governmental editors and editors in the mainstream press" whose work it follows and posts on its various publications. While the C.M.E. has given more than $1.4 million to the University of Illinois since 2008, most has gone to the business school and none to the School of Agriculture and Consumer Economics, where Mr. Irwin teaches. And when Mr. Irwin asked the exchange's foundation for $25,000 several years ago to sponsor a website he runs to inform farmers about agricultural conditions and regulations, his request was denied.

          Still, some of Mr. Irwin's recent research has been funded by major players in the commodities world. Last year, he was paid $50,000 as a consultant for Gresham Investment Management in Chicago, which manages $16 billion and runs its own commodities index fund. He noted Gresham's sponsorship in the paper and on his disclosure form, and said it gave him the opportunity to use new data and test new hypotheses.

          Mr. Irwin also works for a business called Yieldcast that caters to agricultural producers, investments banks and other speculators, selling them predictions of corn and soybean yields. Mr. Irwin has said he does not consider it a conflict because he works only with the mathematical forecasting models and never consults with clients.

          "The debate about financialization is primarily about the large index funds, none of whom are clients," he said.

          Mr. Irwin declined to provide a list of his clients, and the university said its disclosure requirements did not compel him to do so.

          This article has been revised to reflect the following correction:

          Correction: December 31, 2013

          An article on Saturday about financial rewards from Wall Street to academic experts whose research supports the financial community's views on commodity trading misidentified a Canadian bank and commodities trader that financed the work of academic researchers or paid consultants. It is the Royal Bank of Canada, not the Bank of Canada, which is that nation's central bank. The article also rendered incorrectly the university affiliation of Scott H. Irwin, a prominent defender of speculation in agricultural markets. He is a professor at the University of Illinois at Urbana-Champaign - not Champaign-Urbana. And a picture caption with the continuation of the article misidentified the subject of one of several pictures. The lower right photograph showed the atrium of the University of Illinois's business school - not its Market Information Lab, which was shown behind Professor Irwin in the photograph at the left.

          Response from the academic criminal: Streetwise Professor

          Related

          Read All Comments (440)

          [Jun 11, 2015] The Party of Fiscal Responsibility in Action

          "...The neoliberal transformation you are describing has been bipartisan. The Clintons and their people are waist-deep in it too.
          .
          "...The high-government investment, growing middle class postwar economy was also largely bipartisan. Eisenhower invested in infrastructure and education too. The main fault line in 2015 is not Democrats against Republicans. It's the top against the bottom. "
          .
          "... Actually this is the way Bush II was elected as Nader took some Al Gore votes. So in a way this line of action contradict principle of choosing lesser evil. Greens think this is myth http://www.cagreens.org/alameda/city/0803myth/myth.html but I think this is a real danger. In "winner takes all" system only two parties are viable. And this is by design. This is how US elite controls prols."
          Jun 11, 2015 | Economist's View
          Paul Krugman:
          The Party of Fiscal Responsibility in Action: One of the greatest confidence tricks ever pulled in American politics was the way Republicans managed, for a while anyway, to convince centrists that they were apostles of fiscal responsibility. Paul Ryan presented budgets that combined huge tax cuts for the rich with not quite as huge benefit cuts for the poor, added some magic asterisks - basically deficit-increasing redistribution from the have-nots to the haves, with added fraudulence - and received awards for fiscal responsibility.
          Anyway, at this point we have evidence of what such politicians actually do in office, thanks to the many US states where Republicans control both the governor's office and the legislature. And the result is an epidemic of fiscal crisis, despite a recovering economy. Yes, some Democrat-controlled states are also having problems. But they didn't go around pretending to be the nation's fiscal saviors, and the biggest state controlled by Democrats, California - which was supposed to be a basket case - is in quite good fiscal shape.
          And yes, I think this observation is a lot more important than Marco Rubio's personal financial difficulties, although those are pretty bizarre.

          Posted by on Tuesday, June 9, 2015 at 09:58 AM in Economics, Fiscal Policy, Politics | Permalink Comments (45)

          mulp said in reply to Dan Kervick...

          We should promote continued piracy and pollution and pillage and plunder of the earth?

          TPP to set higher standards for all instead of the current race to the bottom is a bad idea?

          Or are you arguing that you want conservatives with Peabody Coal and Exxon to write the TPP??

          I note that GE is now unloading it hedge fund, recently cutting a deal to unload its consumer exploitation (banking) division, and is focusing on manufacturing capital assets, returning to the values GE had before Reagan and their embrace of free lunch economics and their attempt to create wealth without labor.

          For GE, its best they get to sell their products in other nations without the Chinese selling GE counterfeits for less. But perhaps you want Americans unemployed to create more jobs in China?

          Conservative Republicans seem to have three decades of history of destroying American companies that manufacturing in America. Why conservatives argue that we taxpayers should not buy US produced goods because buying goods from Asia and especially China is cheaper.

          Which is why China controls rare earths, for example. Conservatives said Buy American was a bad idea, so multiple industries were killed off to save a percent or two buying from China. That is how conservatives cut deals. Yeah, they work to export low labor taxpayer subsidized ag products, but are loathe to do anything to help the export of high labor cost manufactured goods.

          Clearly you prefer that conservative trade view because you oppose the efforts of Obama to promote US exports of manufactured goods.

          I guess you like the increasing debt of the Republican policies on trade....

          Dan Kervick said in reply to mulp...

          The neoliberal transformation you are describing has been bipartisan. The Clintons and their people are waist-deep in it too.

          The high-government investment, growing middle class postwar economy was also largely bipartisan. Eisenhower invested in infrastructure and education too.

          The main fault line in 2015 is not Democrats against Republicans. It's the top against the bottom.

          JohnH said in reply to Darryl FKA Ron...

          Did Democrats ever hold Republicans accountable for being the fiscally reckless party--cutting taxes on the wealthy and waging war on credit--during the Bush 43 years? No, they could have cared less.

          Democrats are too "reasonable," which essentially means that they at best appease Republicans and at worst aid and abet them.

          And, as Obama did in 2011, when he proposed an austerity budget and then met Republicans half way on their severe austerity budget, I don't expect Obama to raise much of a fuss. He'll pretend to be reasonable, which means caving in advance to Republican demands. Other Democrats will just scurry around, tails between their legs, begging for their masters to fund their election campaigns.

          It's time to vote third party and send a message of disgust.

          likbez said in reply to JohnH...

          It's time to vote third party and send a message of disgust.

          Actually this is the way Bush II was elected as Nader took some Al Gore votes. So in a way this line of action contradict principle of choosing lesser evil. Greens think this is myth
          http://www.cagreens.org/alameda/city/0803myth/myth.html but I think this is a real danger.

          In "winner takes all" system only two parties are viable. And this is by design. This is how US elite controls prols.

          ilsm said...

          The GOthugs (closet Birchers whose real agenda was kill the New Deal), since 1947 have been out to secure the empire by massive spending on war diverting productivity to kill the New Deal.

          It is not fiscal insanity it is Nero......

          pgl said...

          Christie gets away of reniging on a deal with the public school teachers. They agreed to a lower salary in exchange for better pensions and lard ass decides not fund the pensions so he can get a tax cut for his rich buddies. The teachers sued and the Supreme Court would not reverse this blatant theft:

          http://news.yahoo.com/governor-christie-spotlight-n-j-pension-decision-due-050846519--sector.html?soc_src=mail&soc_trk=ma

          BTW - a President Christie would declare war on China. Likely paid
          for by slashing Social Security benefits. If you liked the "leadership" of Dick Cheney - Christie is your guy.

          ilsm said in reply to pgl...

          Subsidized cluster bombs for Saudis to kill Shiites is slashing productivity for war profits to slash SS benefits. Broader scheme been going on for 68 years.

          pgl said in reply to ilsm...

          Lindsey Graham wants to declare war on all of the Middle East. Jeb wants to take on Russia. Wars with everyone!

          pgl said...

          The Republicans have never been for a smaller government or overall tax cuts. What they are for is more military spending by slashing transfer payments (your Social Security benefits) and tax cuts for the rich paid for by tax increases on the working class.

          ilsm said in reply to pgl...

          It is the empire (justifying militarism) for the MNC's benefit and the most expensive ways to secure it in the congress' for profit monopsony, where the sellers buy the buyers from excessive margins.

          Putin has the nerve to tilt with one of the empire's client puppets in Kiev.

          Lord said...

          Republicans are never what they seem. More deadbeats than fiscally responsible, more wasteful than efficient, more corporate kowtowing than small business supporting, more wealth obsequious than growth supporting, more authority than freedom loving, more big legal/police/military government than small, more war mongering than peaceable, more weak than strong. You only have to listen to them to find out what they are not.

          Thomas Hutcheson said...

          "Austerity" is a political tern for mistakenly using (or claiming to use) the level of debt as an argument of the public expenditure function (with a negative sign) rather than following standard public finance criteria: making expenditures whose NPV>0 when discounted by the borrowing rate. (Something similar goes on with taxes. Cutting/raising taxes allows/impedes the private sector from making expenditures with NPV>0.) "Austerity" then is pretty much the polar opposite of "fiscal responsible responsibility."

          "Austerity" is particularly damaging if it means reducing expenditures during a recession – NGDP is below trend -- when borrowing rates tend to be low and many inputs into public expenditures have opportunity costs below prices that will be paid to employ them, which tend to increase the amount of expenditures which meet the NPV>0 criteria. It is the employment of inputs with opportunity cost below their price that can lead to a "multiplier" greater than 1 [Of course if there are expenditures with NPV less than 0 they should be cut recession or no recession, but that still has nothing to do with the debt.]

          States should not engage in "austerity," either, although their borrowing costs will be different (the spread over Federal borrowing may rise as their tax revenues fall) and this will affect the levels of tax and expenditures that are fiscally responsible.

          I think Krugman's gripe with Kansas is that there, tax reductions were sold as self-financing (few economist thought they would be) and when they turned out not to be, expenditures with NPV>0 were reduced. I take it he thinks California got it right.

          reason said...

          It seems to me that one of the defining features of the modern Republican party is hypocrisy. I'm sure it must be in their party constitution somewhere. (Something about public utterances should be ignored in private dealings or such.) As Paul Krugman has pointed out several times, they don't even seem to understand what the word means. (Seeming to think it means that rich, well educated people can't want policies that don't actually help them.) Maybe there is a simple explanation for this phenomenon but I think it is not obvious.

          likbed:

          There are couple of assumptions in this thread that are not realistic if we look at facts on the ground

          1. The Republican Party is really like an old style European far right nationalist party. As such it is on up swing. Broadly serving the interests of the oligarchy but spouting a form of nationalism, which paints America as being in a life and death, struggle with anti-American forces at home and abroad. Nationalism (aka American exceptionalism) has strong social base in the USA fueled by MSM.

          2. The existence of "deep state" is ignored. Since November 22, 1963 Presidential elections mean very little.

          3. IMHO "after Clinton" Dems is actually a party of financial oligarchy and serves as a spoiler to crush any dissent from the left. Very rarely people can defy "the iron law of oligarchy".

          Remember how skillfully Howard Deen was neutralized. http://www.completecampaigns.com/article.asp?articleid=18
          and
          http://www.washingtonexaminer.com/howard-deans-scream-tv-screwed-him/article/2515137

          Does anybody think that similar dirty trick can't be played with Sanders if necessary?

          4. Electoral college and existence of "swing states" amplify the ability to ensure "one dollar one vote" result as votes in most other states are essentially a formality and money can be injected into few critical states to guarantee the necessary result. Also this allows the candidate who got the minority of total vote to win the election.

          5. Myth about intelligent voters. US population is brainwashed to the extent that Soviet leaders can only envy it they were able to see the current situation.

          [Jun 07, 2015] I'm so, so tired of political journalists by Beverly Mann

          June 2, 2015 | Angry Bear

          Politico's top article today is titled "Did Elizabeth Warren go too far this time?" But it's subtitled "The Massachusetts senator's attack on Securities and Exchange Commission Chair Mary Jo White causes backlash on Wall Street." The article, which is lengthy, discusses a 13-page letter Warren sent this morning to SEC Chairwoman Mary Jo White, absolutely ripping White for … well, you should read the article, all the way to the end.

          By the end of the article, you'll wonder why somewhere in the middle of it, it says that Warren's influence seems to be on the wane and that the letter probably will hasten the waning. The article has two co-authors, and the headline would not have been written by either of them. So that might be why the article is part details and background, and part what Wall Street and the White House want as the media's take on the letter's contents and fallout. I did a double-take when I read this sentence: "The backlash against Warren was the latest indication that populist firebrand's efforts to push for tougher financial regulation may be losing some momentum."

          The backlash against Warren is from Wall Street, the SEC, Mary Jo White's office, and the CEOs and lobbyists who want the TPP treaty ratified and are selling it as a trade agreement even though, mostly, it's not. Warren (and others) object not to the actual trade provisions but to parts of it that do not concern trade as such. And the SEC rules under Dodd-Frank that Warren angrily says the SEC keeps delaying concern transparency of corporations concerning the CEO's pay as compared to that of the company's ordinary employees, and concern disclosure of the identities of the tax-exempt organizations that receive corporate donations, and the amounts of the donations.

          The public backlash against this has begun, the Politico article says. Just call JPMorgan's corporate offices and lobbying firms. They'll tell ya!

          As for Wall Street's public relations offering on it, the part of it that the article discusses with specificity sounds to me ridiculous:

          "I don't understand Sen. Warren's criticism of White for recusing herself where there is a conflict of interest," said Wayne Abernathy, a top lobbyist for the American Bankers Association, referring to Warren's criticism that White isn't involved in SEC actions when her husband's law firm represents the companies involved. "Is it that she would prefer that the chairman go forward and participate in enforcement cases despite the conflict of interest?"

          No, actually, it's that because her husband is a partner in one of the premier New York law firms that represent the biggest financial institutions against the SEC and Justice Department during investigations and in civil and criminal litigation. And that her recusal means that the SEC is routinely deadlocked about whether to bring charges in such cases because the remaining SEC commissioners are equally divided between Republicans and Democrats. How convenient.

          Relatedly, Roger Cohen has a terrific column today in the New York Times. But you have to read to the end to get the relation.

          [Jun 05, 2015]May Employment Report 280,000 Jobs, 5.5% Unemployment Rate

          This 280 figure is birth-death adjusted, so it might well be lower. Still it is better then 150K.

          Rajesh wrote on Fri, 6/5/2015 - 5:49 am

          U-3
          Feb: 5.5%
          Mar: 5.5%
          Apr: 5.4%
          May: 5.5%

          Has the unemployment rate flat-lined?

          Sebastian wrote on Fri, 6/5/2015 - 5:52 am

          CR said: "This was above expectations of 220,000 jobs, and combined revisions were up ... a strong report."

          And Belmont said: "And a tick up in rate = more people coming back into the fold."

          Both right.

          One of the methods of data-torture that I use to support my unfounded Pollyanna point of view is to measure the growth of the total labor force available and compare it to the growth of the labor force that's actually employed.

          As long as the growth in "employed" is greater than the growth of "available", no worries.

          No worries.

          Bureau of Labor Statistics

          Rajesh wrote on Fri, 6/5/2015 - 5:53 am (in reply to...)

          Belmont wrote:

          Are you really trying to find something negative?

          A flat unemployment rate is good news. It indicates that we are finally pulling people into the labor force. So far, we are not doing it in the numbers that would move labor force participation. We can't really talk about a tight labor market when we have millions of people who was unemployed for more than 26 weeks.

          dilbert dogbert wrote on Fri, 6/5/2015 - 5:55 am

          I Blame obummmers and Killery for forcing people to work!!!!! Impeach Now!!!!
          More cooked books numbers!!! Dooooooooooooooom!!! Dooooooooooooooom!!! Dooooooooooooooom!!!

          KarmaPolice wrote on Fri, 6/5/2015 - 5:57 am (in reply to...)

          Sebastian wrote:

          Bureau of Labor Statistics

          This gummint agency cannot be trusted. I know this, I read the HCN, Breitbart, and Zombie nation.

          Rob Dawg wrote on Fri, 6/5/2015 - 6:01 am (in reply to...)

          Belmont wrote on Fri, 6/5/2015 - 5:54 am

          Fuck you Rob! How bout that. People read just fine here.

          What they read is you incessantly setting up straw men. You've set in your mind a static view of these HCN doomerati because they were so eloquent and accurate about how bad things really were a long time ago. You should have taken away that they are eloquent and accurate instead you fixated on the negative message and merely assume that message never changed.

          sum luk wrote on Fri, 6/5/2015 - 6:11 am

          Lets take a coffee break

          US May Average Hourly Earnings +0.32%, or +$0.08 to $24.96; Over Year +2.3%

          Unit labour cost in sel EZ countries : https://twitter.com/cigolo/status/606794251297558528

          homedad43 wrote on Fri, 6/5/2015 - 6:16 am

          Slightly different tack from unemployment...the "older" commenters might recall that almost five years ago, I began tracking a marketbasket of 47 grocery store items at three separate local grocers. I was curious about what was really happening with inflation/deflation and all of that. Of these 47 common items, 37 are foodstuffs (pound of ground beef, etc...); I've kept a baseline of 100 as of November 2010 for both the Total Index of the 47 items as well as the Food-Only Subindex of 37 foodstuffs. Pricing has been done on or about the 1st of each month since November 2010 (I'm a dog with a friggin' bone).

          The Food-Only Subindex has always been higher than the larger Total Index and when the Total Index was at 111.18 in December 2014 (November 2010 = 100), the Food-Only Subindex maxed at a peak of 115.33 (November 2010 = 100). Since that high in December, both have dropped but the Food-Only Subindex has crashed to 106.46...more than four years of pricing activity for a marketbasket of commonly purchased items has been wiped out in six months.

          When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining. In the past six months, each of the unrelated grocers has instituted new pricing policies and the effect is rather stunning.

          Practical Dad

          ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:24 am (in reply to...)

          homedad43 wrote:

          When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining.

          But not inconsistent. Did you see this index recently? US Daily Index " The Billion Prices Project @ MIT

          ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:30 am (in reply to...)

          Mook wrote:

          But can we at least all agree that (un)employment is at best a coincident (if not a lagging) indicator?

          I think that's still the case. Popular wisdom held that housing was a lagging indicator but that was back in the dark days when houses were primarily a place to live and only secondarily an inflation-protected savings account and only tertiarily a hedge fund for the common man that doubled as shelter.

          ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:35 am (in reply to...)

          KarmaPolice wrote:

          40 percent of all home purchases are cash.

          And we know the average (median) joe has that much cash just laying around in savings accounts. It's easy to save when median rent is only $4500/mo in San Francisco, which also represents accurately average (median) joe and average (median) joe's income.

          Bruce in Tennessee wrote on Fri, 6/5/2015 - 6:50 am

          ...18 trillion in taxpayer debt nationally, wonderful reverse mortgage commercials for the elderly who've been gutted, student loan burdens for the young, 7 year car loans for the subprime, huge stock buybacks rather than capital investment, and yada yada...

          Mook wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

          lawyerliz wrote:

          This behavior may reassert itself with new borrowers only.

          Key phrase, that one.

          The marginal new borrower may scramble to lock in a 4.5% rate before it moves to 4.75%. All well and good, if you believe that the population of marginal new borrowers (generally millennials with uncertain job prospects, little liquidity, and a Steinway worth of student loan debts strapped to their backs) is sufficient to maintain existing sales volumes and rising prices.

          Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

          Blackhalo wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

          Rajesh wrote:

          Has the unemployment rate flat-lined?

          Probably reached equilibrium, at the point where folks who had given up, can find work, and any increase in demand, is off-set by added supply.

          KarmaPolice wrote on Fri, 6/5/2015 - 6:51 am (in reply to...)

          ResistanceIsFeudal wrote:

          Of course there is. The Tale of Two Economies continues unabated.

          It's nothing new. And pretty much on-pace since the seventies for the US.

          Although I did see an interesting statistic that the majority of people moving into Houston are renters even though their salaries are more than acceptable for purchasing a home. Perhaps they are getting smarter about boom/bust cycles.

          sum luk wrote on Fri, 6/5/2015 - 6:51 am

          DeutscheBank: wage growth acceleration: https://twitter.com/fxmacro/status/606810704813916161

          ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:52 am (in reply to...)

          Mook wrote:

          Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

          Except the voting booth.

          KarmaPolice wrote on Fri, 6/5/2015 - 6:54 am (in reply to...)

          ResistanceIsFeudal wrote:

          Except the voting booth.

          Good luck with that as well.

          burnside wrote on Fri, 6/5/2015 - 6:55 am (in reply to...)

          Rates will have to rise quite a bit, I should think. That became very common in the late seventies. Very.

          sum luk wrote on Fri, 6/5/2015 - 6:55 am

          Average hourly earnings have increased 2.04% (nominally) from a year ago

          chart: https://twitter.com/NickatFP/status/606814645551251456

          umop apisdn wrote on Fri, 6/5/2015 - 6:56 am (in reply to...)

          18 trillion in taxpayer debt nationally

          The Treasury is not the taxpayer.

          sum luk wrote on Fri, 6/5/2015 - 6:57 am

          U.S. Economy Adds 280k New Jobs In May - Floating Path

          Blackhalo wrote on Fri, 6/5/2015 - 6:57 am (in reply to...)

          lawyerliz wrote:

          it will be really hard for a borrower with a 3.5% to 4.25% rate to decide to move up to 5.5---7% rate.

          It would seem that you'd get a lot less house, moving from 3.5% to 7%, for the same monthly nut.

          Let's see: a 250K home at 3.5% vs 170K house at 7%... $1150/mo...

          KarmaPolice wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

          homedad43 wrote:

          The decreases are happening but in the things that are more common...bananas, potatoes, canned veggies. Hell, even cooked deli ham and deli cheese went down in the past two months.

          Oil prices.....

          homedad43 wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

          Average hourly earnings have increased 2.04% (nominally) from a year ago

          Yep...but if you're paying more for health insurance and doing without other benefits that you now have to cover, then that situation is still a net loss.

          Belmont wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

          I was told that this would never happen. That we would all be searching the forests for edible mushrooms till the end of time.

          sum luk wrote on Fri, 6/5/2015 - 6:59 am (in reply to...)

          18 trillion in taxpayer debt nationally

          umop apisdn wrote:

          The Treasury is not the taxpayer.

          … that's ok, 18 trillion is just the headline ~ not the actual number

          homedad43 wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

          One of the items that I price is a 48 oz container of canola oil for cooking. When oil prices spiked, the canola oil went up across all three stores since canola seeds are also used in bio-fuels...since then the price for that size container has dropped but not as much...elastic upwards and inelastic downwards. Somebody's making money.

          Rob Dawg wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

          Bruce in Tennessee wrote:

          18 trillion in taxpayer debt nationally,...

          Debt Maturity Chart

          We either pay off $3 trillion in the next year or cough up an extra $35 billion for every increase of 1% when rolling over.

          KarmaPolice wrote on Fri, 6/5/2015 - 7:02 am (in reply to...)

          homedad43 wrote:

          Somebody's making money.

          That's called capitalism.

          Mike_PNW wrote on Fri, 6/5/2015 - 7:03 am

          Pending layoffs at Intel...

          Intel plans job cuts across the company, internal memo says | OregonLive.com

          [Jun 02, 2015]The Delusional World Of Imperial Washington

          Notable quotes:
          .
          "... What is a declining superpower supposed to do in the face of such defiance? This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, "We have to put a shingle outside our door saying, 'Superpower Lives Here,' no matter what the Soviets do, even if they evacuate from Eastern Europe." "
          .
          "...The problem, as many mainstream observers now acknowledge, is that such a strategy aimed at perpetuating U.S. global supremacy at all costs was always destined to result in what Yale historian Paul Kennedy, in his classic book The Rise and Fall of the Great Powers, unforgettably termed "imperial overstretch." As he presciently wrote in that 1987 study, it would arise from a situation in which "the sum total of the United States' global interests and obligations is… far larger than the country's power to defend all of them simultaneously.""
          .
          dir="ltr">"...But for any of this to happen, American policymakers would first have to abandon the pretense that the United States remains the sole global superpower -- and that may be too bitter a pill for the present American psyche (and for the political aspirations of certain Republican candidates) to swallow. From such denialism, it's already clear, will only come further ill-conceived military adventures abroad and, sooner or later, under far grimmer circumstances, an American reckoning with reality."
          Zero Hedge
          Submitted by Michael Klare via TomDispatch.com,

          Think of this as a little imperial folly update -- and here's the backstory.

          In the years after invading Iraq and disbanding Saddam Hussein's military, the U.S. sunk about $25 billion into "standing up" a new Iraqi army. By June 2014, however, that army, filled with at least 50,000 "ghost soldiers," was only standing in the imaginations of its generals and perhaps Washington. When relatively small numbers of Islamic State (IS) militants swept into northern Iraq, it collapsed, abandoning four cities -- including Mosul, the country's second largest -- and leaving behind enormous stores of U.S. weaponry, ranging from tanks and Humvees to artillery and rifles. In essence, the U.S. was now standing up its future enemy in a style to which it was unaccustomed and, unlike the imploded Iraqi military, the forces of the Islamic State proved quite capable of using that weaponry without a foreign trainer or adviser in sight.

          In response, the Obama administration dispatched thousands of new advisers and trainers and began shipping in piles of new weaponry to re-equip the Iraqi army. It also filled Iraqi skies with U.S. planes armed with their own munitions to destroy, among other things, some of that captured U.S. weaponry. Then it set to work standing up a smaller version of the Iraqi army. Now, skip nearly a year ahead and on a somewhat lesser scale the whole process has just happened again. Less than two weeks ago, Islamic State militants took Ramadi, the capital of Anbar Province. Iraqi army units, including the elite American-trained Golden Division, broke and fled, leaving behind -- you'll undoubtedly be shocked to hear -- yet another huge cache of weaponry and equipment, including tanks, more than 100 Humvees and other vehicles, artillery, and so on.

          The Obama administration reacted in a thoroughly novel way: it immediately began shipping in new stocks of weaponry, starting with 1,000 antitank weapons, so that the reconstituted Iraqi military could take out future "massive suicide vehicle bombs" (some of which, assumedly, will be those captured vehicles from Ramadi). Meanwhile, American planes began roaming the skies over that city, trying to destroy some of the equipment IS militants had captured.

          Notice anything repetitive in all this -- other than another a bonanza for U.S. weapons makers? Logically, it would prove less expensive for the Obama administration to simply arm the Islamic State directly before sending in the air strikes. In any case, what a microcosm of U.S. imperial hubris and folly in the twenty-first century all this training and equipping of the Iraqi military has proved to be. Start with the post-invasion decision of the Bush administration to totally disband Saddam's army and instantly eject hundreds of thousands of unemployed Sunni military men and a full officer corps into the chaos of the "new" Iraq and you have an instant formula for creating a Sunni resistance movement. Then, add in a little extra "training" at Camp Bucca, a U.S. military prison in Iraq, for key unemployed officers, and -- Voilŕ! -- you've helped set up the petri dish in which the leadership of the Islamic State movement will grow. Multiply such stunning tactical finesse many times over globally and, as TomDispatch regular Michael Klare makes clear today, you have what might be called the folly of the "sole superpower" writ large.

          Delusionary Thinking in Washington

          The Desperate Plight of a Declining Superpower

          Take a look around the world and it's hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington's dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance?

          This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, "We have to put a shingle outside our door saying, 'Superpower Lives Here,' no matter what the Soviets do, even if they evacuate from Eastern Europe."

          Imperial Overstretch Hits Washington

          Strategically, in the Cold War years, Washington's power brokers assumed that there would always be two superpowers perpetually battling for world dominance. In the wake of the utterly unexpected Soviet collapse, American strategists began to envision a world of just one, of a "sole superpower" (aka Rome on the Potomac). In line with this new outlook, the administration of George H.W. Bush soon adopted a long-range plan intended to preserve that status indefinitely. Known as the Defense Planning Guidance for Fiscal Years 1994-99, it declared: "Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union."

          H.W.'s son, then the governor of Texas, articulated a similar vision of a globally encompassing Pax Americana when campaigning for president in 1999. If elected, he told military cadets at the Citadel in Charleston, his top goal would be "to take advantage of a tremendous opportunity -- given few nations in history -- to extend the current peace into the far realm of the future. A chance to project America's peaceful influence not just across the world, but across the years."

          For Bush, of course, "extending the peace" would turn out to mean invading Iraq and igniting a devastating regional conflagration that only continues to grow and spread to this day. Even after it began, he did not doubt -- nor (despite the reputed wisdom offered by hindsight) does he today -- that this was the price that had to be paid for the U.S. to retain its vaunted status as the world's sole superpower.

          The problem, as many mainstream observers now acknowledge, is that such a strategy aimed at perpetuating U.S. global supremacy at all costs was always destined to result in what Yale historian Paul Kennedy, in his classic book The Rise and Fall of the Great Powers, unforgettably termed "imperial overstretch." As he presciently wrote in that 1987 study, it would arise from a situation in which "the sum total of the United States' global interests and obligations is… far larger than the country's power to defend all of them simultaneously."

          Indeed, Washington finds itself in exactly that dilemma today. What's curious, however, is just how quickly such overstretch engulfed a country that, barely a decade ago, was being hailed as the planet's first "hyperpower," a status even more exalted than superpower. But that was before George W.'s miscalculation in Iraq and other missteps left the U.S. to face a war-ravaged Middle East with an exhausted military and a depleted treasury. At the same time, major and regional powers like China, India, Russia, Iran, Saudi Arabia, and Turkey have been building up their economic and military capabilities and, recognizing the weakness that accompanies imperial overstretch, are beginning to challenge U.S. dominance in many areas of the globe. The Obama administration has been trying, in one fashion or another, to respond in all of those areas -- among them Ukraine, Syria, Iraq, Yemen, and the South China Sea -- but without, it turns out, the capacity to prevail in any of them.

          Nonetheless, despite a range of setbacks, no one in Washington's power elite -- Senators Rand Paul and Bernie Sanders being the exceptions that prove the rule -- seems to have the slightest urge to abandon the role of sole superpower or even to back off it in any significant way. President Obama, who is clearly all too aware of the country's strategic limitations, has been typical in his unwillingness to retreat from such a supremacist vision. "The United States is and remains the one indispensable nation," he told graduating cadets at West Point in May 2014. "That has been true for the century past and it will be true for the century to come."

          How, then, to reconcile the reality of superpower overreach and decline with an unbending commitment to global supremacy?

          The first of two approaches to this conundrum in Washington might be thought of as a high-wire circus act. It involves the constant juggling of America's capabilities and commitments, with its limited resources (largely of a military nature) being rushed relatively fruitlessly from one place to another in response to unfolding crises, even as attempts are made to avoid yet more and deeper entanglements. This, in practice, has been the strategy pursued by the current administration. Call it the Obama Doctrine.

          After concluding, for instance, that China had taken advantage of U.S. entanglement in Iraq and Afghanistan to advance its own strategic interests in Southeast Asia, Obama and his top advisers decided to downgrade the U.S. presence in the Middle East and free up resources for a more robust one in the western Pacific. Announcing this shift in 2011 -- it would first be called a "pivot to Asia" and then a "rebalancing" there -- the president made no secret of the juggling act involved.

          "After a decade in which we fought two wars that cost us dearly, in blood and treasure, the United States is turning our attention to the vast potential of the Asia Pacific region," he told members of the Australian Parliament that November. "As we end today's wars, I have directed my national security team to make our presence and mission in the Asia Pacific a top priority. As a result, reductions in U.S. defense spending will not -- I repeat, will not -- come at the expense of the Asia Pacific."

          Then, of course, the new Islamic State launched its offensive in Iraq in June 2014 and the American-trained army there collapsed with the loss of four northern cities. Videoed beheadings of American hostages followed, along with a looming threat to the U.S.-backed regime in Baghdad. Once again, President Obama found himself pivoting -- this time sending thousands of U.S. military advisers back to that country, putting American air power into its skies, and laying the groundwork for another major conflict there.

          Meanwhile, Republican critics of the president, who claim he's doing too little in a losing effort in Iraq (and Syria), have also taken him to task for not doing enough to implement the pivot to Asia. In reality, as his juggling act that satisfies no one continues in Iraq and the Pacific, he's had a hard time finding the wherewithal to effectively confront Vladimir Putin in Ukraine, Bashar al-Assad in Syria, the Houthi rebels in Yemen, the various militias fighting for power in fragmenting Libya, and so on.

          The Party of Utter Denialism

          Clearly, in the face of multiplying threats, juggling has not proven to be a viable strategy. Sooner or later, the "balls" will simply go flying and the whole system will threaten to fall apart. But however risky juggling may prove, it is not nearly as dangerous as the other strategic response to superpower decline in Washington: utter denial.

          For those who adhere to this outlook, it's not America's global stature that's eroding, but its will -- that is, its willingness to talk and act tough. If Washington were simply to speak more loudly, so this argument goes, and brandish bigger sticks, all these challenges would simply melt away. Of course, such an approach can only work if you're prepared to back up your threats with actual force, or "hard power," as some like to call it.

          Among the most vocal of those touting this line is Senator John McCain, the chair of the Senate Armed Services Committee and a persistent critic of President Obama. "For five years, Americans have been told that 'the tide of war is receding,' that we can pull back from the world at little cost to our interests and values," he typically wrote in March 2014 in a New York Times op-ed. "This has fed a perception that the United States is weak, and to people like Mr. Putin, weakness is provocative." The only way to prevent aggressive behavior by Russia and other adversaries, he stated, is "to restore the credibility of the United States as a world leader." This means, among other things, arming the Ukrainians and anti-Assad Syrians, bolstering the NATO presence in Eastern Europe, combating "the larger strategic challenge that Iran poses," and playing a "more robust" role (think: more "boots" on more ground) in the war against ISIS.

          Above all, of course, it means a willingness to employ military force. "When aggressive rulers or violent fanatics threaten our ideals, our interests, our allies, and us," he declared last November, "what ultimately makes the difference… is the capability, credibility, and global reach of American hard power."

          A similar approach -- in some cases even more bellicose -- is being articulated by the bevy of Republican candidates now in the race for president, Rand Paul again excepted. At a recent "Freedom Summit" in the early primary state of South Carolina, the various contenders sought to out-hard-power each other. Florida Senator Marco Rubio was loudly cheered for promising to make the U.S. "the strongest military power in the world." Wisconsin Governor Scott Walker received a standing ovation for pledging to further escalate the war on international terrorists: "I want a leader who is willing to take the fight to them before they take the fight to us."

          In this overheated environment, the 2016 presidential campaign is certain to be dominated by calls for increased military spending, a tougher stance toward Moscow and Beijing, and an expanded military presence in the Middle East. Whatever her personal views, Hillary Clinton, the presumed Democratic candidate, will be forced to demonstrate her backbone by embracing similar positions. In other words, whoever enters the Oval Office in January 2017 will be expected to wield a far bigger stick on a significantly less stable planet. As a result, despite the last decade and a half of interventionary disasters, we're likely to see an even more interventionist foreign policy with an even greater impulse to use military force.

          However initially gratifying such a stance is likely to prove for John McCain and the growing body of war hawks in Congress, it will undoubtedly prove disastrous in practice. Anyone who believes that the clock can now be turned back to 2002, when U.S. strength was at its zenith and the Iraq invasion had not yet depleted American wealth and vigor, is undoubtedly suffering from delusional thinking. China is far more powerful than it was 13 years ago, Russia has largely recovered from its post-Cold War slump, Iran has replaced the U.S. as the dominant foreign actor in Iraq, and other powers have acquired significantly greater freedom of action in an unsettled world. Under these circumstances, aggressive muscle-flexing in Washington is likely to result only in calamity or humiliation.

          Time to Stop Pretending

          Back, then, to our original question: What is a declining superpower supposed to do in the face of this predicament?

          Anywhere but in Washington, the obvious answer would for it to stop pretending to be what it's not. The first step in any 12-step imperial-overstretch recovery program would involve accepting the fact that American power is limited and global rule an impossible fantasy. Accepted as well would have to be this obvious reality: like it or not, the U.S. shares the planet with a coterie of other major powers -- none as strong as we are, but none so weak as to be intimidated by the threat of U.S. military intervention. Having absorbed a more realistic assessment of American power, Washington would then have to focus on how exactly to cohabit with such powers -- Russia, China, and Iran among them -- and manage its differences with them without igniting yet more disastrous regional firestorms.

          If strategic juggling and massive denial were not so embedded in the political life of this country's "war capital," this would not be an impossibly difficult strategy to pursue, as others have suggested. In 2010, for example, Christopher Layne of the George H.W. Bush School at Texas A&M argued in the American Conservative that the U.S. could no longer sustain its global superpower status and, "rather than having this adjustment forced upon it suddenly by a major crisis… should get ahead of the curve by shifting its position in a gradual, orderly fashion." Layne and others have spelled out what this might entail: fewer military entanglements abroad, a diminishing urge to garrison the planet, reduced military spending, greater reliance on allies, more funds to use at home in rebuilding the crumbling infrastructure of a divided society, and a diminished military footprint in the Middle East.

          But for any of this to happen, American policymakers would first have to abandon the pretense that the United States remains the sole global superpower -- and that may be too bitter a pill for the present American psyche (and for the political aspirations of certain Republican candidates) to swallow. From such denialism, it's already clear, will only come further ill-conceived military adventures abroad and, sooner or later, under far grimmer circumstances, an American reckoning with reality.

          [Jun 01, 2015] Fischer Says Bankers Should Be Punished for Financial Crimes

          Jun 01, 2015 | finance.yahoo.com/ Bloomberg

          Federal Reserve Vice Chairman Stanley Fischer said bankers who have engaged in wrongdoing should be punished, and he chided the industry for pushing back against financial regulations adopted to prevent another conflagration.

          "Individuals should be punished for any misconduct they personally engaged in," Fischer said in a speech to bankers Monday in Toronto. While massive fines are being imposed on banks, "one does not see the individuals who were responsible for some of the worst aspects of bank behavior, for example in the Libor and foreign-exchange scandals, being punished severely."

          Some of the world's biggest banks, including Citigroup Inc., JPMorgan Chase & Co., and Barclays Plc, have agreed to pay more than $10 billion to U.S., U.K. and Swiss authorities to settle probes into rigging of foreign-exchange rates.

          Financial firms have also paid about $9 billion to settle allegations they were involved in rigging the London interbank offered rate, a benchmark used in more than an estimated $300 trillion of securities, from interest-rate swaps to mortgages and student loans.

          Fischer, who leads a committee to avoid the emergence of asset-price bubbles, also said central bankers shouldn't rule out using interest rates to maintain financial stability. Policy makers want to ensure that six years of near-zero rates don't lead to a repeat of the U.S. housing boom and subsequent financial crisis.

          "I don't at present see a major financial crisis on the horizon, but whenever you say that you know you're looking for trouble," Fischer said in response to an audience question after his speech.

          With the costs of the crisis still being felt in the form of persistently slow growth, Fischer warned central bankers against complacency about the risks of another crisis.

          "There is now growing evidence that recessions lead not only to a lower level of future output, but also to a persistently lower growth rate," Fischer, 71, said in a speech that surveyed the lessons of financial crises over the past 20 years.

          He cited a "lively discussion" led by former Treasury Secretary Lawrence Summers, who has argued the U.S. could face a period of "secular stagnation." Others, including economists Carmen Reinhart and Kenneth Rogoff, say the U.S. and other economies are slow to recover from crises fueled by debt.

          "It may take many years until we know the answer to the question of whether we are in a situation of secular stagnation or a debt supercycle," Fischer said to the International Monetary Conference.

          Fischer criticized efforts to roll back financial regulation.

          Banker Complaints

          "Often when bankers complain about regulations, they give the impression that financial crises are now a thing of the past, and furthermore in many cases, that they played no role in the previous crisis."

          Fischer joined the Fed a year ago. He led the Bank of Israel from 2005 to 2013. He was the International Monetary Fund's No. 2 official from 1994 to 2001, years that encompassed the Asian crisis, and the World Bank's chief economist from 1988 to 1990.

          Fischer didn't comment on the outlook for monetary policy. Fed officials led by Chair Janet Yellen are considering when to raise their benchmark lending rate, with the next meeting scheduled for June 16-17.

          Yellen said on May 22 that the central bank plans to raise interest rates at some point this year, even though the economy contracted in the first quarter. She said that "the pace of normalization is likely to be gradual."

          Growth Potential

          A slowdown in the long-run potential growth rate of the economy has lowered the bar that gross domestic product must clear for the central bank to increase rates, according to Fed watchers including Michael Feroli of JPMorgan Chase & Co. Feroli estimated the long-term growth rate at 1.75 percent, which is lower than Fed estimates.

          Gross domestic product shrank at a 0.7 percent annualized rate in the first quarter. Since the recession ended in June 2009, GDP has grown at an average annual pace of 2.2 percent.

          [May 28, 2015] New Jersey Faces a Transportation Funding Crisis, With No Clear Solution

          Notable quotes:
          "... SECAUCUS, N.J. - Bridges across the state are falling apart. Roads are rife with potholes. Frustrated New Jersey Transit riders are facing another fare increase. ..."
          "... Whatever happens with the gas tax, many New Jerseyans soon will be paying more to get to work. New Jersey Transit has proposed raising fares by about 9 percent for its 915,000 daily riders, and an increase of some amount is all but certain. Federal and state subsidies as a share of the agency's annual budget have been falling, and that has left it increasingly reliant on fares to cover costs, even as many passengers say service is slipping. ..."
          "... The agency has proposed raising fares by about 9 percent for its 915,000 daily riders. ..."
          "... Marianne Sailer, of Wood-Ridge, who works as a property manager in Manhattan, said she could not afford higher fares because she had not received a raise in three years. ..."
          "... Officials across the country are wrestling with how to pay for big transportation projects in an era of less federal funding. Nowhere is the problem more pronounced than in the transit-dependent Northeast. ..."
          May 28, 2015 | NYTimes.com

          SECAUCUS, N.J. - Bridges across the state are falling apart. Roads are rife with potholes. Frustrated New Jersey Transit riders are facing another fare increase.

          As many commuters bemoan the mounting delays and disruptions, state officials say New Jersey is confronting a transportation funding crisis with no easy way out. Voters are so fed up, support is growing for a revenue option long viewed as politically untenable: raising the state's gas tax, which is the second lowest in the country.

          Whatever happens with the gas tax, many New Jerseyans soon will be paying more to get to work. New Jersey Transit has proposed raising fares by about 9 percent for its 915,000 daily riders, and an increase of some amount is all but certain. Federal and state subsidies as a share of the agency's annual budget have been falling, and that has left it increasingly reliant on fares to cover costs, even as many passengers say service is slipping.

          Here at one of the busiest rail hubs in the state, the exasperation was evident, in interviews with people headed home, and in the pointed testimony of commuters who turned out last week for a public hearing on the proposed fare increase.

          Passengers waiting for New Jersey Transit trains at Pennsylvania Station in Manhattan. The agency has proposed raising fares by about 9 percent for its 915,000 daily riders. Credit Richard Perry/The New York Times

          Marianne Sailer, of Wood-Ridge, who works as a property manager in Manhattan, said she could not afford higher fares because she had not received a raise in three years.

          "Any increase would be devastating to my family," Ms. Sailer told officials. "The service does not warrant an increase – filthy cars, constantly late."

          Gov. Chris Christie, a Republican, has said little in recent months about roads and transit even as his own transportation commissioner, Jamie Fox, has forcefully called for revenue for the state's depleted transportation trust fund. Despite the governor's relative silence, the troubles of the state's transportation agencies have emerged as a grinding issue for him, including the scandal involving his appointees to the Port Authority of New York and New Jersey and the growing backlash over his decision to halt construction of a new rail tunnel under the Hudson River.

          Officials across the country are wrestling with how to pay for big transportation projects in an era of less federal funding. Nowhere is the problem more pronounced than in the transit-dependent Northeast.

          In Connecticut, Gov. Dannel P. Malloy, a Democrat, is trying to marshal an infrastructure plan that would invest $100 billion over 30 years for roadways and mass transit. In New York, Gov. Andrew M. Cuomo, a Democrat, has championed the replacement Tappan Zee Bridge across the Hudson between Rockland and Westchester Counties, even as he faces questions over paying for the crossing's projected $3.9 billion cost and for the Metropolitan Transportation Authority's $32 billion capital plan.

          Here in New Jersey, Mr. Fox has been sounding the alarm over the state's aging infrastructure for months. He shut down a bridge in Franklin Township in Somerset County in January and has partially closed other bridges for emergency repairs.

          "Our bridges and roads are old, crumbling and getting worse every day," Mr. Fox told state lawmakers in April. "We can no longer kick the can down the road."

          The transportation trust fund is financed through next summer with about $1.1 billion planned for project costs, according to the state treasurer. Mr. Fox said the fund would be broke after that.

          Many blame Mr. Christie and his presidential ambitions for the lack of action this year on a long-term funding solution. Democratic leaders in the state have expressed support for raising the gas tax.

          "Since the governor appears to intend to run for president, raising taxes of any kind is problematic, to put it mildly," said David P. Redlawsk, a political science professor at Rutgers University.

          Gov. Chris Christie has said little in recent months about roads and transit, even as his own transportation commissioner has called for revenue for the state's depleted transportation trust fund. Credit Dominick Reuter/Reuters

          Mr. Christie's pledges not to raise taxes might win favor with Republicans in a presidential primary, but his stance on transportation funding has opened him to criticism at home with business groups. They say the state's poor infrastructure has hurt its competitiveness with other states.

          A poll last month by Quinnipiac University found that attitudes among New Jersey voters were changing: 50 percent would support an increase in the gas tax to pay for road improvements and mass transit, up from 35 percent in 2010. The state's gas tax is generally referred to as 14.5 cents per gallon, which includes a 10.5-cent motor fuels tax that has not increased since 1988 and a 4-cent petroleum products tax first approved in 1990.

          Efforts by Mr. Fox and others to highlight the problem have had an effect, but raising the gas tax could still be a difficult sell, Dr. Redlawsk said.

          "It's penetrating people's awareness about how bad the infrastructure is," he said, "but that competes with their visceral dislike of any increase in taxes."

          At the fare hearing, riders said the proposed increase, planned for the fall, felt like a tax increase for those who rely on mass transit and could least afford it. The last increase came five years ago when fares were raised by up to 25 percent.

          New Jersey Transit has become more dependent on fares: They currently cover 47 percent of the budget, up from 40 percent a decade ago, said Nancy Snyder, a spokeswoman for the agency. It has a budget shortfall because of rising costs, officials said, despite plans to increase state support by $22.1 million for the 2016 fiscal year.

          Mr. Fox, who is in his second stint as the state's transportation commissioner, having served in 2002 under Gov. James E. McGreevey, a Democrat, said in an interview that he would prefer to invest more in mass transit to keep fares lower.

          "No one likes to raise fares because you want to get more people on mass transit and out of cars," Mr. Fox said. "It tends to hurt the lower income folks more so you don't want to do that. But at the same time, you need to be realistic and realize that you have to have money to keep the trains running."

          Asked whether it had been frustrating to return to the post without the support so far to increase transportation funding, Mr. Fox said the issue had not been addressed for 25 years.

          "If it were easy, it would have been done already," he said, adding: "I'm not frustrated by it. It's one of the reasons I wanted to come back."

          [May 27, 2015] How to turn a liberal hipster into a capitalist tyrant in one evening

          May 27, 2015 | The Guardian

          Why do so many decent people, when asked to pretend they're CEOs, become tyrants from central casting? Part of the answer is: capitalism subjects us to economic rationality. It forces us to see ourselves as cashflow generators, profit centres or interest-bearing assets. But that idea is always in conflict with something else: the non-economic priorities of human beings, and the need to sustain the environment. Though World Factory, as a play, is designed to show us the parallels between 19th-century Manchester and 21st-century China, it subtly illustrates what has changed.

          ... ... ...

          A real Chinese sweatshop owner is playing a losing game against something much more sophisticated than the computer at the Young Vic: an intelligent machine made up of the smartphones of millions of migrant workers on their lunchbreak, plugging digitally into their village networks to find out wages and conditions elsewhere. That sweatshop owner is also playing against clients with an army of compliance officers, themselves routinely harassed by NGOs with secret cameras.

          The whole purpose of this system of regulation – from above and below – is to prevent individual capitalists making short-term decisions that destroy the human and natural resources it needs to function. Capitalism is not just the selfish decisions of millions of people. It is those decisions sifted first through the all-important filter of regulation. It is, as late 20th-century social theorists understood, a mode of regulation, not just of production.

          Yet it plays on us a cruel ideological trick. It looks like a spontaneous organism, to which government and regulation (and the desire of Chinese migrants to visit their families once a year) are mere irritants. In reality it needs the state to create and re-create it every day.

          Banks create money because the state awards them the right to. Why does the state ram-raid the homes of small-time drug dealers, yet call in the CEOs of the banks whose employees commit multimillion-pound frauds for a stern ticking off over a tray of Waitrose sandwiches? Answer: because a company has limited liability status, created by parliament in 1855 after a political struggle.

          Our fascination with market forces blinds us to the fact that capitalism – as a state of being – is a set of conditions created and maintained by states. Today it is beset by strategic problems: debt- ridden, with sub-par growth and low productivity, it cannot unleash the true potential of the info-tech revolution because it cannot imagine what to do with the millions who would lose their jobs.

          The computer that runs the data system in Svendsen's play could easily run a robotic clothes factory. That's the paradox. But to make a third industrial revolution happen needs something no individual factory boss can execute: the re-regulation of capitalism into something better. Maybe the next theatre game about work and exploitation should model the decisions of governments, lobbyists and judges, not the hapless managers.


          Earl Shelton -> phil100a 27 May 2015 14:14

          Avoid arguing with Libertarians -- unless you have lots of patience. Their philosophy boils down to: Greed is good; government is bad.

          And they will stick to those dubious premises -- despite the tons of contrary facts, evidence (and stories of human suffering those ideas cause) that you might present -- from Jesus Christ to John Maynard Keynes....

          NomChompsky -> imipak 27 May 2015 12:04

          You spilled some pseudo-intellectual gibberish on your post. You also ignored that the number of computers isn't a constant, in particular, and that zero-sum economic theories are, by nature, incredibly fucking stupid in general. You also seem to think that the Pareto principle is some sort of a law instead of a rule of thumb that has numerous exceptions.

          Just, eww.

          asquaretail 27 May 2015 09:25

          We won't discuss whether or not a UK resident can be a "Hipster." Sounds like cultural theft to me.. What I really want to point out is something more basic. Banks are not empowered by government, at least not initially. Initially, they were restricted by government which then reduced the restrictions to allow banks to function. This has profound analytic consequences for those brave and courageous enough to pursue the chain of thought.

          toffee1 27 May 2015 08:12

          This validates that Marx's was right. A capitalist (or a manager in a capitalist firm), acts as a capital personified. His/her soul is the soul of capital. But capital has one single life impulse, the tendency to create value and surplus-value, to make its constant factor, the means of production, absorb the greatest possible amount of surplus-labour. So, the problem is the system. The liberal view is wrong. What needs to be changed is the system.

          Thomas G. Wilson 26 May 2015 23:15

          So, the choice is sack one third of the workers or spread the pain by cutting the worker's pay by a third? The unstated third choice is do nothing and go bankrupt.

          "Decent liberal hipsters" don't usually confront these problems-they only complain about those who do. "Ruthless capitalists seated at the boardroom table" are just liberal hipsters that had to grow up.

          Hiring people and giving raises is fun and heartwarming-firing people and denying raised when finances are tough -- not so much. I've done both.

          Michael Pettengill 26 May 2015 20:36

          Employers in this "factory world" do not need to find or create consumers, so the employers are free to destroy consumers to save themselves from bankruptcy. But when the retailers who pay the employers cut the size of their orders, the employers have no choice but to fire workers and destroy consumers.

          That this is what is going on is hidden by the long chain the money flows through. The workers are paid by employers paid by retailers who sell to workers paid by other employers who sell to retailers who sell to workers which eventually needs to be the original group of workers in that original factory. Cutting their wages will cut their buying which will ripple back to reduced sales by the retailer paying the factory paying their wages by buying goods.

          Adam Smith argued this value chain would work without fail to employ all workers in producing just barely what the workers desired, but not more and just enough less to motivate workers to produce more to be paid more.

          Keynes argued, after it was conventional wisdom, that unemployment would cut demand causing more unemployment, so government needs to force spending to cause workers to be hired and paid.

          Keynes did not argue for paying people not to work. FDR in 1935 laid out the case for the moral imperative to pay people to work for the good of the nation.

          In any case, the wealth of nations depends on the collective action of all the people of the nation, and Keynes argued and FDR demonstrates that collective action through people acting through government works.

          The play merely teaches that you are a cog in a machine that is beyond your control.

          DoRonDoRonRon 26 May 2015 19:26

          "Our fascination with market forces blinds us to the fact that capitalism – as a state of being – is a set of conditions created and maintained by states. ... But to make a third industrial revolution happen needs something no individual factory boss can execute: the re-regulation of capitalism into something better."

          The author sees capitalism as flawed because it is "set of conditions created and maintained by states." But how is the "re-regulation" he thinks will make it better be carried out? It would, of course, be carried out by states.

          [May 23, 2015] Former Fed Governor Says Fed Lost Credibility To Stay On Top Of Ticking Monetary Bomb

          05/21/2015 | Zero Hedge

          Submitted by Wolf Richter via WolfStreet.com,

          Lawrence Lindsey, a Governor of the Federal Reserve from 1991 to 1997, was right before. And got fired for it. Reality was too inconvenient.

          In December 2002, as George W. Bush's economic adviser and Director of the National Economic Council at the White House, he fretted out loud that the invasion of Iraq would be a lot more expensive than supporters of it were claiming. Clearly he'd failed to drink the Kool-Aid. Instead of peanuts, it would cost as much as $200 billion, he said. It shook the White House at its foundations, the fact that he had the temerity to say this.

          The Atlantic explains:

          Bush instead stood by such advisers as Paul Wolfowitz, who said that the invasion would be largely "self-financing" via Iraq's oil, and Andrew Natsios, who told an incredulous Ted Koppel that the war's total cost to the American taxpayer would be no more than $1.7 billion.

          As it turns out, Lawrence Lindsey's estimate was indeed off - by a factor of 10 or more, on the low side.

          So maybe people should listen to him. And maybe, if his record repeats itself, the disaster he warns about is going to be a lot more costly in the end than the worst-case scenario he is now predicting.

          Lindsey was speaking during a panel discussion on Fed policy at an event sponsored by the Peterson Foundation, MarketWatch reported. And once again, he dared to say what everyone already knew, but what the financial establishment on Wall Street fights tooth and nail:

          The Fed has dragged out the normalization of interest rates "way beyond what is prudent."

          He explained that in graduate school, if you suggested that the federal funds rate should be kept at zero while the unemployment rate is 5.4%, which is exactly what the Fed has been doing, "you would have been laughed out of the classroom."

          "At some point we're going to get a series of bad numbers, showing a little higher inflation, and the market is going to say 'on my god, we're so far behind the curve' and force an adjustment that is going to be wrenching," he said.

          According to his calculus, when this "wrenching" adjustment kicks in, it would turn into a market disruption at a level "seven or eight" on a scale of 10, with 10 being the worst.

          But that's the guy that warned that the total cost of the Iraq invasion would be $200 billion, instead of peanuts, and later it turns out to amount to $2 trillion. So by how much is he underestimating the ultimate debacle with his prediction of a "wrenching" adjustment of "seven or eight" on a scale of 10? Maybe we're better off not knowing the answer.

          So what should the Fed do to mitigate the risk of this sort of bone-chilling bond market? Start hiking rates. Start with modest hikes. But start in June.

          But it may already be too late.

          He said the Fed "has almost no credibility" with his clients about its ability to "stay on top of ticking monetary bomb."

          Stocks are at all-time highs. The party is just too fun to walk away from. Money is once again flooding into even distressed energy-related junk-rated companies that are once again able to sell bonds on a wing and a prayer because yield-starved investors, brainwashed by the Fed's interest-rate repression, are chasing yield wherever they can find it, no matter what the risks.

          Times are good, and everyone is having fun now. But it won't last: "the market is going to take the Fed and the Treasury curve to task in a very painful way," he warned.

          Rate hikes would have a long way to go: If the Fed raised rates by a quarter percentage point at every other meeting starting this June – oh my, can you see the tantrum already? – monetary policy would not actually be restrictive until December 2016, he said.

          Going that far, ever, though it would only mean going back to "normal," would be plain unthinkable for Wall Street hype mongers that have conniptions every time the Fed contemplates raising rates just once, and just a quarter point, just to show that it's still there, even if it has no intention whatsoever of staying on "top of the ticking monetary bomb."

          A disturbing scenario is already playing out for folks fretting about "financial instability," as it's called in central-bank jargon. Read… "Buyers beware": Capital Markets "Completely Backwards"

          [May 22, 2015] Why Obama Should Be Attacking Casino Capitalism -- Both Romney's Bain and JPMorgan by Robert Reich

          There's no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.
          But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they're still at it, as evidenced by Dimon's current claim that the rule that eventually emerges would allow those bets.
          As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite -- a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance -- any exception -- will be stretched beyond recognition by the big banks.
          Get it? Bain Capital and JPMorgan are parts of the same problem. The president should be leading the charge against both.
          May 22, 2015 | huffingtonpost.com

          I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.

          That way his so-called "attack" on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.

          It's an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples' money to make big bets which, if they go wrong, can wreak havoc on the economy.

          It's the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.

          It's been terrible for the American economy and for our democracy.

          It's also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.

          But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they're still at it, as evidenced by Dimon's current claim that the rule that eventually emerges would allow those bets.

          As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite -- a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance -- any exception -- will be stretched beyond recognition by the big banks.

          So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.

          There's no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.

          At the same time, there's no point to the "carried interest" loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they've risked no money of their own.

          If private equity were good for America it wouldn't need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.

          Get it? Bain Capital and JPMorgan are parts of the same problem. The president should be leading the charge against both.

          [May 21, 2015]Consistent With

          May 21, 2015 | Economist's View
          Chris Dillow:
          "Consistent with": ...Peter Dorman criticizes economists' habit of declaring a theory successful merely because it is "consistent with" the evidence. His point deserves emphasis. ...
          This is a point which some defenders of inequality miss. Of course, you can devise theories which are "consistent with" inequality arising from reasonable differences in choices and marginal products. Such theories, though, beg the question: is that how inequality really emerged?... And the answer, to put it mildly, is: only partially. It also arose from luck, inefficient selection, rigged markets, rent-seeking and outright theft. ...
          Quite often, the facts are consistent with either theory. For example, the well-attested momentum anomaly - the tendency for assets that have risen in price recently to continue rising - is "consistent with" both a cognitive bias (under-reaction) and with rational behaviour; fund managers' desire to avoid benchmark risk.
          My point here should be well-known. The Duhem-Quine thesis warns us that facts under-determine theory: they are "consistent with" multiple theories. ...
          So, how can we guard against the "consistent with" error? One thing we need is history: this helps tell us how things actually happened. And - horrific as it might seem to some economists - we also need sociology: we need to know how people actually behave and not merely that their behaviour is "consistent with" some theory. Economics, then, cannot be a stand-alone discipline but part of the social sciences and humanities...

          [May 13, 2015] What is neoliberalism

          "...Neoliberalism is a small-state economic ideology based on promoting "rational self-interest" through policies such as privatisation, deregulation, globalisation and tax cuts."
          "...Neoliberalism is certainly a form of free-market neoclassical economic theory, but it quite difficult to pin down further than that, especially since neoliberal governments and economists carefully avoid referring to themselves as neoliberals and the mainstream media seem to avoid using the word at all costs (think about the last time you saw a BBC or CNN news reporter use the word "neoliberal" to describe the IMF or a particularly right-wing government policy)."
          "...The economic model that the word "neoliberalism" was coined to describe was developed by Chicago school economists in the 1960s and 1970s based upon Austrian neoclassical economic theories, but heavily influenced by Ayn Rand's barmy pseudo-philosophy of Übermenschen and greed-worship. "
          "...One of the most transparent of these neoliberal justification narratives is the one that I describe as the Great Neoliberal Lie: The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalised financial sector. "
          "...one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit. "
          anotherangryvoice.blogspot.com

          Neoliberalism is a very important, yet often misunderstood concept. To give a short, oversimplified definition: Neoliberalism is a small-state economic ideology based on promoting "rational self-interest" through policies such as privatisation, deregulation, globalisation and tax cuts.

          People often boggle at the use of the word "neoliberal" as if the utterer were some kind of crazed tinfoil hat wearing conspiracy theorist raving about insane lizard-man conspiracies, rather than someone attempting to concisely define the global economic orthodoxy of the last three decades or so.

          One of the main problems we encounter when discussing neoliberalism is the haziness of the definition. Neoliberalism is certainly a form of free-market neoclassical economic theory, but it quite difficult to pin down further than that, especially since neoliberal governments and economists carefully avoid referring to themselves as neoliberals and the mainstream media seem to avoid using the word at all costs (think about the last time you saw a BBC or CNN news reporter use the word "neoliberal" to describe the IMF or a particularly right-wing government policy).

          The economic model that the word "neoliberalism" was coined to describe was developed by Chicago school economists in the 1960s and 1970s based upon Austrian neoclassical economic theories, but heavily influenced by Ayn Rand's barmy pseudo-philosophy of Übermenschen and greed-worship.

          The first experiment in applied neoliberal theory began on September 11th 1973 in Chile, when a US backed military coup resulted in the death of social-democratic leader Salvador Allende and his replacement with the brutal military dictator General Pinochet (Margaret Thatcher's friend and idol).

          Thousands of people were murdered by the Pinochet regime for political reasons and tens of thousands more were tortured as Pinochet and the "Chicago boys" set about implementing neoliberal economic reforms and brutally suppressing anyone that stood in their way. The US financially doped the Chilean economy in order to create the impression that these rabid-right wing reforms were successful. After the "success" of the Chilean neoliberal experiment, the instillation and economic support of right-wing military dictatorships to impose neoliberal economic reforms became unofficial US foreign policy.

          The first of the democratically elected neoliberals were Margaret Thatcher in the UK and Ronald Reagan in the US. They both set about introducing ideologically driven neoliberal reforms, such as the complete withdrawal of capital controls by Tory Chancellor Geoffrey Howe and the deregulation of the US financial markets that led to vast corruption scandals like Enron and the global financial sector insolvency crisis of 2007-08.

          By 1989 the ideology of neoliberalism was enshrined as the economic orthodoxy of the world as undemocratic Washington based institutions such as the International Monetary Fund (IMF), the World Bank and the US Treasury Department signed up to a ten point economic plan which was riddled with neoliberal ideology such as trade liberalisation, privatisation, financial sector deregulation and tax cuts for the wealthy. This agreement between anti-democratic organisations is misleadingly referred to as "The Washington Consensus".

          These days, the IMF is the most high profile pusher of neoliberal economic policies. Their strategy involves applying strict "structural adjustment" conditions on their loans. These conditions are invariably neoliberal reforms such as privatisation of utilities, services and government owned industries, tax cuts for corporations and the wealthy, the abandonment of capital controls, the removal of democratic controls over central banks and monetary policy and the deregulation of financial industries.

          Neoliberal economic policies have created economic disaster after economic disaster, virtually wherever they have been tried out. Some of the most high profile examples include:

          South Africa: When the racist Apartheid system was finally overthrown in 1994, the new ANC government embraced neoliberal economic theory and set about privatising virtually everything, cutting taxes for the wealthy, destroying capital controls and deregulating their financial sector. After 18 years of neoliberal government, more black South Africans are living in extreme poverty, more people are unemployed and South Africa is an even more unequal society than it was under the racist Apartheid regime. Between 1994 and 2006 the number of South Africans living on less than $1 a day doubled from 2 million to 4 million, by 2002, eight years after the end of Apartheid 2002 the unemployment rate for black South Africans had risen to 48%.*
          Russia: After the fall of communism, neoliberal economists flooded into Russia to create their free-market utopia, however all they managed to do was massively increase levels of absolute poverty, reduce productivity and create a few dozen absurdly wealthy oligarchs who siphoned their $trillions out of Russia to "invest" in vanity projects such as Chelsea FC. Within less than a decade of being one of the world's two great super-powers, the neoliberal revolution resulted in Russia defaulting on their debts in 1998.

          Argentina: Praised as the poster-boys of neoliberalism by the IMF in the 1990s for the speed and scale of their neoliberal reforms, the Argentine economy collapsed into chaos between 1999-2002, only recovering after Argentina defaulted on their debts and prioritised repayment of their IMF loans, which allowed them to tear up the IMF book of neoliberal dogma and begin implementing an investment based growth strategy which boosted the Argentine economy out of their prolonged recession. The late Argentine President Néstor Kirchner famously stated that the IMF had "transformed itself from being a lender for development to a creditor demanding privileges".

          The Eurozone: The right-wing love to drivel on about how the EU is a "leftie" organisation, but the unelected technocrats that run the EU (the European commission and the European Central Bank) are fully signed up to the neoliberal economic orthodoxy, where economic interests are separated from democratic control. Take the economic crisis in Greece: The EC and the ECB lined up with the neoliberal pushing IMF to force hard line neoliberal reforms onto the Greek economy in return for vast multi-billion "bailouts" that flowed directly out of Greece to "bail out" their reckless creditors (mainly German and French banks). When the neoliberalisation reforms resulted in further economic contraction, rising unemployment and worsening economic conditions the ECB, EC, IMF troika simply removed the democratic Greek government and appointed their own stooge, an economic coup trick they also carried out in Italy. Spain and Ireland are other cracking examples of neoliberal failure in the Eurozone. These two nations were more fiscally responsible than Germany, France or the UK in terms of government borrowing before the neoliberal economic meltdown, however their deregulated financial sectors inflated absurd property bubbles, leaving the Irish and Spanish economies in ruins once the bubbles burst around 2007-08.

          The United Kingdom: Here is a short article summarising how three decades of neoliberal policy have undone many of the gains made during the mixed-economy era.
          Despite this litany of economic failures, neoliberalism remains the global economic orthodoxy. Just like any good pseudo-scientific or religious orthodoxy the supporters of neoliberal theory always manage to come up with a load of post-hoc rationalisations for the failure of their theories and the solutions they present for the crises their own theories induced are always based upon the implementation of even more fundamentalist neoliberal policies.

          One of the most transparent of these neoliberal justification narratives is the one that I describe as the Great Neoliberal Lie: The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalised financial sector.

          Just as with other pseudo-scientific theories and fundamentalist ideologies, the excuse that "we just weren't fundamentalist enough last time" is always there. The neoliberal pushers of the establishment know that pure free-market economies are as much of an absurd fairytale as 100% pure communist economies, however they keep pushing for further privatisations, tax cuts for the rich, wage repression for the ordinary, and reckless financial sector deregulations precicely because they are the direct beneficiaries of these policies. Take the constantly widening wealth gap in the UK throughout three decades of neoliberal policy. The minority of beneficiaries from this ever widening wealth gap are the business classes, financial sector workers, the mainstream media elite and the political classes. It is no wonder at all that these people think neoliberalism is a successful ideology. Within their bubbles of wealth and privilege it has been. To everyone else it has been an absolute disaster.

          Returning to a point I raised earlier in the article; one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit.

          Another concept that is closely related to neoliberalism is the ideology of minarchism (small stateism), however the neoliberal brigade seem perfectly happy to ignore the small-state ideology when it suits their personal interests. Take the vast banker bailouts (the biggest state subsidies in human history) that were needed to save the neoliberalised global financial sector from the consequences of their own reckless gambling, the exponential growth of the parasitic corporate outsourcing sector (corporations that make virtually 100% of their turnover from the state) and the ludicrous housing subsidies (such as "Help to Buy and Housing Benefits) that have fueled the reinflation of yet another property Ponzi bubble.

          The Godfather of neoliberalism was Milton Friedman. He made the case that illegal drugs should be legalised in order to create a free-market drug trade, which is one of the very few things I agreed with him about. However this is politically inconvenient (because the illegal drug market is a vital source of financial sector liquidity) so unlike so many of his neoliberal ideas that have consistently failed, yet remain incredibly popular with the wealthy elite, Friedman's libertarian drug legalisation proposals have never even been tried out.

          The fact that neoliberals are so often prepared to ignore the fundamental principles of libertarianism (the non-aggression principle, drug legalisation, individual freedoms, the right to peaceful protest ...) and abuse the fundamental principles of small state minarchism (vast taxpayer funded bailouts for their financial sector friends, Łbillions in taxpayer funded outsourcing contracts, alcohol price fixing schemes) demonstrate that neoliberalism is actually more like Ayn Rand's barmy (greed is the only virtue, all other "virtues" are aberrations) pseudo-philosophical ideology of objectivism than a set of formal economic theories.

          The result of neoliberal economic theories has been proven time and again. Countries that embrace the neoliberal pseudo-economic ideology end up with "crony capitalism", where the poor and ordinary suffer "austerity", wage repression, revocation of labour rights and the right to protest, whilst a tiny cabal of corporate interests and establishment insiders enrich themselves via anti-competitive practices, outright criminality and corruption and vast socialism-for-the-rich schemes.

          Neoliberal fanatics in powerful positions have demonstrated time and again that they will willingly ditch their right-wing libertarian and minarchist "principles" if those principles happen to conflict with their own personal self-interest. Neoliberalism is less of a formal set of economic theories than an error strewn obfuscation narrative to promote the economic interests, and justify the personal greed of the wealthy, self-serving establishment elite.

          Another Angry Voice is a not-for-profit page which generates absolutely no revenue from advertising and accepts no money from corporate or political interests. The only source of revenue for Another Angry Voice is the PayPal donations box (which can be found in the right hand column, fairly near the top of the page). If you could afford to make a donation to help keep this site going, it would be massively appreciated.

          [May 12, 2015] Crude Prices 'Spike' Despite Saudis Increasing 'Surge' Production

          May 12, 2015 | Zero Hedge
          As Barclays recently noted, there is a complete decoupling between futures and physical markets for crude oil and nowhere is that more evident than the high volume spike in crude that just happened after Saudi Arabia boosted crude production for a second month to the highest level in at least three decades, helping to raise OPEC output as U.S. growth showed signs of slowing.

          As Bloomberg reports,

          Saudi Arabia boosted crude production for a second month to the highest level in at least three decades, helping to raise OPEC output as U.S. growth showed signs of slowing.

          The Middle Eastern country increased daily crude output by 13,700 barrels in April to an average of 10.308 million, according to data the country communicated to the Organization of Petroleum Exporting Countries' secretariat in Vienna.

          Prices collapsed by almost half last year as Saudi Arabia led OPEC in maintaining production rather than cede market share to booming U.S. output. The group has become more unified about keeping its daily output target of 30 million barrels because prices are now rising, according to Kuwait's oil minister. Oil in New York has surged more than 40 percent from its March low amid as U.S. drillers pulled a record number of rigs from fields.

          "The Saudis must be content that their policy of protecting their market share has worked so well and prices did not stay below $50 for long," said Christopher Bellew, senior broker at Jefferies International Ltd. in London, who had not seen the report. "They held their nerve and now see a stable market with their share preserved."

          ...

          OPEC maintained projections for supply growth from oil producers outside the group in 2015 at 680,000 barrels a day. It also kept its 2015 estimate for demand for the group's crude at 29.3 million barrels a day. That's about 1.5 million barrels a day less than the group produced in April.

          Looney

          The Saudis are really pissed now. They are in the full tantrum mode. Within just a few years they went from Bush's dearest friend to Obama's bitch. ;-)

          Secret Weapon
          The Saudis can go fuck themselves in the neck. 9/11 Truth.
          samsara
          They were just the drivers in the crime, the CIA and Mossad via dual citizenship Americans were the brains of the crime....

          samsara

          "...Saudi Arabia boosted crude production for a second month to the highest level in at least three decades..."

          SA has seen the writing on the wall, Their tenure is almost up, and anticipate losing control of the infrastructure.

          They are pumping out, and Cashing OUT as fast as they can.

          Making as much as they can while they can before they are overthrown and move to a 'Safe Place" somewhere.

          To know what I mean, look at this story.

          Iran Responds To US Naval Escalation, Sends Warship Escort For Yemen Aid Vessel

          [May 12, 2015] An Open Letter to Bill McNabb, CEO of Vanguard Group

          Economist's View
          Stephen G. Cecchetti and Kermit L. Schoenholtz (sort of a follow up on the claim that financial reform is working -- perhaps -- but as noted in the post below this one there is more to do):
          An Open Letter to Bill McNabb, CEO of Vanguard Group: Dear Mr. McNabb,
          We find your WSJ op-ed (Wednesday, May 6) misleading, short-sighted, self-serving, and very disappointing.
          Vanguard has been in the forefront of providing low-cost, reliable access to U.S. and global capital markets to millions of customers, including ourselves. Following the financial crisis of 2007-2009, the firm naturally should be a leader in promoting a more resilient financial system. Your op-ed sadly goes in the opposite direction.
          Let's start with the most stunning example: your defense of money market mutual funds. MMMFs are simply banks masquerading as professionally managed investment products. Like banks, they engage in liquidity and maturity transformation. Like banks, they faced runs in 2008 that ended only when the federal government provided a guarantee that put taxpayers at risk. Even with that guarantee, the government still had to support many healthy U.S. corporations with household names that – having previously relied on MMMF purchases of their commercial paper – suddenly faced a severe credit crunch. And, to limit a fire sale amidst the crisis, the Federal Reserve had to provide special funding to buyers to help MMMFs unload their assets.
          Unsurprisingly, fund sponsors and their clients – both creditors and borrowers – want to keep these opaque federal subsidies (especially the implicit guarantees that only become explicit and transparent in a crisis). Like them, you make the false, but popular claim that power-hungry regulators (who wish to limit the subsidies that make future crises more likely) are attacking (taxing!) Main Street instead of Wall Street.
          In fact, the investment company industry captured its primary regulator long ago, and hasn't let go. The Securities and Exchange Commission's 2014 "reform" of MMMFs is exhibit A. It almost surely makes these funds more, not less, liable to runs (see here and here). And – what a surprise – Congress seems to find protecting U.S. taxpayers from contingent liabilities (like implicit financial guarantees to your industry) less attractive than the largesse of financial lobbyists. Even the voluminous Dodd-Frank Act didn't address MMMFs! :

          After quite a bit more, they conclude with:

          As the CEO of one of the largest mutual fund companies in the world that is dedicated to serving and protecting small investors, you should be in the vanguard of advocating reforms that enhance stability.
          Instead of complaining about regulation under the guise of protecting Main Street, you should highlight the vulnerabilities in our financial system and make the case for efficient regulation that treats all activities equally. You should also promote investment vehicles that are likely to prove robust in a crisis, while warning about existing products that probably won't be.
          Only greater resilience in the system can make investors confident that capital markets here and elsewhere will remain strong. That is in Vanguard's interest, too.
          Sincerely,
          Stephen G. Cecchetti and Kermit L. Schoenholtz
          anne -> anne:

          Stephen Cecchetti and Kermit Schoenholtz are intent on undermining the most important stock and bond investment vehicle for moderately wealthy investors. Vanguard sets the finest of examples for the entire investment industry.

          pgl -> anne:

          Maybe you are being paid by Vanguard but you are wrong. You are not qualified to comment on financial economics. Stephen Cecchetti and Kermit Schoenholtz are.

          And they are not trying to undermine anyone. They are simply telling the truth. Repeat your garbage all you want but it is garbage.

          mulp -> anne:

          Anne, unless you call the FDIC bailout of the money market funds, and the Fed providing liquidity to them in 2008-9 totally wrong and you should have suffered losses in your holding in MMMF as they marketed to market (breaking the buck) and froze withdrawals until they could liquidate their holdings, or alternatively, declared bankruptcy, then you are totally bought into the free lunch economics of Friedman, Reagan, and all the bank lobbyists dependent on government handling the losses while they reap the profits.

          I remember the debate in the late 60s and early 70s on money market funds. We (the People) were assured that MMFs would never be seen as banks by any one investing in them because everyone would know the MMF would someday lose value and in the process freeze the assets for some length of time until the fund could be liquidated.

          In other words, not one person putting money in a MMF would see it as a bank that pays higher interest. More importantly, no business or corporation would ever confuse a MMF with a bank.

          In 2008, it is clear that the promises made four decades earlier to allow unsophisticated investors access money market funds without lengthy notice of intent to withdraw funds was all a lie, or a belief in tinker bell, pixie dust, and free lunches.

          The money market funds should have been left to collapse in 2008 to destroy all faith in them as safe for individuals to use, and in the process, "destroy trillions in wealth" held by tens of millions of upper middle class workers.

          I would have lost more than I did in 2008, but the demand for greater government control of the financial sector plus greater social safety nets would have followed.

          This is the first time I've seen someone besides me state that mutual funds are banks as we knew them in the 60s, except they pay nothing for the protection of FDIC and Federal Reserve membership.

          anne:

          http://www.nytimes.com/2015/05/10/your-money/fees-on-mutual-funds-fall-thank-yourself.html

          May 9, 2015

          Fees on Mutual Funds Fall. Thank Yourself.
          By JEFF SOMMER

          Wall Street is reaping mounting revenue from mutual funds and exchange-traded funds, yet investors are paying lower fees.

          That sounds like a good deal for the millions of people who use the funds to invest their savings, and a great deal for the companies that run and sell the funds.

          But that win-win situation is not quite as benign as it would seem. Many investors are still - often unwittingly - paying huge fees that cut into retirement savings.

          A new Morningstar study offers an excellent explanation of what is happening. The report, "2015 Fee Study: Investors Are Driving Expense Ratios Down," found that, by one measure, mutual fund and E.T.F. fees paid by individual investors had dropped significantly - 27 percent - over the last 10 years. But it isn't mainly because Wall Street fund managers have been reducing fees. The study found that investors have been voting with their feet, moving money from expensive funds into cheaper ones, like index funds. That drives down the asset-weighted cost of mutual funds, skewing the statistics.

          "It's not mainly thanks to the efforts of the fund companies," Michael Rawson, an author of the Morningstar study, said in an interview. "It's mainly because people have gravitated toward lower-cost funds."

          There's a good reason for the migration to lower-cost funds: They tend to outperform higher-cost ones. As I've written recently, most actively managed mutual funds don't beat the market; those that do beat it rarely manage the feat consistently. Many consumers have gotten the message. Of the 100 lowest-cost funds on the market in March, 95 were index funds that merely try to match the market, not beat it, according to an unpublished study by the Bogle Financial Markets Research Center. Many investors have chosen index funds.

          Yet because of the peculiar economics of the asset management industry, fund companies are still doing great. The companies that run the funds have been reaping outsize rewards because as fund assets have grown - thanks in part to the market's terrific performance over the last six years - the companies' own costs have declined.

          That's because of economies of scale that the companies don't share fully with customers. "The cost of individual funds has dropped, but the assets have gotten so much bigger that the companies' revenue from fees has grown tremendously," Mr. Rawson said. "They could be sharing more of those revenues with consumers, but they're not."

          Using publicly available documents, the Morningstar researchers estimated that in 2014, fee revenue from all stock and bond mutual funds and E.T.F.s reached a record high of $88 billion, up from $50 billion a decade earlier. Assets under management grew 143 percent, and industry fee revenue surged more than 75 percent. The asset-weighted expense ratio - the funds' publicly declared expenses divided by the actual money that investors put into them - declined, too, but only by 27 percent. "The industry - rather than fund shareholders - has benefited most," the report said. Mr. Rawson, a Morningstar analyst, wrote the report with Ben Johnson, director of global E.T.F. research at the company.

          The details are fresh, but the economic machine that propels the asset management business has been whirring along for decades. In a telephone interview last week, John C. Bogle, the founder of Vanguard, the industry's low-cost leader, said that in some ways, running a fund company is like operating a factory. As you ramp up production, it becomes cheaper to produce additional items because important costs - fixed costs - don't rise.

          For an asset management company, he said, a stock or bond portfolio is the core product and the intellectual exercise of selecting stocks and bonds for it is a fixed cost. "When you set up and run the portfolio, it's not much more expensive to do it when your fund has, say, $1 billion in assets, than when it had only $30 million," Mr. Bogle said.

          "Unless you cut your fees drastically, you're going to generate a lot more money for your company as assets grow," Mr. Bogle said. "But do you think the industry wants you to understand that? Absolutely not. Most fund companies aren't passing those savings on to investors."

          Vanguard, which is owned by shareholders of its funds, passes along most of the savings. Morningstar found that Vanguard's average asset-weighted expense ratio in 2014 was 0.14 percent, lower than any of the other top asset management companies and lower than 0.64, the current asset-weighted expense ratio for all funds.

          Mr. Bogle says companies should charge a modest, flat fee for setting up a portfolio - not a percentage of assets, charged annually, which is the current practice - and give fund investors the rest of the money. That would not generate the splendid profits that asset management companies and their owners have enjoyed, however.

          No wonder that in a rising market, shares of publicly traded asset management companies tend to outperform their own stock portfolios. For example, since the beginning of March 2009, the start of the current bull market, through April, the stock of BlackRock, the giant E.T.F. company, returned 27.1 percent, annualized, compared with 20.8 percent annualized in the iShares Core S&P 500 E.T.F., a BlackRock fund that tracks the Standard & Poor's 500-stock index, according to Bloomberg. You would have been better off investing in BlackRock, the company, than in its own S.&.P. 500 index fund.

          Why should mutual fund and E.T.F. investors care about the economics of fund expenses? Because it's the dark side of compounding, a force that can be magical when it works in your favor:.

          anne:

          https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#hist%3A%3Atab=1&tab=1

          Vanguard 500 Stock Index Fund

          Average annual returns as of 3/31/2015

          3/31/2014 ( 12.56%)
          3/30/2012 ( 15.93)
          3/31/2010 ( 14.29)
          3/31/2005 ( 7.89)

          08/31/1976 ( 11.05)


          https://personal.vanguard.com/us/funds/snapshot?FundId=0028&FundIntExt=INT#hist%3A%3Atab=1&tab=1

          Vanguard Long-Term Investment-Grade Bond Fund

          Average annual returns as of 3/31/2015

          3/31/2014 ( 14.54%)
          3/30/2012 ( 8.42)
          3/31/2010 ( 10.34)
          3/31/2005 ( 7.49)

          07/09/1973 ( 8.71)

          anne -> anne:

          This is what Vanguard has meant for modestly wealthy conservative long term investments since the 1970s. From Warren Buffett to David Swenson, the chief investment officer at Yale, Vanguard has been the recommended vehicle for ordinary stock and bond investors.

          Harming Vanguard would be a tragedy.

          anne -> anne:

          "Harming Vanguard would be a tragedy."

          The point is harming Vanguard would be harming the ordinary investors who in effect own Vanguard since Vanguard is indeed a "mutual" fund company, a company owned by fund investors.

          Dan Kervick -> anne:

          The well-being of modestly wealthy long-term investors is only one factor to consider in relation to the well-being of the entire US and global economy. Shouldn't we broaden the discussion?

          anne -> Dan Kervick:

          Vanguard forms a model for investment well-being in the United States.

          Bob:

          Anne, having liquidity requirements is not a tax on investors. When McNabb represents it as such, he is lying. There are no new fees or taxes imposed. It just requires that stock funds hold a percentage of assets in safe bonds in order to handle redemptions in panic situation rather than rely on taxpayer bailouts.

          Investors are still entitled to 100% of the returns from the fund. Yes, it is true that the total return may be somewhat less because bond returns are typically less than stock returns. However, that isn't a tax or fee on investors.

          Almost no investors maintain a 100% stock portfolio. The typical investor my have anywhere from 20% to 80% bonds. So with the liquidity proposal, some portion of the bond assets they hold anyway will be in their stock fund. They can adjust their stock vs bond allocation accordingly, taking into account the bonds held in their stock fund. After this adjustment, they will receive exactly the same total portfolio return as previously.

          The idea that this is a tax or fee is simply a lie. Investors still receive 100% of their investment return.

          Dan Kervick -> anne:


          Well, it seems prima facie plausible that the ability of some firms to deliver very high returns at low cost is due to the amount they have invested in high-risk, high-yield assets. An economy filled with many such firms is going to be an economy with a higher level of systemic risk. If we want a financially safer world, then some rich people are going to have to get richer much more slowly than they did in the past.

          JohnH: I don't believe Vanguard needs any liquidity requirements because none of its investments use leverage. If money is needed, they would just sell the assets at the current market value and disburse the proceeds.

          MMMFs are a little different, because there is the presumption that that value of each share will always be $1, which it will be if short term treasuries are kept to term. In case of a run, the Fed could also buy the treasuries and keep them a few weeks to maturity, as they do under QE.

          For funds that use leverage, the risk of a run is entirely different:

          Longtooth:

          My interpretation of Anne's issue is that she simply favors individualism's credo for the "moderately wealthy" over the rest of our society, and rationalizes her position by believing (in faith) that Vanguard is immune to failure and thus would not be a participant in any new liquidity meltdown, ergo the nation's taxpayers should shoulder the burden of for profit financial investors when such financial markets fail.

          I'm not sure what Anne's position is/was related to the meltdown just past.. but she's caught on the horns of dilemma --- either taxpayer's bail out private investors or they suffer an even greater financial and economic calamity.

          The whole point of Cecchetti & Schoenholtz open letter is that a) Vanguard is not immune, and b) taxpayers should NOT be placed on the horns of that dilemma again, and thus the Vanguard letter was indeed self-serving and misleading.

          EMichael -> Longtooth:

          Perfect.

          McMike:

          Well, the critiques may be technically accurate enough as far as they go.

          But I fail to see how attacking one of the last pockets of low-fee, consumer-facing investment helps anyone in the long run, except those who wish to herd all money into complex, opaque, high-fee vehicles.

          Money Market "reform" may have found some reasonable-sounding talking points on which to promote itself, but stepping back, one cannot help but see it is simply one more wave in the voracious plunder and elimination of any and all alternatives to the relentless and jealous Wall Street flim flam machine.

          anne:

          A democratic investment company is a company that is investor owned, that offers the finest quality long term stock and bond funds with minimal transactions or turnover at low management cost for investors with $10,000. For those men and women who prefer to deal with a Goldman Sachs, a suggest giving that company a call and finding the difference.

          The idea that a Warren Buffett is paid by Vanguard for recommending Vanguard only shows a failure to understand that Vanguard is owned by investors and there are no payments made to financial advisers for recommending the company.

          DeDude -> anne:

          If you think the leadership if Vanguard is controlled by and serving its investors - then you need to get out of the Ivory tower a little more.

          Leadership in any Wall Street company are always serving themselves first, second and third. It is just that some of them are better at hiding that fact than others.

          DeDude:

          As much as Vanguard is trying to sell itself as the investors friend on Wall street, their leadership is just as much a part of the Wall street vampire tribe as the rest of them. Yes, they suck less less blood from each victim, but they are still blood-suckers. When I see Vanguard offering a fund that restrict its investments to companies that compensate CEOs less than average (for that industry and size), then I will know they have left the blood-sucker tribe. The one product that would truly serve the interest of investors is not available from any investment company, because as useful as it would be for us it is dangerous for them.

          anne:

          The descent to profane and violent language on this thread, the descent to intimidation and bullying, is intolerable, horrifying, and meant only to destroy this thread and this blog.

          EMichael -> anne:

          Personally, I think the constant repetition of a Edwardian rant about language is "intolerable, horrifying, and meant only to destroy this thread and this blog."

          As Keynes said, "words ought to be a little wild".

          Syaloch -> EMichael:

          Amen to that.

          Syaloch -> anne:

          Am I missing something? Neither "vampire" nor "blood-sucker" is profanity -- unless you mean it in the sense of blasphemous, i.e. criticism of something sacred.

          Do you think that this "class of people" who work on Wall Street are holy deities and therefore beyond reproach?

          You attitudes toward Vanguard certainly seem to point in that direction:

          anne -> Syaloch:

          These very terms were used to characterize and dehumanize a class of people in the 1930s. These are terrible, fearful terms to use to describe and stereotype people.

          anne:

          The use of profanity and a metaphor from the 1930s in describing a class of people is intolerable. Paul Krugman made a serious mistake in using a 1930s metaphor in description, both for the dismissing of the decency of the humanness of an entire class of people and for setting an example as to use of the metaphor.

          Millions of people were methodically murdered during the 1930s in the wake of a campaign to stereotypically deny their decency, to deny their humanness by using dehumanizing metaphors to describe them.

          likbez -> anne:

          While behavior that you mentioned are unacceptable, a part of the blame is on you: you demonstrated a perfect example of the psychology of rentier, Anna.

          Rentier capitalism is a term used to describe the belief in economic practices of parasitic monopolization of access to any kind of property, and gaining significant amounts of profit without contribution to society.


          DeDude:

          No, I think people are just having a little fun with your stuttering failure to address the issues. However, I will stop now (before being called a Nazi again – but don't think your bullying has worked, its just that I am tired)

          DrDick -> DeDude:

          Nothing I love more than passive-aggressive bullies, but that is Anne's schtick.

          likbez

          The key question to Anne is whether Vanguard is really better for unmanaged funds then ETFs. You need to provides us with solid evidence or all your post with belong to the category that Prince Hamlet defined as:

          The lady doth protest too much, methinks.

          And for managed funds Vanguard experienced several high profile disasters such as with their flagship Primecap fund around 2008. In this sense there is not much to talk about here. Thir managed funds is just a typical example of "go with the crowd" approach.

          Issue of fees was important in 90th. But now IMHO Vanguard belongs to "also run" category: for each Vanguard fund you probably can find other fund or ETF with comparable fees.

          So why you so adamant in defending Vanguard Anne? It' just one of Wall Street sharks which was broght to the surface by establishing 401K in 1978

          P.S. I also consider Vanguard to be among more decent category of Wall Street sharks. But it is still a shark.

          [May 12, 2015]Infinity And The Bond Market Wormhole

          Zero Hedge
          The infinite loop continues.

          Central banks ease, cajole, fluff up their feathers and push markets to where they don't belong. Markets try to reprice themselves closer to normalcy (sanity). Central banks see their main equity index fall and panic. Central bank pushes more chips in and everyone has to cover. Central banks declare victory. Smart investor sells.

          It is so utterly appropriate that in the definition of infinite loop on Wiki it is pointed out that a synonym is "unproductive loop."

          Like any table stakes game, running out of wherewithal is a killer. What if the other player doesn't value the keys to your car? It certainly feels that way when debating how clever it would be to juice inflationary expectations by increasing the inflation target, which will ignite the animal spirits of the economy, even though (wink, wink) we will pull back before it becomes a problem.

          Another conceit being floated -- by the same central bankers who get night sweats thinking about the day after they raise rates some nominal amount -- is that their communication strategy has been so straight-forward and consistent that surely markets and the banks are on the same page.

          Yes, it will be a "regime change," but surely we are all seeing and evaluating the data the same way. That is code for, we don't have a clue either, but we desperately can't threaten the wealth effect of higher equity prices. This supposed wealth effect is used to celebrate (see a chart of Chinese equities) what in an alternative universe would be viewed as a bubble.

          Bonds are down because they are overpriced. They use the elevator rather than the stairs because the conceit of getting out right before it gets ugly never works unless there is massive official support, but even that is not always enough, let alone appropriate.

          The numbers out of Europe have been getting better. 1Q growth in Europe was better than in the U.S. or U.K. QE is working and the economy is building momentum. So explain to me again why 10-year rates should be negative? The EUR is up over a percent this morning. That may look nice, but that is precisely what they don't need and shouldn't want. Let the rally continue and we can dust off the negative yield talking points.

          [May 08, 2015] Will oil prices keep rising. Signs say yes

          May 08, 2015 | usatoday.com

          Oil prices are up and could continue to see some strength coming from a very unlikely source: Eurozone growth.

          That's not a typo. The European Union published a forecast on May 5 that pointed to a higher rate of economic expansion in the months ahead on the back of monetary stimulus and low oil prices. The EU could see growth of 1.8%, an upward revision from its previous forecast in February of 1.7%. That is not exactly lightning-speed growth, but it is a solid performance for the debt-ridden continent that has been fighting off recession.

          Still, there is a massive hangover from the Eurozone crisis from the last few years – debt, high unemployment, banking fragility, and an unclear path forward. And, ironically, the improved outlook stemmed in part from low oil prices, but a stronger EU economy could contribute to higher oil prices. For the oil markets, a stronger European performance is an unlikely, but welcome, development.

          With all of the quarterly earnings in from the oil majors, there is one common thread that runs through all of the reports. Profits from upstream oil and gas production were way down for the first quarter in 2015, but the damage was largely mitigated by downstream refining, which saw a large boost in revenue. Lower oil prices provide a larger margin for refiners to sell their products. But with WTI trading at a discount, refiners earn a little extra – buying crude at a discounted (WTI) price, and selling their refined products at a higher global price (more closely linked to Brent). By and large, the oil majors have their fingers in a lot of pies, and robust downstream operations provide a hedge against lower oil prices. That is not the case with smaller upstream companies that are more singularly focused on extraction. Those are the companies that are clearly hurting much worse.

          ExxonMobil (XOM) saw its refining profits double even as its upstream activities suffered. BP (BP) saw downstream earnings more than double. Total (TOT) managed to triple its earnings from refining. And on it goes. Still, overall, profits for all the oil majors are down on balance, but the first quarter performances show the benefits of an integrated business model.

          Another strategy that oil producers are using to alleviate the damage done from low oil prices is through financial mechanisms. Hedging their production at stable price levels could keep losses at a certain level, even if it means putting a ceiling on potential profits. Reuters reported that oil producers are stepping up their hedging, locking in prices that allow them to sell oil within a range of between, say, $45 and $70 per barrel. If prices drop below $45, these companies would be protected. Still, that means that they would miss out on higher profits if prices jump above $70. But after a year of extreme volatility, an increasing number of companies find it beneficial to hedge their future production to ensure some stability.

          ... ... ...

          Russia continues to produce oil at a near-record rate. For the month of April, Russia produced 10.71 million barrels per day, a high in the post-Soviet era. The higher production is helping offset the decline in revenues from low prices and western sanctions. The Russian economy shrank by a painful 3.4% in March from the year before. The ruble has taken on a high degree of volatility, interest rates were jacked up to rein in inflation and capital flight, and government revenues have taken a hit. Russian President Vladimir Putin is surely breathing a sigh of relief with the recent uptick in oil prices, a rise of nearly 40% in the last few weeks. Brent is now trading above $66 per barrel, a level not seen since OPEC made its decision to leave its output unchanged last November.

          Russian officials are set to meet with their OPEC counterparts in early June, with discussions covering the possibility of a coordinated output cut. But there is little scope for Russia to cut back on its production, given the aforementioned economic struggles. Russia declined to cooperate last time around. However, having seen OPEC's resolve in the face of low oil prices in the intervening months since their last meeting, perhaps Russia will reconsider balking at coordination.

          OilPrice.com is a USA TODAY content partner offering oil and energy news and commentary. Its content is produced independently of USA TODAY.

          MORE: BP proves analysts wrong with better than expected earnings report

          MORE: We are witnessing a fundamental change in the oil sector

          MORE: Why the U.S. should worry about oil sector jobs

          [May 08, 2015] Power The Essence of Corrupt Banking and Politics Is to Grow and Control the Debt

          May 04, 2015 | Jesse's Café Américain

          "Events have satisfied my mind, and I think the minds of the American people, that the mischiefs and dangers which flow from a national [central] bank far over-balance all its advantages. The bold effort the present bank has made to control the Government, the distresses it has wantonly produced, the violence of which it has been the occasion in one of our cities famed for its observance of law and order, are but premonitions of the fate which awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it."

          - Andrew Jackson, Sixth Annual Message, December 1, 1834

          "Another cause of today's instability is that we now have a society in America, Europe and much of the world which is totally dominated by the two elements of sovereignty that are not included in the state structure: control of credit and banking, and the corporation.

          These are free of political controls and social responsibility and have largely monopolized power in Western Civilization and in American society. They are ruthlessly going forward to eliminate land, labor, entrepreneurial-managerial skills, and everything else the economists once told us were the chief elements of production.

          The only element of production they are concerned with is the one they can control: capital."

          - Professor Carroll Quigley, Oscar Iden Lecture Series 3, 1976

          Money is power. And those who control the money, if they have the will for it, can use it as a means to incredible power, to create debt, and to control it, thereby controlling the debtors, both as individuals, as communities, as regions, and whole nations.

          This is the story of global trade deals, the Dollar, and the foul marriage between politics, money, and central banking. The more discretion and secrecy that is granted to those who create money and debt, the more vulnerable is the freedom of the people.

          This is the story of Cyprus, of Greece, and of the Ukraine.

          And there will be more.

          This will to power is as old as Babylon, and as evil as hell.

          "The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.

          Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

          Professor Carroll Quigley, Tragedy and Hope, 1966


          "He promises you illumination, he offers you knowledge, science, philosophy, enlargement of mind. He scoffs at times gone by; he scoffs at every institution which reveres them.

          He prompts you what to say, and then listens to you, and praises you, and encourages you. He bids you mount aloft. He shows you how to become as gods.

          Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."

          John Henry Newman

          Posted by Jesse at 8:03 PM

          Category: audacious oligarchy, central banks, debt slavery, Federal Reserve, financial corruption, modern monetary theory, money corruption, political corruption

          [May 08, 2015] Capitalizing on Crisis The Political Origins of the Rise of Finance by Greta R. Krippner

          August 31, 2014 | Amazon.com
          Stephen Thompson on August 31, 2014

          an attempt to understand financialization without applying class analysis

          Krippner defines financialization as "the growing importance of financial activities as a source of profits in the economy." The excellent second chapter of Capitalizing on Crisis makes clear that a process of significant financialization has indeed occurred in the United States. The share of total corporate profits made by financial corporations rose from around 15% in the 1950s to about 45% (!) in 2000. At the same time, for nonfinancial corporations, the ratio of portfolio income to total cash flow increased sharply. These changes mark a structural change in the US economy, with corporations apparently channeling more of their retained earnings toward the finance of consumer credit and other unproductive activities, rather than fixed capital investment. It is also worth noting that by driving up rentier incomes, financialization has played a major role in making the distribution of income more regressive. Obviously there are a number of questions one could ask about all this. Krippner focusses on one of the most fundamental: why did financialization occur?

          Krippner's answer goes essentially as follows. Starting in the late 1960s, various social movements (especially groups of women, African Americans, and unionized workers) in the United States became more powerful and demanded a larger share of national income for their members. The government responded by offering a bunch of expensive new public programs. At the same time, the government was ramping up military spending for the Vietnam war. This "guns and butter" policy, when coupled with the declining growth rate of the US economy, was highly inflationary. At the same time, since, under the New Deal regulatory system, the *nominal* interest rates on both bank deposits and mortgages were essentially fixed, the high rate of inflation drove the corresponding *real* rates of interest to low or negative levels, leading to a massive reallocation of credit in the economy. On the one hand, money flowed out of mortgage financing, so many middle-income people suddenly could not buy homes; on the other hand, banks lost deposits and were at risk of becoming insolvent. All of this set off a wave of financial innovation and political lobbying that undermined, and eventually destroyed, the policy of fixed interest rates that was at the heart of the New Deal bank-regulation system; this set off the process of financialization.

          I think several aspects of the above account are correct; it explains why *some* powerful social groups would be willing to support and agitate for financial deregulation. The problem comes when Krippner tries to explain why policy makers ultimately supported the interests of these particular social groups over the others, which had strong reasons to oppose deregulation. For example, Krippner describes in the book how early experiments (during the mid-1970s) with adjustable-rate mortgages were met with fierce public opposition, and quickly fell apart as a result. But then this opposition seems to simply disappear by the end of the 1970s, when interest rates were completely deregulated. What happened? And why did policy makers ultimately deregulate interest rates?

          The answer, according the Krippner, is that the deregulation of interest rates was part of a larger package of reforms, which allowed policy makers to avoid dealing with the conflict over income distribution that boiled over in the 1970s. It is argued that the expanded supply of credit in the US economy after the 1970s – which would not have been forthcoming without the deregulation of interest rates – made it possible to appease the various social groups that were demanding a better standard of living, and to do so without squeezing profits, increasing taxes or feeding inflation. The argument is that, by borrowing the money from abroad to finance social programs, and by increasing the amount of credit available to consumers, policy makers did not have to choose between different social priorities. Thus Krippner writes in the concluding chapter that financialization deferred "questions that first confronted U.S. society in the late 1960s and 1970s regarding which social actors should bear the burden of a fading prosperity."

          I see two major problems with that argument.

          The first problem is that the questions about "which social actors should bear the burden of a fading prosperity" were NOT deferred. In a process that started in the late 1970s (under Carter!) and accelerated in the 1980s, politicians and wealthy people initiated an onslaught of new policies that were clearly intended to both redistribute income upward and also crush the social movements which had been working to redistribute income downward in the 1960s and 1970s. Various forms of aid to the poor were cut, the tax system became much more regressive, huge sums of money flowed to right-wing advocacy groups and think tanks, the Fed implemented a tight-money policy which drove the unemployment rate sharply upward, there was an all-out assault on unions, government and foundation support for community activist groups was cut, etc. (For a detailed account of all this, I recommend the book Right Turn by Ferguson and Rogers). The success of this project is evidenced by the sharp change in the income distribution trends after the 1970s. In fact, far from *deferring* the conflict over income distribution, the financialization of the US economy seems to have actually been one of the biggest factors which helped to *settle* the conflict in favor of the upper socio-economic strata (see the paper "Financialization and US Income Inequality, 1970-2008" by Lin and Tomaskovic-Devey, published March 2013 in the American Journal of Sociology).

          Second, it is far from clear that the increased availability of consumer credit did much of anything to compensate for the stagnating incomes received by the poor and working-class people after the 1970s. I have read, for example, that the consumption-fueled boom during the 1990s was financed entirely by loans taken out by *upper-income households* – the people who saw their share of income RISE during the era of financialization. And even if consumer credit did become significantly more available to the poor and working people in the 1980s (and I am not convinced this is true), why would they passively accept this as an alternative to the rising incomes they were demanding in the 1970s? I think the obvious explanation is that increased flows of credit were not what resolved the crisis of the 1970s; policy makers resolved the crisis of the 1970s by curtailing the political power of poor and working people, and by crushing progressive social movements.

          Thus Krippner's argument that financialization, rather than being a class project, was simply an inadvertent result of policy makers' attempts to make voters happy, seems unconvincing to me. And I could go on much longer; I think Krippner's refusal to apply class analysis creates unnecessary problems throughout the book. Nevertheless, Capitalizing on Crisis is interesting and informative, and should be read by anyone who wants to better understand financialization. I found the chapter on Fed policy, in particular, to be illuminating. And like I said above, chapter 2 is excellent. But there are better books on financialization. I particularly recommend the work of Dumenil and Levy.

          [Apr 12, 2015] The American Consumer Will Never Be Back

          Under neoliberalism most Americans became debt slaves ("What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. ")...
          Quote: " I decided to look up how the US personal savings rate is calculated. Turns out, it's another one of those whacky goal-seeked government numbers. At least, that's what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step: "[The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent. " "
          Apr 11, 2015 | Zero Hedge

          Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

          That title may be a bit much, granted, because never is a very long time. I might instead have said "The American Consumer Won't Be Back For A Very Long Time". Still, I simply don't see any time in the future that would see Americans start spending again at a rate anywhere near what would be required for an economic recovery. Looks pretty infinity and beyond to me.

          However, that is by no means a generally accepted point of view in the financial press. There's reality, and then there's whatever it is they're smoking, and never the twain shall meet. Admittedly, my title may be a bit provocative, but in my view not nearly as provocative, if not offensive, as Peter Coy's at Bloomberg, who named his latest effort "US Consumers Will Open Their Wallets Soon Enough".

          I know, sometimes they make it just too easy to whackamole 'em down and into the ground. But even then, these issues must be addressed time and again until people begin to understand, and quit making the wrong decisions for the wrong reasons. People have a right to know what's truly happening to their lives, and their societies. And they're not nearly getting enough of it through the 'official' press. So here goes nothing:

          US Consumers Will Open Their Wallets Soon Enough

          People are constantly exhorted to save, but as soon as they do, economists pop up to complain they aren't spending enough to keep the economy growing. A new blogger named Ben Bernanke wrote on April 1 that there's still a "global savings glut." Two days later the Bureau of Labor Statistics announced the weakest job growth since 2013, which economists quickly attributed to soft consumer spending.

          The first problem with Coy's thesis is that even if people open their wallets, far too many of them will find there's nothing there. And Bernanke simply doesn't understand what savings are. His ideas through the past decade+ about a Chinese savings glut were always way off the mark, and his global – or American – savings glut theory is, if possible, even more wrong. In the minds of the world's Bernankes, there's no such thing as people opening their wallets to find them empty. If they don't spend, they must be saving. That there's a third option, that of not having any dollars to spend, is for all intents and purposes ignored.

          The U.S. personal savings rate-5.8% in February-is the highest since 2012. "After years of spending as if there were no tomorrow, consumers are now saving like there is a tomorrow," Richard Moody, chief economist at Regions Financial, wrote to clients in March. Saving too much really can be a problem when spending is weak.

          The little man inside, when I read things like that, tells me this is nonsense. So I decided to look up how the US personal savings rate is calculated. Turns out, it's another one of those whacky goal-seeked government numbers. At least, that's what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step:

          [The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent.

          Making paying off your debt (i.e. money you've already spent) count towards your savings is a practice fraught with questionable consequences. But useful for economists, and accountants alike, no doubt. The problem with it is that it hides reality behind a veil. Because debt repayments are not really savings at all; people are not free to spend what they put into paying off debt, on something else, like iPads, cars or trinkets. Not even on hookers or crack cocaine, for that matter.

          For the vast majority of what is paid off in debt, there's no such thing as free choices. People pay off debt because they must. Or, to look at it from another, wide lens, angle, Americans would have to stop servicing their debt payments if they want to 'start spending' again.

          Going through the numbers from various sources, I can see that the US personal savings rate is presently some 5.8% of pre-tax income, and debt repayment is close to 10% of disposable -after tax – income. I'm still trying to make those stats rhyme. But no matter how you read and interpret them, it should be clear that debt repayments are a large part of 'official' savings. Even if they really shouldn't be counted as such.

          Of what remains in real savings, retirement/pension savings must necessarily be a substantial percentage, and it would be weird to call those things 'saving like there is a tomorrow', if only because they are about, well, tomorrow. But that seems to be the new normal: creating the impression that saving any money at all is somehow detrimental to the economy. A truly crazy notion, if you ask me. Let's get back to Bloomberg's Coy:

          There are only two things you can do with a dollar, after all: spend it or save it. If you spend it, great-that's money in someone else's pocket.

          In someone else's pocket, but no longer in yours. Why would that be so great? It's only great if that someone has added value to something by doing productive work, not if you simply swap paper assets.

          If you save it, the financial system is supposed to recycle your dollar into productive investment with loans for new houses, factories, software, and research and development.

          That notion of 'the financial system is supposed to' refers to theories such as those that Bernanke and his ilk 'believe' in. Theories that have no practical value. What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. After all, according to them, whatever amount of dollars you get in, you either spend or save them. And if you use them to pay off previously incurred debt, you're supposedly actually saving, even though you no longer have possession of the money in any way, shape or sense, nor a choice of what to spend it on.

          But if no one's in the mood to invest more and interest rates are already as low as they can go (as they are in much of the world), the compulsion to save can sap demand and throw people out of work. For the U.S. economy, the good news is that the jump in the personal savings rate is probably no more than a blip. Three economists from Deutsche Bank Securities in New York explained why in a March 25 report called 'U.S. Consumers: Still Shopping, Not Dropping'. While noting a "deceleration" in consumer spending, they wrote, "we think that concerns about the outlook for the consumer are overstated." Their model of the U.S. economy predicts the savings rate will fall to 3% to 3.5% by 2017.

          Oh sweet lord. Now a falling savings rate has become a beneficial thing, even when and where savings are very low. Not saving will allegedly save the economy. How did that happen? If we may presume that debt repayments will continue virtually unabated, and there seems to be little reason to think otherwise, this means that by 2017 there will be just about nothing saved at all anymore in America. Which means there'd be very little left of the 'If you save it, the financial system is supposed to recycle your dollar into productive investment'.

          The only 'growth' perspective America has left is to grow its debt levels continually, continuously and arguably exponentially.

          Other economists have also concluded that the spending dropoff is temporary, which is why the slowdown in job growth, to just 126,000 in March, didn't set off many alarm bells. "Consumer spending is starting to look more and more like a coiled spring," says Guy Berger, U.S. economist at RBS Securities. One sign that consumers aren't retrenching: On April 7 the Federal Reserve reported that consumer credit rose $15.5 billion in February, in line with the recent past.

          They got deeper into debt, and this is a sign they're not 'retrenching'? A coiled spring? Really?

          According to Deutsche Bank Securities, the first reason to think consumers will resume spending is that their incomes are rising. Annual growth in average hourly earnings has averaged about 2% since 2010, which isn't great but does exceed inflation. With more people working as well, aggregate payroll outlays are up 4.9% from the past year, according to Bureau of Labor Statistics data.

          The rises in stock and home prices should make consumers more willing to live a little, say the Deutsche Bank authors. They calculate that households' net worth is almost 6.5 times consumers' disposable personal income. That's the highest ratio since before the housing crash.

          But that last bit is arguably all due to QE induced asset bubbles. Not an argument the author would make, I know, but nevertheless. Coincidentally, another Bloomberg article published the same day as the one we're delving in here is called:Why Your Wages Could Be Depressed for a Lot Longer Than You Think. Perhaps the respective authors should have a sit down.

          No question, the high savings rate depresses spending in the short run. Purchases of durable goods, from cars to couches, remain well below their 60-year average share of GDP. But all that saving helps consumers get their finances in order, which will allow them to satisfy pent-up demand for that sweet new Ford F-150.

          No no no: they just paid off part of their debts. How can that possibly mean they'll go out and get a new F-150? In real life, they spent their money instead of saving it. Either way, they don't have it any longer to spend on a F-150. It would mean they need to get into new debt. On top of what they still have left over even AFTER paying down part of it.

          Fed data show that financial obligations including debt service, rent, and auto leases are about their lowest in comparison to disposable income since 1981.

          Hmm. According to Wikipedia, "Household debt as a % of disposable income rose from 68% in 1980 to a peak of 128% in 2007, prior to dropping to 112% by 2011." It's about 105% today. So that's just a very weird statement. Someone's wrong, very wrong, and I think I know who that would be. Maybe Peter Coy conveniently ignores mortgage payments when he talks about "financial obligations including debt service, rent, and auto leases"?!

          When consumers are ready to borrow more, it won't hurt that, according to the Fed's survey of banks' senior loan officers, banks are easing lending standards.

          See? That's what I said: they can only spend if they acquire new debt. They're just getting rid of the last batch, and it's going mighty slowly at that. Lest we forget, when debt as a percentage of income falls, that is due to quite an extent to people failing to make any debt payments at all, and losing their homes and cars. This is a dead economic model. This model is pining for the fjords.

          These factors add up to an optimistic consumer.

          Oh, c'mon. What is that statement based on? That 'sky high' savings rate that is really just poor slobs paying off what they can in debt repayments so they won't get hit with even more fees and fines?

          What I think these factors add up to, is a delusional reporter. There is no excess saving. It's ludicrous. As far as people have any money at all, they're using it to pay down their previously incurred debts. And that gets tallied into their savings rate by the government's creative accounting methods. That's all there is to the whole story. But it will, regardless, induce a few more poor souls to sign up for more mortgages and car loans and feel like happy American consumers on their way down into the maelstrom.

          It's sad, it really is. Maybe we should first of all stop referring to the American people as 'consumers'. That might help.

          [Apr 12, 2015] Why The Oil Price Collapse Is U.S. Shale's Fault

          There is a link between overproduction of expensive oil and shale gas and access to cheap financing. In other words, the shale gas boom and bust in in large measure a by-product of ZIRP and QE.
          April 7, 2015 | nakedcapitalism.com

          Yves here. Notice how Arthur Berman links overproduction of expensive oil and shale gas to access to cheap financing. In other words, the shale gas boom and bust in in large measure a by-product of ZIRP and QE.

          By Arthur Berman, a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for several E&P companies and capital groups in the energy sector. Berman is an associate editor of the American Association of Petroleum Geologists Bulletin, and was a managing editor and frequent contributor to theoildrum.com. He is a Director of the Association for the Study of Peak Oil, and has served on the boards of directors of The Houston Geological Society and The Society of Independent Professional Earth Scientists. Originally published at OilPrice

          The present oil price collapse is because of over-production of expensive tight oil. The collapse occurred because of the inability of the world market to support the cost of the new expensive oil supply from shale, oil sands and deep water. Demand was progressively destroyed during the longest period of sustained high oil prices in history from 2010 through 2014.

          Since the early 2000s, the price of oil was largely insensitive to the fundamentals of supply and demand as long as prices were less than about $90 per barrel. The chart below shows world liquids supply minus demand (relative supply surplus or deficit), and WTI oil price.

          ada2268

          Figure 1. World liquids relative surplus or deficit (production minus consumption) and WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars, 2003-2015. Source: EIA, U.S. Bureau of Labor Statistics, and Labyrinth Consulting Services, Inc.

          In mid-2004 and mid-2005, the relative supply surplus was much greater than it has been during the 2014-2015 price collapse yet prices continued to rise. When oil traders perceive supply limits and rising prices, price below some critical threshold is not an issue. They are willing to carry the cost of storage and interest to hold the commodity in the future when it will be more valuable.

          In 2004, the relative supply surplus reached 1.9 million barrels per day and in 2005, it reached 4.1 million barrels per day. By contrast, the greatest supply surplus in the current oil price collapse was 1.7 million barrels per day in January 2015.

          During periods of supply surplus in 2004 and 2005, prices were less than $75 per barrel. The average WTI oil price between November 2010 and October 2014 was $91 and for 18 months of that period, prices were more than $100 per barrel.

          Oil prices have collapsed three times because of demand destruction: in 1979, 2008 and 2014. In all of these cases, oil prices exceeded $90 per barrel in real 2015 dollars for extended periods. The chart below shows WTI oil price* from 1970 to the present with periods when price exceeded $90 per barrel highlighted in red.

          ada2270

          Figure 2. WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars. Areas in red represent periods when oil prices exceeded $90 per barrel. Source: U.S. Bureau of Labor Statistics, EIA and Labyrinth Consulting Services, Inc.

          Oil prices were more than $90 in 1979-1981 for 26 months; in 2008-2009, for 13 months; and in 2010-2014, for 33 months. 2010-2014 was the longest period of oil prices above $90 in history. There were other factors at work in all three of these high oil-price episodes and their subsequent periods of price collapse.

          In 1979, the trigger for oil-price increase was the Iranian Revolution and the Iran-Iraq war. More than 6 million barrels of oil were removed from world supply. Oil prices rose from $50 to $115 per barrel (in real 2015 dollars) between January 1979 and April 1981. Then, new production from the North Sea, Mexico, Alaska and Siberia flooded the market. By March 1986, prices had fallen to $27 per barrel. OPEC cut production by 14 million barrels per day but oil price was unaffected because of a combination of demand destruction, crippling interest rates, and new supply from non-OPEC countries. Prices did not begin to recover until 2001.

          So far, the current oil-price collapse is nothing like this. Surplus production is about 1.0 to 1.5 million barrels per day, interest rates are near zero, and demand recovery appears strong from early data.

          The oil-price collapse and Financial Crisis of 2008 were preceded by 11 consecutive months of relative supply deficit and price increase (Figure 1 above). This was largely because of a surge of consumption by China and low OPEC spare capacity. Oil prices approached $150 per barrel in June 2008, the highest price ever reached, and then collapsed below $40 by February 2009.

          The record price of oil was an underlying cause of The Financial Crisis. It increased the cost of global trade, produced inflation and higher interest rates that contributed to real estate loan defaults, and caused demand destruction for oil and other commodities.

          Weak demand for all commodities and loans remains a chronic artifact of the years since 2008 despite the best efforts of central banks to correct the problem.

          Oil prices rebounded fairly quickly after 2008 because of a 4.2 million barrel per day production cut by OPEC in January 2009 (Figure 1). Another reason for increasing oil price was the devaluation of the U.S. dollar by the Federal Reserve Board by lowering interest rates and increasing the money supply. The chart below shows Federal Funds interest rates and the price of oil.

          ada2272

          Figure 3. Federal funds interest rates and WTI oil price in 2015 dollars, January 2000 – January 2015. Source: Board of Governors of the Federal Reserve System, EIA, U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.

          Oil prices rose with a weak U.S. dollar and interest rates near zero in 2009. Other factors, notably the Arab Spring uprisings in the Middle East, also contributed to the price increase.

          As prices passed $80 per barrel in late 2009, tight oil production began in earnest. Low interest rates forced investors to look for yields better than they could find in U.S. Treasury bonds or conventional savings instruments. Money flowed to U.S. E&P companies through high-yield corporate ("junk") bonds, loans, joint ventures and share offerings. Although risk was a concern, these were investments in the United States that were theoretically backed by hard assets of oil and gas in the ground.

          In the first half of 2012, flagging demand caused a relative supply surplus of 3.5 million barrels per day (Figure 1 above). WTI oil prices dropped below $90 but by early 2013, prices returned to the high $90-to-low-$100 per barrel range.

          Tight oil boomed after late 2011 when oil prices moved higher than $90. An endless flow of easy money was available to fund spending that always exceeded cash flow. The table below shows full-year 2014 earnings data for representative tight oil E&P companies.

          ada2273

          Table 1. Full-year 2014 earnings data for representative tight oil exploration and production companies. Dollar amounts in millions of U.S. dollars. FCF=free cash flow; CF=cash flow; CE=capital expenditures. Source: 2014 10-K filings, Google Finance and Labyrinth Consulting Services, Inc.

          These companies out-spent cash flow by 25%, spending $1.25 for every $1.00 earned from operations. Only 3 companies–OXY, EOG and Marathon–had positive free cash flow. Total debt increased from $83.4 to $90.3 billion from 2013 to 2014. Debt must be continually re-financed on increasingly poorer terms because it can never be repaid from cash flow by many of these companies.

          The U.S. E&P business has, in effect, become financialized: investment in this class of company has become the sub-prime derivative of the post-Financial Crisis period. There is no performance requirement by investors other than the implicit need to maintain net asset values above debt covenant trigger thresholds.

          These terrible financial results reflect a year when average WTI oil prices were more than $93 per barrel. First quarter 2015 earnings will make these results look good.

          The immediate cause of the present oil price collapse is found in increasing production and, to a less obvious extent, decreasing demand that began in January 2014 as shown in the chart below. Markets react slowly and it was not until June 2014 that prices began to fall.

          WorldLiquidsSupplyDemand

          Figure 4. World liquids supply and demand, July 2013-February 2015: Source: EIA and Labyrinth Consulting Services, Inc.

          This was the manifestation of longer-term demand destruction following nearly 3 years of oil prices above $90. The chart below shows the same world liquids data as in Figure 1 but with demand (consumption) expressed as a percentage of supply (production).

          ada2278

          Figure 5. World liquids demand (consumption) as a percent of supply (production) and WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars, 2003-2015. Source: EIA, U.S. Bureau of Labor Statistics, and Labyrinth Consulting Services, Inc.

          Figure 5 shows that demand as a percent of supply was generally increasing until about September 2007 and has been generally decreasing since then. Especially weak demand since early 2014 is merely the most extreme expression of a trend that has been active for more than 7 years.

          The present oil-price collapse is, therefore, because of long-term high oil-price fatigue. It reached a crescendo in mid-2008 when oil prices exceeded $140 per barrel but was not specifically recognized as more than another of the factors that contributed to the Financial Collapse that followed. It is now clear that oil price was a central cause of that collapse.

          The artificial low interest rates that have been imposed by central banks since the Collapse have weakened the U.S. dollar and pushed the price of oil above $90 per barrel for the longest period in history.

          The quest for yields in a low interest rate world led investment banks to direct capital to U.S. E&P companies. Capital flowed in unprecedented volumes with no performance expectation other than payment of the coupon attached to that investment. Tight oil boomed despite poor financial performance.

          The current oil-price collapse is because of expensive tight and other unconventional oil and the market's inability to support its cost. $90 per barrel WTI price appears to be the empirical threshold for demand destruction. Only the best parts of core areas of the Bakken and Eagle Ford shale plays make some profit at $90 per barrel and almost nothing makes money at present oil prices.

          Low price will eventually cure weak demand. At the same time, the effect of reduced oil and gas spending on the U.S. economy is unclear but a weaker economy could lower demand despite low prices. Allen Brooks and Euan Mearns have explained the case for demand destruction in excellent detail.

          The present oil-price collapse is severe because of the accumulated, long-term price fatigue that has existed since late 2007. Although the immediate cause of the collapse is over-production of tight oil, the key to recovery is demand.

          Demand is more difficult to cure than over-supply so that is where efforts must be directed. Over-production of non-commercial tight oil must slow and eventually stop before the market can balance itself. I am more optimistic than most that this is already underway but it distresses me to see increased capital flow thus far in 2015 to what Christopher Helman aptly calls "zombie" companies.

          The problem is structural and systemic and firmly rooted in the irresponsible funding of under-performing U.S. tight oil companies since at least 2010. The first step to price recovery is the severing of capital supply to companies that could not fund their operations from cash flow when oil prices were more than $90 per barrel. If this does not happen, we could be in for a long period of low oil prices.

          kimyo, April 7, 2015 at 1:08 am

          i hold stoneleigh in the highest regard because of analysis like this: (published in 2010, answering a reader's questions)

          Q: If we have $20 oil there will be no crisis, guaranteed. $20 oil and we have lots of credit/money expansion. Multipliers working and inflation/growth. We would have commerce. We would all be buying shit from (low- wage/cheap coal) China.

          Stoneleigh: I disagree. I think we will see $20 oil, but only because of a massive fall in aggregate demand due to the evaporation of purchasing power. $20 oil will not be cheap oil. On the contrary, it will seem very expensive to most people.

          (continuing)
          Stoneleigh: I am not convinced we will see the dollar become a proxy for oil. I think the dollar will rise substantially as dollar-denominated debt deflates (creating demand for dollars), and people make a knee-jerk move into it on a flight to safety. However, I don't think this will last more than a year or two at most.

          I think we are headed into a chaotic currency regime where floating exchange rates are dropped, currency pegs instituted in an attempt to 'beggar they neighbour', and those currency pegs fail.

          as late as q2/2014, people would have ridiculed her. since, we're not at $20/barrel, but it's certainly possible, given the 5/2015 land-based storage fill-up and the need for the shale operations to keep pumping. the swiss currency peg cut, the dollar's strength, she made the call and backed it up.

          Luke The Debtor, April 7, 2015 at 1:48 am

          The peak oilists' thesis is wearing thin: US oil and oil product production record. We're getting awfully close to seeing their covenant with Huebert expelled from energy discussions.

          vegeholic, April 7, 2015 at 9:17 am

          Did you actually read the article? One of the author's main points is that the dramatic increase in production is largely an artifact of cheap money. Dancing on the grave of Mr. Hubbert might be a little premature.

          sd, April 7, 2015 at 3:10 am

          Zombie oil for zombie banks in a zombie economy.

          Ignacio, April 7, 2015 at 5:35 am

          Berman's post is excellent. The comment you replied looks intended to lower the discussion to below ground level.

          Your answer is brief but points to another point of discussion: how the fracking investment frenzy will unfold. This is addressed in Euan Mearns link and adds to the uncertainty in economic and energy future.

          fajensen, April 7, 2015 at 7:16 am

          We will need to become zombies too – because the banks will have invested our pensions in shale oil riiight about at the top, when their cronies are dumping, so we cannot afford to retire or even die of old age.

          Santi, April 7, 2015 at 10:16 am

          In the South of Europe around one quarter of the population are already economic zombies: unemployed with no perspectives of ever getting a job. But most of us refuse to follow the second law of neoliberal thinking, and "go die" ;)

          In the positive side, Energy Intensity of Mediterranean countries like Spain and Greece, but also France or Italy is getting way better in a context of diminishing GDP (according to Eurostat). Spike in Greece was probably due to meltdown in 2012.

          Jim Haygood, April 7, 2015 at 8:01 am

          'Demand is more difficult to cure than over-supply so that is where efforts must be directed.'

          First central planning created oversupply through 'financialization.' Now demand has to be 'cured,' which is what QE and ZIRP (whether effective or not) were intended to do.

          Who is going to do this 'severing of capital supply to companies,' which metaphorically suggests corporate head chopping? Evidently, the mistakes of central planning are to be combated with yet more central planning.

          I hear that a retired central planner, Alan Greenspan, is available for consulting gigs. When it comes to forecasting energy demand and prices, he's a legend in his own mind.

          craazyboy, April 7, 2015 at 10:55 am

          "Who is going to do this 'severing of capital supply to companies.."

          I imagine it happens as their short and medium term bonds come due and they need to enter the bond market to re-fi. I would hope the investment world has not gotten so crazy in their search for a little yield that they overlook the fact that many of these companies bleed $40 of red ink for every barrel they pump. 'Course they will likely need to enter the bond market before rolling over existing debt – if they aren't even generating enough revenue to cover cash operating expense.

          vidimi, April 7, 2015 at 12:03 pm

          i had also picked that sentence out because it looks very counterintuitive. if something is more difficult, isn't it better to do the thing that's easier? but i take it to mean that supply will sort itself out while demand will need a hand.

          Steve H., April 7, 2015 at 8:19 am

          Don Lancaster is an old-school electronics buff who wrote "The Incredible Secret Money Machine." His amortization analyses debunking the financial viability of solar photovoltaics are excellent. For anyone interested, there is this pdf from 2008:
          .tinaja.com/glib/pvlect2.pdf

          Amend with this note from last December:

          "Meanwhile, the November pv pricing figures are in and approach
          45 cents per peak panel watt, If the present price drops continue,
          hitting the magic 25 cents per peak panel watt required for net
          energy renewability and sustainability could happen in as little
          as eight months."

          Coming from him, that is a very optimistic comment.

          Fool, April 7, 2015 at 5:06 pm
          So, from my rudimentary understanding: the financial sector is throwing lots of junk bonds around Shale markets; this hot money is causing an oversupply which is bringing down the price of oil. But if the price of oil is cheap, what's the problem?

          Oil Dusk, April 7, 2015 at 5:40 pm

          Interesting theory. Here's an alternate one.

          (1) OPEC essentially sets the world price for oil when it meets with OPEC and agrees on quotas.

          (2) Oil producers are essentially price takers. If the world price of oil exceeds the cost to produce this oil, as estimated over the life of an given oil well, then producers will make a decision to drill that well.

          (3) The real world price for oil should probably have been something around $85 a barrel for the past five years. The fact that it was actually something closer to $100, suggests that oil producers with marginal costs that could make their money back, along with a reasonable return, at $100 a barrel oil, were able to find capital to drill those wells.

          (4) As the US added a few million barrels a day of production through its oil shale operations (out of an estimated 90 million barrels of oil a day of crude oil liquids), OPEC once again had the option of simply cutting back on its quota and keeping prices at this level. Instead, this time, they chose to keep their level of production (to include the quotas) in place.

          (5) OPEC, as a cartel and mostly led by the Saudis in this matter, are suddenly willing to allow the crude oil market to crater to hurt other producers. They are willing to accept a large loss, as compared to what they have been making in recent years, in order to eliminate competitors and make the capital providers for their competitors think twice. They are achieving this by basically not undertaking their normal price setting behavior (which would be illegal in the US, unless it was done by someone like the Texas Railroad Commission). Once these competitors are eliminated, anticipate that OPEC will re-set the world price for oil back in the $85 a barrel range for now, but don't be surprised to see world prices jump above $100 for some temporary period.

          (6) Some portion of these shale plays are not economic above $85 a barrel; those companies that are overly invested in those marginal plays are in trouble. However, despite your persistent claims to the contrary, much of the US shale business is economic at $85 a barrel or less.

          (7) The annual decline rate for global production is something close to 5 million barrels a year. This is the amount of new oil production that must come on line each year in order to allow the amount of oil being produced to remain constant from year to year.

          (8) Given recent prices, the amount of capital being reinvested in oil drilling operations, is probably less than half of what it was last year. This means that the few million barrels of oil being produced from our oil shale operations a year has already been absorbed into the world oil system as part of that replacement oil for this year's oil production decline.

          (9) These current low oil prices will not likely last for long unless OPEC really throws in the kitchen sink and increases their quotas and digs into their excess production capacity in an attempt to flood the market. The EIA country report for Iraq suggests that they could possibly come up with another 6 million a day of production. Even so, that capacity could be absorbed in a couple years of annual decline.

          (10) You don't need to assume industry malfeasance to explain what has happened. The facts seem sufficiently explanatory.

          [Apr 10, 2015] Keynes and the casino

          July 13, 2009 | John Quiggin

          A short extract from my proposed book, over the fold. Lots more like this to come! Comments and criticisms much appreciated, with free books for the top ten!

          Dead Ideas from Live Economists: The Efficient Markets Hypothesis

          When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done, JM Keynes, General Theory of Employment, Interest and Money Ch 12, p142 in Google Book edition, Atlantic Publishers

          If there is one economic doctrine that has been central to thinking about economic and social policy over the last three decades, it is the Efficient Markets Hypothesis, or more properly, the efficient financial markets hypothesis. The EMH says that financial markets are the best possible guide to the value of economic assets and therefore to decisions about investment and production.
          Although economists since Adam Smith have pointed out the virtues of markets in general, the EMH with its focus on financial markets is specific to the era of finance-driven capitalism that emerged from the breakdown of the Keynesian Bretton Woods system in the 1970s. The EMH justified, and indeed demanded, financial deregulation, the removal of controls on international capital flows and the massive expansion of the financial sector that ultimately produced the greatest financial crisis in history.

          Some more linking material to come here

          Keynes and the casino

          Few economists have been successful investors, and quite a few have been disastrous failures. But after a narrow escape from disaster early in his investing career John Maynard Keynes made a fortune for his Cambridge college by speculating in futures markets It is a striking paradox that Keynes was among the most scathing of all economists in his assessment of the role of financial markets.

          "Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done" (General Theory Ch 12, p142 in Google Book edition, Atlantic Publishers

          During the decades of the long Keynesian boom, financial markets were tightly regulated, and, as a result, financial crises disappeared almost entirely from the experience and memory of the developed world. At the margin, substantial profits could be made by finding ways to work around the regulations, while relying on governments to maintain the stability of the system as a whole. Not surprisingly, there was a warm reception for theoretical arguments that presented a more favorable view of financial markets.

          Keynes' views were reflected in the systems of financial regulation adopted as governments sought to rebuild national economies and the global economic system in the wake of World War II. The international negotiations undertaken at a meeting in Bretton Woods, New Hampshire, in 1944, where Keynes represented the British government, established an international framework in which exchange rates were fixed and movements of capital tightly controlled.

          National governments similarly adopted policies of stringent financial regulation, and established a range of publicly-owned financial institutions in response to the failures of the private market. In the United States, a host of regulatory bodies were established to control financial institutions. The Glass-Steagall Act established the Federal Deposit Insurance Corporation (FDIC) and prohibited bank holding company from owning other financial companies. The Federal National Mortgage Association (later quasi-privatised as Fannie Mae, and then renationalised during the early stages of the 2008 meltdown) was established to support the mortgage market.

          Although the details of intervention varied from country to country, the effect was the same everywhere. Banking in the 1950s and 1960s was a dull but secure business, resembling a public utility in many respects. Parents scarred by the Depression urged their children to look for 'a nice safe job in a bank'.

          The Efficient Markets Hypothesis changed all that.

          Sinclair Davidson July 13th, 2009 at 18:59 | #1 Reply |

          Quote Zero price books – the cost comes out of the author's royalty.

          The problem with your argument, as I understand it, is this

          Efficient market theory is an ideology a few may share, but it is not a mechanism for direct action-taking. As such, and unlike the theories that truly caused the crisis, it cannot lead to activities by professionals that may cause trouble.

          There is also the point that the efficient market hypothesis says markets cannot be beaten, and yet the current nightmare was created by those who very much wanted to outperform.

          Had Wall Street and the City abided by the theory, they would have gorged on index funds rather than on subprime CDOs. They would have tried to make money by boringly replicating the index, not by selling optionality though credit default swaps.

          Rather than being followed, the efficient market theory was scorned.

          Andrew Reynolds July 13th, 2009 at 19:15 | #2 Reply PrQ,

          You seem to point to the "Efficient Markets Hypothesis" as being the cause of the "collapse" of the tight regulation and the Bretton Woods System. My understanding is that at least Bretton Woods was brought down by comprehensive cheating by many, if not most, participating governments.

          The massive overspending by Johnson and Nixon, combined with the steady debasing of the USD made the US's exit from Bretton Woods a fait accompli, only hastened by the speculation that it would happen, not caused by it.

          If you are also going to argue that there was a reduction of stringent financial regulation it would probably also help to justify that position, rather than assuming it. In the US, for example, none of the regulatory bodies disappeared and I am not aware of many, if any, of their powers that were removed.

          Peter Wood July 13th, 2009 at 19:23 | #3 Reply |

          Quote John, I recall you had an earlier post describing both strong and weak forms of the efficient market hypothesis. While I have big problems with strong forms of the efficient markets hypothesis, I do have sympathy for weaker forms.

          I think fleshing out the differences between strong and weak forms of the efficient hypothesis could be quite interesting.

          jquiggin July 13th, 2009 at 19:41 | #4 Reply |

          Quote AR, my final sentence is a bit ambiguous. It was intended to refer only to the last few sentences, about banking being safe and boring etc. I broadly agree with your account on the end of BW – this paved the way for deregulation.

          Sinclair, I'll be coming to your point later in this chapter. Relevant quote:

          There was something of a paradox here. The Black-Scholes pricing rule shows how an option price ought to be determined in an efficient market. But traders can only make a profit using Black-Scholes and similar rules to price derivatives if the market price deviates from the 'correct' price, that is, if the efficient markets hypothesis is not satisfied.

          Economists have wrestled with this problem for a long time without working out a completely satisfactory solution. The most common view was one that seemed to preserve the efficient markets hypothesis while justifying the huge returns reaped by financial market professionals. This is the idea that the market is just close enough to perfect efficiency that the returns available from exploiting any inefficiency are equal to the cost of the skill and effort that goes into discovering it.

          philip travers July 13th, 2009 at 20:11 | #5 Reply |

          Quote The Reynolds number above doesn't know his pipelines. Recently a move by DeMint to audit the Federal Reserve, was met by a a non-supporting Democrat House that was so uninterested like the Republicans a qourum could not be..and the bill or amendment was rescinded. A Video of DeMint outlining his stuff is on YouTube. A whole history of trying to audit The Federal Reserve has met with a dulling hammer. Who knows, if this had occured, Wonderboy Al Gore maybe in jail today.

          hrvoje July 13th, 2009 at 21:37 | #6 Reply |

          I'm not an economist. So I hope your book will be easy to read (i.e not too much hard core economic theory. I very much like Krugman's style of writing of non academic texts simply because it appeals to more people and ordinary folk can read it. And it's important that ordinary folk reads Krugman and similar authors like yourself), which I am sure it will. I have a copy of General Theory, and I must say it's a slog to read. He obviously did not intend to still be popular among non economists 60 years on.

          Thing that I don't understand about finance industry and which I hope you will address is this. In quite a few industries you can sue someone for professional negligence and malpractice i.e doctors, civil engineers, food factories, car companies etc. Hence they have a lot of incentive to besides winning consumers and making money also not to make catastrophic mistakes thus endangering their own financial survival and or jail time. What it boils down to is the question of incentives. If you (individually or as business) have all the incentive in the world to keep on pushing the envelope but have very little deterrent against the actions you might take, then you will keep on pushing the envelope. So what's the worst thing that can happen to you as a trader or a finance exec, if you're sitting on few million dollars a year. Well if you stuff up big time, you might get demoted, not get your bonus, or worse case scenario you might loose your job. Big deal, you already have made the money. Everything else after couple of million is a matter of peer prestige. So what do you do. You keep on pushing the envelope, because everyone else is doing it.. And for a certain period of time it works. Until it stops. In the meantime all of your friends (individual or similar type businesses) keep on pushing the envelope, until it stops. And then we all have a problem. I realise that we do not have current laws which could be successfully applied across the globe to prosecute those who have caused the financial crisis caused. A lot of it is a system error, beyond the control of one individual. But at the same time, this was a human made catastrophe which will push millions into poverty, cause civil unrest etc. Having said this, we also did not have laws for atrocities committed in second WWII or in the following wars. Yet perpetrators of atrocities committed did get successfully prosecuted and punished. It is a bit of a starch to compare finance guys to war criminals, but at the same time you do have a lot of pissed of people asking the obvious question? Should someone be punished? As they say, … just follow the money trail and where it went. If not jail time then maybe we could at least take their bounty away. And this could serve as a little bit of a deterrent to the next generation. To paraphrase and extend Keynes's "magneto trouble" analogy, "you don't mess around with the light switch, because if you do and you turn the darkness on to the rest of us. Well then, you should get your fingers chopped off".

          So Prof Q, how would you address the issue of incentives in finance industry and all other industries which are essential in the modern day society. As good old Keynes said it "Soon or late, it is ideas, not vested interests, which are dangerous for good or evil."

          haiku July 13th, 2009 at 21:49 | #7 Reply

          There's a quote out there somewhere from Charlie Munger (Warren Buffett's business partner) along the lines of "if investment banking is too big to fail, it should be tightly regulated and boring …" Or something like that.

          gerard July 13th, 2009 at 22:04 | #8 Reply |

          is this hypothesis falsifiable?

          This is the idea that the market is just close enough to perfect efficiency that the returns available from exploiting any inefficiency are equal to the cost of the skill and effort that goes into discovering it.

          There doesn't seem to be much in the way of a burden of proof.

          Or concrete terms under which the hypothsis could be rejected.

          haiku,

          Show me an institution that is too big to fail and I will show you one that has used the regulations to become that way.

          SeanG July 13th, 2009 at 22:59 | #10

          I think with EMH you should split it up with the primary focus being on the strong-form efficient market hypothesis which has driven options pricing. There is another great quote from Markowitz I believe that you could use about EMH, something that the view of the world from the Charles river is considerably different than the view from Hudson river.

          Jill Rush July 14th, 2009 at 00:08 | #11

          Were the aims of the two systems somewhat different? I had thought that the aims from Bretton Woods were nation building and reconstruction ie for the social good.

          The aims of Efficient Market Hypothesis seems to be the creation of wealth for individuals/corporations where the nation and social benefit are no longer in the picture except as an implied consequence.

          Andrew Reynolds July 14th, 2009 at 00:21 | #12 Reply

          Jill,

          There was no "system" that went with the EMH. It is simply an hypothesis – one that is susceptible to proof – i.e. at least in some way scientific. Bretton Woods was a system.

          One allows the participants to cheat like bandits – which they did from the get go. The other was the EMH.

          Jack Strocchi July 14th, 2009 at 00:38 | #13

          The Efficient Markets Hypothesis changed all that.

          Keynes was undoubtedly as good an economic theorist and financial operator as Pr Q would have it. But his philosophy of history exaggerates the role of ideological ideas over institutional interests. In the General Theory he concludes:

          It is ideas, not vested interests, which are dangerous for good or evil…Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

          In reality it is interests, not ideas, that tend to prevail. Power seeking organizations will of necessity engage in ideological manipulation of special interests in preference to institutional incarnation of general ideas.

          And then there are "events, dear boy, events" that no government or philosopher can do much about. In particular, it was the advent of fiscal inflation which drove a liberalisation of financial policy.

          The Bretton Woods agreement collapsed for institutional, not ideological, reasons. The US govt from the late sixties onwards could no longer square the politico-economic circle ie pay for gigantic increases in its Warfare (Vietnam/Arms Race) and Welfare (Civil Rights/Great Society) state, run a non-inflationary fiscal balance/trade deficit AND adhere to a USD exchange rate pegged to a fixed gold standard @ $35.00 per ounce.

          The result was that foreign govts, worried about inflation-driven devaluation of their dollars were starting to exchange them for gold. Causing the price of gold to skyrocket and the US to suffer a massive outflow of gold in exchange for less worthy paper.

          Nixon solved this by closing the gold window – the so-called Nixon shock. But this was pure policy opportunism by Nixon and not driven by an ideological preference for free exchange rates. Nixon was, if anything, more statist than most US Presidents.

          Of course Nixon's ending a "corporal" regulatory regime is not the same as Reagan's innaugurating a liberal de-regulatory regime. The biggest de-regulation occurred with the relaxation of Regulation Q by a liberal Democratic congress in 1980. This was done to allow larger banks to compete with non-Bank financial instittutions for deposit funds by raising interest rates, thereby stemming the inflation-driven outflow of money.

          That allowed financiers to get out into the market place and become "players", rather than just errand boys for industrialists. Thereby allowing executives to effectively privatise public companies through LBOs.

          So really it was inflation that forced the financial genie out of the regulatory bottle. After that it was leverage and arbitrage that did the rest.

          Jack Strocchi July 14th, 2009 at 01:03 | #14 Reply

          Pr Q says:

          There was something of a paradox here. The Black-Scholes pricing rule shows how an option price ought to be determined in an efficient market. But traders can only make a profit using Black-Scholes and similar rules to price derivatives if the market price deviates from the 'correct' price, that is, if the efficient markets hypothesis is not satisfied.

          Oh God here we go again. Neo-classical economists who attempt to justify liberal capitalism often do so by theoretically abolishing those aspects of the system that allow the opportunity to make profits which make it all worthwhile, at least from the pov of the capitalist.

          And then, to compound the irony, they practically establishing exactly those kinds of rackets that the competitive system is supposed to wipe out. Does the acronym LTCM strike a distant chord?

          If the perfect market theory were true then there would really be little role for entrepreneurial risk taking since information is freely available and reliable. Competitive firms would quickly compete away all profits, driving down prices to equate with marginal costs.

          The rate of profit would approximate the rate of interest. So there would be precious little incentive to take a risk on a new investment.

          In short, if perfectly efficient markets prevailed the capitalist system would quickly evolve into a predictable routine and everyone would die of economic boredom.

          In reality capitalist markets, whether industrial or financial, are anything but perfectly competitive, equitably informed or efficiently operated. They are characterised by large anomalies of information and disparities of incentive.

          Its the hunger to exploit these niches that keeps the system humming along. Nothing inherently wrong in that so long as the niches represent real differences in the value of useful things.

          The trouble with financial competition is that, left unchecked, its institutional churn of value creates artificial niches in virtual things. There is also an almighty tendency to market concentration as Big Banks swallow up Small Banks in order to better absorb risk.

          But their attraction to reward always outruns their aversion to risk. So they get into strife.

          And of course, in the late sub-prime crisis we had the added complication of the entry into the market of a vast, new and hitherto unknown risk quantity: marginal minority borrowers. Boy didn't that generate a few surprises!

          Martin July 14th, 2009 at 02:32 | #15 Reply

          Macao isn't doing that badly…

          Chris Warren July 14th, 2009 at 10:27 | #16 Reply |

          I cannot see much value in exploring the efficient "financial" market hypothesis, if you ignore the underlying efficient economic market hypothesis (Smith, Mill, Ricardo, Marx).

          useful insights can be gleaned by starting from a prison camp analysis of cigarette currency similar to RA Radfords 1945 paper "Economic Organisation of a POW camp".

          As Adam Smith used Robinson Crusoe to simplify matters, looking at a artificial system like Radford's has value.

          So I would assume that whatever distribution or allocation results from cigarettes, then presumably there could exist a better distribution based on a non-market distribution.

          Efficient Markets only exist if there is initially an equitable distribution of endowments. These two must coexist. We do not want a society that has to choose between and equitable distribution and a efficient distribution.

          In any such case – society will always go for the equitable outcome and efficient markets become a laughing stock.

          Gaz July 14th, 2009 at 11:01 | #17 Reply

          On the EMH and the role of regulation, Treasury guy David Gruen made a refreshing speech referring to it last month.

          http://www.treasury.gov.au/contentitem.asp?NavId=008&ContentID=1564

          Best quote: "It is as if, as the Titanic was sailing into iceberg-infested waters, those with the requisite skills and training to warn of the impending danger were instead hard at work, in a windowless cabin, perfecting the design of ship hulls … for a world without icebergs."

          Socrates July 14th, 2009 at 12:28 | #18 Reply

          I think the Efficient Markets Hypothesis would be better titled the Convenient Assumptions Hypothesis, because that is all it is. The easiest lie to tell people is always the one they want to hear.. EMH told a lot of right wingers and wealthy people what they wanted to here.

          I have another theory I'd like to see shot down in the wake of this mess: Alignment and Inncentive theories. These hold that, if you structure the incentives right, you can align people's interests with your own. Jensen and Murphy made careers out of running this argument. But its rubbish! People's interests are what they are; you can't change them. You might be able to align their behaviour with the right incentives. The difference between aligning interests and only aligning behaviour is not trivial. If you assume you can align CEO's interests then you don't need a corporate watchdog to police CEOs. If you only assume you can aling behaviour then you still need a watchdog, in case the circumstances arise where the CEO has a greater incentive to rip off the shareholders than act on their behalf.

          S. Haines July 14th, 2009 at 15:03 | #19 Reply

          JQ

          What exactly does "during the Keynesian long boom" mean? Does this mean a phase that Keynes himself described as a "long boom?" When did it take place and where?

          jquiggin July 14th, 2009 at 15:18 | #20 Reply #19 The "Keynesian long boom" refers to the period from WWII to the early 1970s in the developed world, a period of full employment and strong growth attributed at the time (and still attributed by some) to the use of Keynesian policies.

          Andrew Reynolds July 14th, 2009 at 17:18 | #21 Reply

          …and which ended with the collapse of virtually the entire infrastructure built up after the war in the face of systematic cheating by governments.

          S. Haines July 14th, 2009 at 18:12 | #22 Reply

          The boom between the end of WW2 and the mid-late 60s (the trouble set in long before 1973) was a result of three things more important that Keynes' economic theories:

          1. The massive profits the US made out of WW2 were able to be lent to Western Europe and Japan – the Marshall Plan – to rebuild them after WW2.

          2. The unquestioned militarisation of a bipolar globe led by the US and the Soviets.

          3. Incredible technological advances in production processes, which largely derived from war time Physics.

          Andrew Reynolds July 14th, 2009 at 18:59 | #23 Reply

          S. Haines,

          I would put at the top of the list the fact that the world economy was starting from a situation where there had been a prolonged depression followed by the most destructive war in history. As with China today, growing quickly from a low base is not a real challenge – all you have to do is stuff it up as little as possible. Growing quickly from a high base is the real challenge.

          Alanna July 14th, 2009 at 19:06 | #24 Reply

          Nonsense

          Andrew – you say
          "and which ended with the collapse of virtually the entire infrastructure built up after the war in the face of systematic cheating by governments."

          Sorry Andrew – if you must know why we never got back to the long boom post war (which did work and was more keynesian) – because of inflation in the 1970s due to Vietnam War Boom and poorly managed aggregate demand in the US post 1966 causing a wage explosition and prices up worldwide (yes – dont be naive enough to comment it was unions here "that done it" – it happened in lots of industrial countries at the same time…way too international for that – it was as it ever was …the US sneezed) and then oil (check yr government in the US at that time) – a bunfight over theory from a bunch of slightly misguided monetarists in the 1970s, then of course then (drumroll) you know who came to really stuff it up and make sure we NEVER revovered…the truly mad neo liberals.

          jquiggin July 14th, 2009 at 19:37 | #25 Reply

          AR @21, this point seemed a lot more convincing 18 months ago. The system based on the efficient markets hypothesis has collapsed just as spectacularly, and with much less to show for itself as far as OECD countries are concerned (China has done pretty well since the 1970s, but it's not exactly an advertisement for free capital markets).

          Andrew Reynolds July 14th, 2009 at 19:39 | #26 Reply

          Alanna,
          So "were all Keynesians now" Nixon was a neo-liberal? Fascinating. I look forward to your book on the subject. It should be a doozy.

          Governments everywhere cheated the system, Alanna – that is one of the reasons why it failed and fell into stagflation. It really was that simple.

          I never mentioned the unions – why did you feel a need to bring them up?

          Ernestine Gross July 14th, 2009 at 19:56 | #27 Reply

          JQ, Given the post and some comments (eg #1, #3), it seems to me there are several ideas and problems superimposed or entangled.

          My reading of your post is that you are using the term 'efficient market hypothesis' the way people in the financial sector (including accountants and corporate lawyers, management consultants …) and in policy areas and beyond have used this term. In this context, the term substitutes for phrases such as 'markets allocate resources efficiently', 'governments can't pick winners', 'the market outcome cannot be improved upon, therefore privatise, deregulate, etc, etc. I am not sure whether an appropriate label would be ideology or mythology or dogma.

          The comment in #1 is but a variant of the foregoing in the sense that the said practical men and women take 'theory' to be prescriptive and there doesn't seem to be time taken to distinguish between a 'theory' and a 'hypothesis'.

          The comment in #3 belongs to the professional Finance literature. In this literature, Fama is a big name. Fame wrote about three linked 'efficient capital market hypothesis', all of which linked the term 'efficiency' to information (weak form, semi-strong from, strong form). The Fama weak and semi-strong form hypotheses created a growth industry in publishing empirical tests. This literature was influential because it was empirical and it was said to be 'evidence based'. As I mentioned in an earlier post, in a 1986 Working Paper, titled "A Note on the Testability of Fama's Semi-Strong-Form Efficient Capital Market Hypothesis, Dept of Economics, University of Sydney (available in the Fisher Library), I showed that the hypothesis is not falsifiable. At most, the empirical 'tests' test a weaker proposition, namely that, relative to a benchmark 'market portfolio' and a hypothesis about the pricing of securities, one cannot make excess returns on average during a particular period of time from making investment (in securities) decisions that are conditioned on publicly available information. I learned from Frank Milne, formerly ANU, that he had reached a similar conclusion in an also unpublished paper (ie not published in an 'internationally recognised' journals because at the time they rejected such papers) paper. For all I know, there may be another 100 or 200 or more analytical economists in this world who had reached the same conclusion around the same time. In a later Working Paper "Shareholders' Valuation Response to Corporate Direct Foreign Investment Announcements', School of Banking and Finance, UNSW, 1989 (available at the UNSW Library), I found that the valuation responses (magnitude) varied with the regulatory framework within the sample period (ie one observation on the effect of a change in regulation of a particular type – no other big conclusions can be drawn).

          There is another literature relevant to the topic (IMHO). It consists of theoretical models on 'Fully Revealing Rational Expectations Equilibria (FRRE). This literature belongs to mathematical economics, using a methodology compatible with general equilibrium models at the time). This literature belongs to the 1980s. It 'covers' a notion of strong form informational efficiency and allocative efficiency in the sense of a Pareto-type criterion. Big names in this area are Grossman, Hellwig, Laffont.

          Then there is at least one study which aims to examine the likelihood of FRRE, using numerical methods (Boehm et al.)

          The point I end up making is that the 'efficient market hypothesis' in the Fama sense has been discredited before the term 'efficient market hypothesis' as you seem to use it became popular. Do you have a chapter or an appendix to the chapter on quality versus quantity of research output ?

          Does G Soros deserve a mention in relation to making money in the financial markets and being critical of some beliefs?

          I look forward reading your book.

          Ernestine Gross July 14th, 2009 at 20:18 | #28 Reply

          JQ, further on the 'efficient market hypothesis' – ideology or mythology or dogma:

          At least since 1987, some research took place in the area of financial stability or lack thereof. For example, H.W. Wilson et al, "A model of financial fragility", Journal of Economic Theory, Jul/Aug 2001.

          I'd be most interested to hear from academics in Commerce Faculties about their luck or otherwise in getting a course accepted which introduces at least an outline of the methodology and results from this body of literature. It was possible at UNSW in the 1980s and early 1990s, at least for honours students.

          The topic of derivative securities and their effect on equity prices has also been studied. In this area, a topic of interest to me has been the observation that the Black and Scholes model is a characterisation of an equilibrium of model of an economy with complete securities markets. Derivatives are redundant because their payoffs are priced by duplication portfolios of underlying securities. In practice the Black and Scholes model is 'applied'. Now, if the model is 'true' then introducing redundant securities and using past data of the underlying securities must have an effect on 'everything else', unless the number of derivatives is negligible in relation to the market of underlying securities. So I thought. Geoff Wells (honours student at the time) and I did a simulation study, modelling the application of Black and Scholes in a model where the conditions for the B&S model hold. Indeed, equity prices were affected and commodity prices (1 'good' only). The 1999 paper is available from the Library at UNSW.

          I have no sympathy with the opinion authors and practical men and women in formerly highly paid jobs who now wish to blame 'economists' for the GFC. But I am absolutely delighted hearing you are to write the book in question. The 'truth' wants to come out.

          S. Haines July 14th, 2009 at 20:24 | #29 Reply AR

          Yes, your point about growth from a very low base point is well made.

          I emphasise the Cold War polarisation as it more or less forced individual nationas to be hermetically sealed behind the military protection of whichever Cold War empire they belonged to. It had nothing to do with politicians from Canberra to London to Rome to Tokyo to Copenhagen reading Keynes

          But in the mid-1960s, inflation broke out, which Keynesianism could not control, and then not even the US could stop private companies and banks engaging in cross-border investment independently of regulatory attempts to control them.

          The so-called "Keynesian Long Boom" had less to do with Keynes than it was a result of the success of American militarism and imperialism. And it was not all that long. It stopped in the mid 60s, with the reemergence of inflation.

          Alice July 14th, 2009 at 21:08 | #30 Reply @Andrew Reynolds

          Look Andrew – it was you that brought up history…and Im so glad you did because you are way way off course as usual.

          I can find you an economists quote back in 1950 that said the trouble with policy (then!!!!) was that "laisssez faire" beleifs had infiltrated US power structures. Now just to get this truly in perspective "laissez faire" economics was always the enemy and always will be the enemy. It is they who make a monumental mess in the name of enriching a few. They were around before Keynes, who put paid to them, but they will always be with us. The enemies of sound economic policy. They have a new name but they are the same breed. Neoliberals is laissez faire by any other name.
          lets go back in time – Korean War boom also caused a run up in prices, again starting in the US and transmitted here like swine flu – but it didnt last long. The Budget of 1951-52 delivered shart tax rises and a credit squeeze. It lasted barely a year. A Keynesian budget delivering what it should have to restrain demand – and another "little budget" in 1956 when it threatened to rear its ugly head again. Problem solved – Keynesian policies. Fast forward to 1966 – again another run in the US – and another war – Vietnam. Only this time – no good policies – Nixon in in 1968 – the start of the rot and no decent constraints (Keynesian demand management). Instead he escalated the Vietnam war. He used wage and price controls instead of Keynesian remedies. He abolished the gold standard. He devalued the dollar 8%. His budget deficit of 1971 was the largest in US history (petrol) and he was a crook and it declined from there.

          Andrew, in case you don't remember – Nixon was a republican. It was the abandonment of Keynesian economics that stuffed up economic policy and got us into the mess of the past 35 years being nowhere near as decent as the post war years. Neoliberalism = Laissez Faire by another name – thats all.

          Tony G July 14th, 2009 at 21:09 | #31 Reply

          " I'd be a bum on the street with a tin cup if the markets were always efficient "

          Ernestine Gross July 14th, 2009 at 21:14 | #32 Reply

          S. Haines, Are you suggesting that the military expenditure ("American militarism and imperialsim" in your words) had nothing to do with the "re-emergence of inflations"?

          Ernestine Gross July 14th, 2009 at 21:18 | #33 Reply

          Tony G, your comment reminds me of a former colleague in a School of Finance who was the only one with a 'fat merc'. On the topic of efficient capital markets he used to love putting on a little smile saying: you buy cheap and sell expensive. He was very popular among those who thought they were testing a Fama hypothesis.

          S. Haines July 14th, 2009 at 21:20 | #34 Reply

          EG

          No, I am not. I am merely questioning the significance of 'Keynesianism' that JQ seems to give it.

          Alice July 14th, 2009 at 21:33 | #35 Reply

          @S. Haines

          This is the sort of comment I object to…"But in the mid-1960s, inflation broke out, which Keynesianism could not control"

          A) Inflation did not break out in the mid 1960s. It broke out in the late 1960s. Wage rises started breaking out in the mid 1960s BUT NO Keynesian remedies were applied. It was this failure that led to the extreme inflation of early 1970s that was an international phenomenon transmitted to the rest of the world by an unrestrained boom in the US.

          It was a failure to restrain aggregate demand in the US. It was the failure to apply Keynesian remedies, primarily due to the Nison government (republican). It wasnt until early in the 1970s sometime that Greenspan stepped in (in Fords company – another republican) after Fords solution to high inflation in the early 1970s was to get people to wear WIP badges ("Whip Inflation Now" – now that was useful wasnt it) to advise a stimulus because by then the ugly thing has imploded and thrown people on the streets) and what was Greenspans stimulus?

          What else? Stimulus via tax cuts.

          Tax cuts – then became so popular they were given for breathing. They were even given to the rich. Big ones. Fast forward to Reagan and supply side tax cuts given to all in business to cure everything from a headcold to impotence (except budget deficits and declining govt investment).

          By this time the economy is becoming impotent. People are told they are losing their jobs because of "structural change" and "technology improvements seeking skilled workers" ha ha.

          It was just lousy management all round.

          Alice July 14th, 2009 at 21:35 | #36 Reply WIN badges – sorry (Whip Inflation Now). Oh my goodness. Sounds like the start of media and politics (the Howard Govts interest rate election…..ew). If they were doing something useful they wouldnt need to advertise it.

          Alice July 14th, 2009 at 21:52 | #37 Reply "Obviously, we've got budget matters. You know, when I was running for President, in Chicago, somebody said, would you ever have deficit spending? I said, only if we were at war, or only if we had a recession, or only if we had a national emergency. Never did I dream we'd get the trifecta." (Laughter.)

          George Bush

          and Keynes said if you can build and economy for war for you can build it in a time of peace

          But the neoliberals (in the Republicans) only liked war because they had mates in oil or military supply lines. But they knew what war spending could do and if REAL unemployment wasnt so high in the US (as opposed the offficial measured unemployment) they would have got another bad dose of inflation. Instead they got a global ponzi boost and some war looting thrown in for good measure (Gulf war 1 and 2 – thankyou to the Bush Family who know how to look after their own).

          TerjeP (say tay-a) July 14th, 2009 at 23:26 | #38 Reply JQ – Can you fit in a few chapters discussing the Bancor and how it might have made for a different global monetary system?

          Ernestine Gross July 15th, 2009 at 08:01 | #39 Reply Correction, comment #28, para 4, last sentence should read:

          "The 1989 paper is available …" (not 1999).

          Apologies

          S. Haines July 15th, 2009 at 13:56 | #40 Reply Alice

          My economic history is a bit rusty, and I do not have the data at my fingerprints, but I am pretty sure the inflationary break out occurred in 1965 in the US, while average profit rates peaked the year after in 1966 and continued to decline until the early 1980s. This led to the credit-crunch of 1966-67. If you have contradicting data, I would be grateful for the correction.

          Alice July 15th, 2009 at 16:27 | #41 Reply @S. Haines
          Inflation was between 4 and 6% in the US between 1965 and 1970 S.Haines (having risen from 1960 from slightly under 2%). However, deespite a small dip after 1968 – Inflation then took off, reaching 10 to 11% around 1972 fell back to about 8% in 1977 and then rose to 12% around 1980. I havent got the actual inflation figures for the US in front of me but they are shown graphically hence Im reading these numbers from a chart (so not absolutely precise but probably close enough). On the scale of things the rise after 65 was both relatively small and dipped back relative to the peaks of early 1970s and early 1980s inflation (and the US the early 1980s peak which was even higher than the early 1970s). It was this inflation I was referring to. For a look at how inflation looked in a lot of countries at around the same time, this article illustrates well. It was def a worldwide event and as such most unlikely to be caused by any local union activity (US intyernational transmission more likely). These authors found not a lot of evidence to suggest oil price rises or food price rises triggered inflation starts (exacerbate maybe, trigger – no) in OECD countries. They suggest

          "High real GDP
          growth prior to many inflation starts is consistent with the idea that policy-makers focused on the short-term benefits of stimulating real growth while avoiding the costs of ending incipient inflation. Exchange rate stability concerns seem to have led other countries to follow U.S. inflation policy even after the demise of Bretton Woods. Thus policy mistakes in the U.S., coupled with the U.S. role as a leader in setting inflationp olicy, contributed to a large number of inflation starts in OECD countries in the 1960s and 1970s."

          What Starts Inflation: Evidence from the OECD Countries
          Author(s): John F. Boschen and Charles L. Weise
          Source: Journal of Money, Credit and Banking, Vol. 35, No. 3 (Jun., 2003), pp. 323-349. You can find it in Jstor.

          http://www.jstor.org/stable/3649835

          Alice July 15th, 2009 at 16:27 | #42 Reply excuse spelling mistakes above

          rog July 15th, 2009 at 16:30 | #43 Reply I thought it was more a system that relied heavily on sophisticated models had collapsed.

          And it was the collective view of the majority of academics and economists that everything was A-OK

          "I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a 'tail' outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it" (RBA 2008).

          jquiggin July 15th, 2009 at 16:33 | #44 Reply Rog, while the nature of the crisis was such as to make it impossible to predict in detail, there was a substantial group of economists (admittedly, as you say, a minority) who pointed to both the unsustainability of imbalances in the global economy and the dangers of a breakdown in the financial system.

          Alice July 15th, 2009 at 16:37 | #45 Reply If history is any guide JQ, when the wealthy are making large stock market profits, minority group economists with substantially sound advice not only dont get listened to…they often get pilloried by the press.

          S. Haines July 15th, 2009 at 19:16 | #46 Reply Alice

          Your data confirms my own rusty memory. Between 1965 and 1970, US inflation experienced once of its biggest break outs in history increasing by nearly 300%. The official US and OECD figures confirm inflation going from 1.5% to 5.5%

          S. Haines July 15th, 2009 at 19:19 | #47 Reply And in Australia the breakout started even earlier in 1963.

          Alice July 15th, 2009 at 21:17 | #48 Reply @S. Haines
          Im dont think you can add or just average two years of inflation rates to come up with 300% (it is indexed to a base year) growth. You should actually use the original index. The inflation I was referring declined from your peak of 5.5% before rising again to a peak of 12.3% in 1974 declined and rose again to peak at almost 15% in 1980. There are three distinct peaks – the latter two larger (1970s and 1980s). We are at odds in our views depending on whether you see the first peak as part of the two larger ones. It would be interesting to compare to other countries. Was it inflation really at 5.5%?? Then the question is where were the appropriate Keynesian restraints? The Vietnam war and labour constraints (manufacturing wage rises had started) may have indicated the need for some constraint and that is the point I was making.

          Notwithstanding, I dont see the more severe inflation of the 70s decade and 1980 as a "failure of Keynesian Policy" which was your original point. I mentioned Nixons largest budget deficit in US history (to that time) in 1971 – now that is hardly a fiscal contraction is it?? Three years later inflation was between 10% and 12% depending on what month you want – either way that is more sinister than a 5% rate. What I see was actually see here is a "failure to administer Keynesian policy" not a "failure of Keynesian policy."

          The details of individual inflation rates also depend on the month selected which can differ substantially but notwithstanding, there are three distinct peaks between 1966 and 1980 (and in between falls).

          http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=3

          Tony G July 15th, 2009 at 22:09 | #49 Reply Ernestine

          I was just making the observation that Warren Buffet thought EMH was crap and that he was glad business schools churned out lots of graduates willing to apply EMH to their investments so he could succesfully apply his theory to their investments as well.

          Hence his quote;

          " I'd be a bum on the street with a tin cup if the markets were always efficient ."

          ,

          Ernestine Gross July 16th, 2009 at 08:20 | #50 Reply Tony G, # 49, and somebody may have also said that some business schools don't penalise students who don't reference their quotes.

          Except for the possible interest of your #49 for #1, we are getting off topic.

          Damien Morris July 16th, 2009 at 15:50 | #51 Reply The Efficient Markets Hypothesis is a bit like the notion of water finding its own level; it does, but that does not help you survive intermittent tsunamis.

          S.Haines July 17th, 2009 at 18:31 | #52 Reply Alice

          Your point about "failure to administer Keynesian policy" actually agrees with my position that Keynesian ceased to be the governing policy paradigm years before 1973. And my stats on inflation are indeed correctly used. So we had monetary policy taking over in the states in the 1960s, and an end to the so-called "Long Boom" nearly a decade earlier than is often claimed.

          Alice July 17th, 2009 at 19:23 | #53 Reply S.Haines – I would agree entirely with that – the demise of Keynesian policy was probably in part to blame for the end of the long boom and the beginning of the downward slide…Monetarism sacrificed employment for the benefit of a low inflation environment which primarily rewards the wealthy. The dogma of the benefits of a low inflation environment have been pursued, and promoted, no matter what the cost to employment and indeed the employed have been sacrificed on this alter of false worship.

          It is this one eyed view in policy I find abhorrent. Unemployment (and underemployment and increasingly marginal employment) has been used to keep inflation low (and increasingly it has needed higher and higher unemployment (real not published) to perpetuate the myth that low inflation is good.

          The federal reserve banks have effectively taken over management of economic policy and its all about one single statistic.

          Alice July 17th, 2009 at 19:27 | #54 Reply I simply dispute one comment S.Haines …and that is "nearly a decade before it is claimed". At most it is half a decade.

          S.Haines July 17th, 2009 at 19:58 | #55 Reply As I said my economic history is rusty, but to what extent could Australia and the UK have described as "Keynesian" at any time during the Long Boom?

          Alice July 17th, 2009 at 20:07 | #56 Reply I dont know why you would ask that S.haines. The pursuit of full employment (and the attainment) – the rapid response to crises like the wool spike were particularly Keynesian. The budget was used frequently as a method of control.

          Alice July 17th, 2009 at 20:12 | #57 Reply @S.Haines
          S.Haines – you only need look at the percentage of Govt investment in the economy (not welfare – it was very small and not needed) in this country in the 1940s and 1950s to see the impact of Keynesian policies at work. Im very surprised at your comment and seriously hope you arent intending to dispute the existence of keynesian policies during the long boom because I woul have to put you firmly in the denialist out tray if you are…

          S.Haines July 17th, 2009 at 20:44 | #58 Reply I would be interested to see these figures. Given the mess you made with inflation, perhaps we both really need to have a look.

          Alice July 17th, 2009 at 21:03 | #59 Reply Mess S.Haines ?? You are obviously in the business of spreading misinformation. If you were any genuine economist or reseaarcher (shame about your rusty memory – I suspect you never had any economic history to start with and barely economics either) you would know that inflation depends on the month, which can vary over the year and as for your figures you dont even understand that you cant add or divide annual inflation rates….end of discussion. Waste of space and arguments…just another right wing delusionist.

          Alice July 17th, 2009 at 21:15 | #60 Reply What I really dont understand is why people like S.haines bother to lie and make false arguments about history. This generation has all the facts at their fingertips in the electronic world but they would rather subscribe to a two bit political machine's political rag of misinformation and garbage (and I dont care what party it is – its all still rubbish). All I can think is that they dont know how to research or how to look up the facts and the correct information (and they damn well have it so easy compared to when I was a student).
          Its an insult to any thinking person to have to deal with them.

          SeanG July 17th, 2009 at 23:22 | #61 Reply Alice,

          I am a little shocked at your cavalier attitude towards inflation. This destroys the value of the least well to do – those who receive a fixed income like pensioners or the unemployed. Historically it has torn apart countries with great examples being Germany and Bolivia.

          Alice July 18th, 2009 at 08:02 | #62 Reply Sean G – so does high unemployment

          S.Haines July 18th, 2009 at 23:57 | #63 Reply

          Alice

          I am surprised that you still fall for these "Keynesian Long Boom" and "Golden Age" fairy tales. I also believe very strongly in evidence based analysis and discussions. So here's a few more for you.

          1. During the 1950s and 1960s, Australian governments did not pursue the sort of active expansionary Keynesian fiscal policies you claim. There was the horror budget of 1951-52, for example.

          2. On average, budgets were in SURPLUS, and when there were deficits, they were tiny. The big deficits did not come until the 1970s.

          3. In fact, successive governments showed more sensitivity to monetarey policy, fuelled by bureacrats obssessed with inflation more than fiscal expansion, hence the legendary credit squeezes of the early 1950s and 1960s. The latter nearly lost Menzies the election.

          4. In fact by the early 1960s, policy unequivocally shifted from any pretence to growth and full employment to price control and stability – inflation being the number one policy objectivity. I have already presented the data to explain why.

          5. Your claims about government investment are like your others, without data, and are just wrong. For starters being 1950 and 1973, Australian GDP growth was below the OECD average the entire time, compared with being near the top of the OECD for the whole of 1880 to 1950. In fact, during the 1950s and 1960s, government outlays as a % of GDP average only 20%, compared to 30% during the 1970s and 1980s.

          6. Given that Australia had one of the largest immigration programs in the world, when we look at GDP per cpaita, Australia becomes a basket case relatively. In the 1950s, our GDP per capita growth was a measley 1.7%, compared to the OECD average, which was nearly double at 3.3%. In the 1960s, we gained a bit to 3.2%, but still way behind the 3.9% average.

          7. Any "boom" Australia did experience was ironically due to good old fashioned liberalism; the liberalisation of global trade in the post-war era accounts for a huge amount of Australian growth and prosperity.

          Alice, I get the impression you are a teacher of some sort. What do you teach, and where do you get your materials? And where have you picked up all these myths about Keynes and Australian economic history?

          Alice July 19th, 2009 at 00:14 | #64 Reply Oh for goodness sake S.haines. The horror budget you refer to corrected the inflationary Korean war wool boom within a year (alongisde the crash in the wool price). What part of keynesian contractionary budgets dont you understand …or did you think Keynesian policy only expanded indefinitely? I think you have confused Keynesian policy with Greenspan style policies. You havent lived long enough S.Haines and its obvious.
          Look up Govt investment S.Haines as a percentage of GDP in the 1950s – tell me what do you see?
          Ill look it up tomorrow for you S.Haines but Im too tired tonight to deal with this nonsense.

          Alice July 19th, 2009 at 00:15 | #65
          And S.Haines…its none of your business where I work and its none of my business where you work and I dont ask you (and I dont care) so dont overstep the mark.
          Alice July 19th, 2009 at 00:24 | #66
          Liberlaim also wasmnt even in the vocabulary in 1950s S.Haines (unfortunately for you). Liberalism is a sham dogma for young liberals to read instead of the bible (sign of the times) but they would be far better off with the latter in terms of social usefulness.

          Alice July 19th, 2009 at 00:26 | #67
          Correction to above – "liberalism wasnt even in the vocabulary in the 1950s S.Haines".

          S.

          Haines July 19th, 2009 at 00:31 | #68
          ROFL. That would have been news to Bob Menzies!! On your other points, I have provided arguments and data. Now, it is your turn.

          SeanG July 19th, 2009 at 04:43 | #69
          Liberalism a sham dogma? Freedom for individuals is a shame? Opening opportunties such as voting rights is considered a sham? How about the Old Age Pension which was introduced in the UK by a Liberal Government. This Government acted like a beta test for the Australian Liberals. Liberalism has been a guiding light for humanity compared to socialism which has delivered stagnant economies and societies and being the precursor to a more authoritarian state.

          jquiggin July 19th, 2009 at 06:57 | #70
          Can we cool things down a bit, please. S. Haines, I can't say I'm convinced by your claims here. Alice is exactly right about the horror budget for example, and more generally, you seem to be conflating Keynesian demand management with budget deficits. But if you have references to published work dating the end of the long boom to the early 60s, or official statements on a shift away from reliance on fiscal policy, I'd be keen to see them.

          Alice July 19th, 2009 at 15:33 | #71
          S.haines doesnt distinguish between Government investment and Government welfare outgoings either. In the 1950s Govt social capital investment was high and government unemployment benefits payments were extremely extremely low. The expenditure of public authorities was approximately equal to private investment in fixed capital throughout the 1950s, Funny about that. Public authorities (as opposed to the public committees that proliferate today) created jobs so that people didnt need their hand out for welfare but there is no distinction able to be made by S.Haines who cant see the link between high unemployment today and the expectation that private investment would see it trickle down. It didnt and it wont adequaltely in this country. In addition investment in stocks was a very small part of GDP 1950s, unlike today where the speculative component of investemnt has been mistaken for production in a real sense and allowed to run over to far too large a part of the economy (financial services sector). This is not sound economic management but I doubt certain so called economic liberals in this blog would see any of this. The simple view that "govt is bad and private = good" is all that they are capable of arguing by whatever blinkered means possible.

          SeanG July 19th, 2009 at 17:31 | #72
          Alice,

          You bring up an interesting point. During the era of full employment the government employed a lot of people which kept welfare payments low. However, what is the difference between welfare payments and employing people for the sake of employing them? If employing someone to do a non-existant job is social capital investment, is that nothing more than welfare under a different guise?

          Alice July 19th, 2009 at 18:03 | #73
          The difference is the idea of the Keynesian injection Sean (G). It has a multiplier effect and it expands GDP much like the budget deficits are doing now – but back then in the 1950s the idea of Government investment in the economy had not yet come to be derided by the extreme economic liberals amongst us (who I prefer to be classified under their real name of those who subscribe to laissez faire beliefs, who were always with us and always will be with us – if only for the betterement of a few powerful groups amongst us, if not all of us..and the foolishness of the laissez faire economics view is that in the long run, the market will sort it out without any government presence and the choice of the individual becomes all powerful. It just doesnt work (the choice of large merged oligopolistic and monopolistic enterprises becomes all powerful until they disturb and fracture the very foundations of democracy and erode the choice of the individual a say in how and by whom they are governed…thus it becomes self defeating to the liberal view) and those who subscribe to it unquestionly in the name of "liberalism" do us all harm…and their party of choice…. and themselves. Even the US Govt was still investing heavily in the US economy in social capital and infrastructure in the 1950s and this was considered the home of liberalism dont forget).

          Any growth in GDP must carry the majority in an economy with it, Sean G , for maximum effect (economic welfare maximisation). A divided society (a growing tail left beind) will ultimately correct itself and sometimes unpleasantly. Despite how much economic liberals may want to see those people as lazy or bereft of the necessary skills for satisfying employment, you leave them behind at all of our peril. It is in all of our interests to keep these numbers of unemployed to a minimum by enuring there is sufficient investment for job creation (be it public or private).

          SeanG July 19th, 2009 at 18:58 | #74
          Alice,

          There is a debate as to the size of the multiplier effect. The problem with the idea of full employment is that it does not place resources – labour – to their most productive use. That is one reason why in the 1970s-1990s there was a wave of large scale privatisations to break down unproductive and inefficient public sector entities. Examples include the use of Six Sigma to minimise variations in production, 20-70-10 pioneered by General Electric's Jack Welch, the general "profit maximisation" goal and remuneration incentives.

          The next problem is that welfare maximisation as a "right" creates a corresponding obligation on others. For everyone who is employed in an unproductive manner can only be employed by taking money away in the form of taxes by someone else. The concept of "idleness" has long bothered economists and politicians (including socialists).

          Liberalism in the 1950s grew from the experiences of both WW2, the Great Depression and pre-Depression post-WW1 political economy. That is why Menzies promoted the middle class and free enterprise but wanted a strong social net. Liberalism is an organic belief that changes with society and it has swung back to free markets due to the brief 20-30 year experience of big government within a democracy.

          Donald

          Oats July 19th, 2009 at 19:35 | #75
          Six Sigma Blackbelts, they karate-chopped big businesses into small businesses. Well, maybe not, I just felt like saying that. The difficulty with six sigma is that not every business has a production function that is easily measurable in a manner meaningful to the goals of the business. Take a software firm and six-sigma it at your peril. A six-sigma hatchet job risks throwing out some of the important informal practices – having an impromptu brainstorm upon a free whiteboard for example – and replacing them with overburdened formal practices. Pre-six-sigma, a question concerning how a piece of networking software handled certain conditions might have been answered by a couple of s/w techies wandering down to the local computer store, buying a couple of computers and other bits and pieces, and then jury-rigging it together and, well, just experimenting. A post-six-sigma corruption of this could simply freeze out initiative in the mistaken belief that skiving off to the IT store and building an informal testbed is an unproductive or uncontrolled task. To continue, so long as the results of the experiment are captured for posterity and are communicated effectively, it shouldn't be viewed in a negative light.
          Anyway, while it isn't impossible for six-sigma to add something beneficial, for a S/W chop shop it isn't necessarily the best tool for the job.

          As for Jack Welch, the 20-70-10 rule involved flushing of the 10% annually – pink slip time would have been a barrel of laughs at GE I'm sure. Wouldn't production have taken a hit as morale started reflecting the uncertainty of employment? Wouldn't people become secretive about expert knowledge that they possess, rather than sharing it with others to further the company interest?
          And in any case it is a rough way to look at headcount – oops, I mean fellow journeymen and women.

          Alice July 19th, 2009 at 19:59 | #76
          @SeanG

          Menzies also said "the people need protection from monopolies" Sean. Another idea sacrificed on the alter of liberalism (Goldman Sachs…gets big because they are brilliant, The grocery industry gets concentrated "because they are clever." Big oil and big pharma can teach us all a lesson about business intelligence…Im sure).

          But economic liberalism has chased very few with monopoly power in the past few decades Sean, to the extent the ordinary man is becoming impatient with lack of regulatory action by governments concerning monopoly market power.

          So Menzies wasnt liberal enough? Is that what you are telling me? Because now, no social net is positive to economic liberals (no social net at all…and correct me if I am wrong) and de-regulation ensures monopoly power grows and anti comptetitive practices grow unchecked, but its not our right to interfere?? Is that it?

          So what is really important is total unfettered freedom in markets with no government intervention or presence because the right of the individual rides over it all?

          Even Menzies views Sean

          What you also ignore also is the fact that a person who is "flexibly employed" ( and in many cases this may mean tenuously employed) lacks the "animal spirits" to spend freely in the economy (theirn confidence is sapped), deprived as they are of security of employment or tenure or a reasonable expectation that their work will continue and the ordinary man adjusts savings accordingly…to save for the lean times which are unknown at the point they decide to be more careful with their expenditure …and we all know savings is a leakage…so the mere unquestioning acceptance of NAIRU (and an ever upwardly adjusting NAIRU) with its concommitant acceptance of a higher "human labour force discard rate" becomes an escalating drag on the economy which then requires an even higher NAIRU to justify.

          SeanG July 19th, 2009 at 20:06 | #77
          Donald,

          Six Sigma is implemented in service as well as manufacturing firms. It is about variations in performance and output. Six Sigma does improve productivity and it can be applicable to government as well as private sector.

          With Welch's 20-70-10 all you have to do is look at the results of his time there to see the amazing growth in revenues and profitability. GE always prided itself on being candid which is something not replicated by other companies. After nearly 20 years of this type of practice, GE was the largest company in the world. So it looked like it worked.

          S.

          Haines July 19th, 2009 at 20:35 | #78
          Alice

          Let me give you a hint why Keyesianism itself was responsible for the inflationary breakouts in the 1960s. Keynesianism relied on hermetically-sealed national economies. In Ausstralia, it relied on US foreign investment to build big industry. The state provide protection for the development of monopoly industries like the car industry. The resulting government-created monopolistic production and competition among largely foreign capital within Australia was one of the causes of the inflationary breakout.

          SeanG July 19th, 2009 at 20:49 | #79
          Alice,

          A coupled of things.

          1) Monopolistic competition is a symptom of a lack of competition due to stringent regulation or the event where competition policy is not enforced. This is as much a problem during Keynesian economics than during the free market because if we look at the US economy as an example where you have a large number of very large companies you also see an amazing growth in smaller companies which compete and challenge the larger companies.

          Goldman Sachs, you bete noir, is one of two remaining Wall Street investment banks. Goldman gets competition from numerous other banks but employs the best people, has a culture that is about excellence so when they are challenged by other banks, hedge funds and private equity firms they adapt and survive while others like Bear or Lehman Bros can barely make it in a competitive environment. Schumpeter's "creative destructionism" at its best.

          2) Where did I say that Menzies was not liberal enough? Liberalism, as I have said, is organic which changes with the environment. It was the experience of the Liberal Party in the UK, the Depression and WW2 that lead to the liberals to adopt a very centrist position of free enterprise with a strong social safety net. You need to learn more about Liberal history.

          3) When has anyone said that total unfettered markets is the best way to go? Do you even read comments on this thread or make things up as you go along?

          S.Haines July 19th, 2009 at 21:00 | #80

          Alice

          How can you say "liberalism wasnt even in the vocabulary in the 1950s"? Follow this link and note the start date. Still waiting for your promised data.

          http://en.wikipedia.org/wiki/Liberal_Party_of_Australia

          S.Haines July 19th, 2009 at 21:07 | #81
          Alice

          Bob Hawke killed the Left in Australia, and Keating turned the ALP into the Australian Liberal Party.


          Michael of Summer Hill July 19th, 2009 at 21:32 | #82
          John, this is for dear Alice,

          It seems you were taught to work and play,
          Full of work and full of play,
          Have your say and let it out,
          Wright or wrong, let it out,
          Get up their nose and rub it in,
          They'll never forget dear Alice.

          Kevin Cox July 20th, 2009 at 06:41 | #83

          Markets are efficient. The so called Financial market as it is constructed is NOT a market. A market has the characteristic that as demand increases and supply cannot meet demand then prices rise so encouraging an increase in supply.

          So called financial markets are "markets" where as demand increases, prices rise but supply decreases. Similarly when demand decreases, prices drop but supply increases. This is not a market but a casino because the size of the price peaks and troughs are random when you have these positive feedback mechanisms in the "market place".

          Don't believe me? Our current situation is that the demand for money has increased, the price has dropped but the banks have difficulty lending money because the value of assets against which loans can be made has dropped and hence the supply of money has decreased.

          Also a system where inflation is tolerated and even targetted is flawed. How can we have an efficient market when the unit of measurement changes. It is like trying to keep to the speed limit when the unit of measurement, kms per hour changes in meaning, and we do not know what the change is until a couple of months after we have broken the speed limit.

          To stop the so called business cycle, to eliminate inflation, and to make financial true efficient markets then the "commodity" being traded – namely money – must follow the following rules.

          When the demand for money increases and price rises then the amount of money needs to be increased. When the demand for money decreases and the price drops the amount of money needs to be decreased.

          The solution. Stop using loans as the method to increase the money supply.

          Alice July 20th, 2009 at 09:44 | #84
          S.Haines – cause of inflationary breakout in the 1950s was due to not only excess demand in the Australian economy but excess demand in the US economy.

          We were not as hermetically sealed as you like to imagine. Yes we had surging import demand but export demand came first and rose more sharply, but its also no accident that the wool export price crashed the same quarter in the same year that the US announced price controls to manage their own inflationary outbreak and we developed a large BOP deficit (51-52). The Uk (30%) and US (21%) accounted for for 51% of our entire wool production in 1950-51. and that boost at those prices added substantial export demand and income to the economy before the wool price fell.

          If you look at growth in all the other price and wage indexes for the period, the growth in the export price index far outstrips their contribution and aligns directly with the period of high inflation in 1950-52.

          Alice July 20th, 2009 at 09:47 | #85
          How soon you forget Sean…the creative destruction of Goldman Sachs was prevented by a bailout of taxpayers funds.

          Alice July 20th, 2009 at 09:57 | #86

          I would also like to let S.haines know that according to the Economic Record Vol 1. which notes "practically all import restrictions lifted by this time…" next to 4th quarter, 1950.

          So much for your comment that Australia was "hermetically sealed" and the inflation was driven by big government monopolisation.

          S.Haines – it appears your memory of economic history is rusty after all.

          S.Haines July 20th, 2009 at 15:34 | #87
          Alice

          Vol. 1 of which year of ER?

          Alice July 20th, 2009 at 18:43 | #88
          1950-1960 (the decade) S.Haines. Private subscription published by ERA House Pty Ltd. It should be in the reference section.
          SeanG July 20th, 2009 at 21:59 | #89
          Very true, Alice.

          [Apr 10, 2015] Tyler Cowen's Three-Card Monte on Inequality Beat the Press

          cepr.net

          Tyler Cowen used his Upshot piece this week to tell us that the real issue is not inequality, but rather mobility. We want to make sure that our children have the opportunity to enjoy better lives than we do. And for this we should focus on productivity growth which is the main determinant of wealth in the long-run.

          This piece ranks high in terms of being misleading. First, even though productivity growth has been relatively slow since 1973, the key point is that most of the population has seen few of the gains of the productivity growth that we have seen over the last forty years. Had they shared equally in the productivity gains over this period, the median wage would be close to 50 percent higher than it is today. The minimum wage would be more than twice as high. If we have more rapid productivity growth over the next four decades, but we see the top 1.0 percent again getting the same share as it has since 1980, then most people will benefit little from this growth.

          The next point that comes directly from this first point is that it is far from clear that inequality does not itself impede productivity growth. While it can of course be coincidence, it is striking that the period of rapid productivity growth was a period of relative equality. At the very least it is hard to make the case that we have experienced some productivity dividend from the inequality of the post-1980 period.

          And many of the policies that would most obviously promote equality also promote growth. For example, a Fed policy committed to high employment, even at the risk of somewhat higher rates of inflation, would lead to stronger wage growth at the middle and bottom of the wage ladder, while also likely leading to more investment and growth.

          While Cowen talks about immigration as being a question of low-paid workers who might drive down the wages of the less-educated, they are millions of bright highly educated professionals in the developing world who would be happy to train to U.S. standards and compete with our doctors, lawyers, and other highly-paid professionals, many of whom populate the one percent. This policy would also lead to both more rapid growth and greater equality. (We can repatriate a portion of the earnings of these professionals to their home countries to ensure they benefit as well.)

          And, we can have a modest financial transactions tax that would eliminate waste in the financial sector while also reducing the income of many of the richest people in the country. Were it not for the political power of Wall Street, we undoubtedly would have put in place financial transactions taxes long ago. (We do still have very small taxes that are used to finance the operation of the Securities and Exchange Commission and the Commodities and Futures Trading Commission.)

          It is also important to remember that the well-being of children depends to a large extent on the well-being of their parents. If the minimum wage had kept pace with productivity growth since 1968 (as it did between 1938 and 1968) it would be over $17 an hour today. The children of a single parent earning $34,000 a year would have much better life prospects than the children of a single parent earning $14,500 a year. In this sense there is a very direct relationship between inequality and mobility.

          The long and short is that we know of many measures that can both reduce inequality and increase growth. And, if we want to make sure that everyone's children have a shot at a better standard of living in the future then we should make sure that their parents have a better standard of living today.

          Comments (13)Add Comment

          feedSubscribe to this comment's feed

          min/maxShow/hide comments

          Financial predators produce nothing of value
          written by RandallK, April 05, 2015 10:49

          The "take-over and loot" artists of Wall Street produce nothing of value and are burdensome to taxpayers - we support the agency which partly funds the stolen pensions - yet rake in more money annually than most wage earners.
          What did collateralized debt products produce? Nothing, or close to nothing would be my answer.
          We not only need to tax the sales of stocks and bonds, we need to bring back Glass-Steagall(sp?) and make a number of financial products illegal.
          Then there's the matter of "too big to fail and too rich to jail," to correct.

          Mobility for Whom, to Level What Playing Field Where - For Winners Take All
          written by Last Mover, April 05, 2015 11:41

          The concept of mobility helps us distinguish between "good inequality" and "bad inequality." Reductions in inequality can follow from a leveling in either direction - by elevating the poor or pushing down the wealthy. It is the plight of the poor that we most need to improve.
          Somehow these discussions never get to the part where MNCs used their newfound global mobility to pit workers in different nations against each other in head to head competition and drive wages to subsistence levels in some cases.

          That really gave workers a chance to perk up with new mobility opportunities to be more productive as they earned what they were worth, didn't it. After all, it wasn't like MNCs had a lock on the market and overpaid themselves with productivity gains they didn't actually earn, instead extorted with market power. LOL.

          These discussions also conveniently ignore the intentional immobility of white collar professionals designed to shield them from competition, especially from abroad, like doctors and CEOs. Cowen would rather talk about reducing regulations on barbers, hairdressers and interior decorators so they can be more mobile and productive. LOL.

          Upshot
          written by loneract, April 05, 2015 1:14

          The Upshit seems to contain outright lies 2/3 of the time. Usually when Leonardt or Cowen is writing.

          Marko, April 05, 2015 4:42

          Tyler Cowen is right up there with Laffer , Mankiw , et al in his diligence at defending the perks of the 1%.

          The goal is to shift the focus of attention away from anything involving those elites , typically by concentrating instead on poverty or mobility. They can imagine a system of high mobility and low poverty ( as measured relative to median income ) among the 99% in which the 1% captures an even larger share of the income pie than they do currently. Think of plantation slaves as the 99% and plantation owners as the 1% and you get an idea of what their ideal "win-win solution" looks like. High relative mobility and low relative poverty among the 99% , continued concentrated income and wealth flows to the 1%. Problem solved.

          Summers is right , for once. The big action in inequality is in the trillion dollars of current gdp that used to flow to the bottom 90% of income-earners that now flows to the top 1%. Similar dynamics apply for wealth.

          Ignore the misdirection and focus on the big problem : big money.

          watermelonpunch, April 05, 2015 8:16

          I'm not sure what that Tyler is rooting for here.

          Is he saying that everyone ought to start at the bottom?
          For example, someone with a science aptitude born into a wealthy family, ought to be forced to put off their education to mop floors for 2 years, to "earn their chops"?

          Because that's the only way I can see his argument having an internal logic at all.

          Otherwise, it just sounds like he's saying that people with various disabilities or other limitations, should rightfully (in his mind) be relegated to substandard living conditions struggling for survival with limited access to the benefits our civilization affords "their betters" ... as long as if a child born into that penury has some bit of a chance to "strike it big" if they have enough smarts & ambition & luck.

          I fall back to the obvious ... that we - CIVILIZATION AS A WHOLE - NEED people operating the sewage treatment plants, fixing the roads, collecting the trash, cleaning hospitals, working on the farms, packaging & transporting foods etc., and wiping butts when people get too old & infirm to do it for themselves.
          Civilization as a whole should be GRATEFUL there are those people who are willing & able to do those things, and recognize that people who do these vital things in society by paying them a fair wage.

          In fact, I'd argue that some of these jobs are HARDER and require more aptitude that a lot of "higher jobs" Cowen thinks pay more out of "good inequality".

          I'd like to see the branch manager at my bank try to swing the trash cans on my block like my city's garbage crew. (Or live in a neighborhood where the rubbish is piled up for that matter.)

          How many accounts department managers would last 2 minutes on a roofing job?

          I can think of one manager I knew at a company who would leave her dirty oatmeal dishes in the little bathroom sink all day. Under NO circumstances do I think that woman should ever be trusted to work in a hospital or kitchen.

          And then the story I heard from someone about a warehouse manager who would throw fits yelling & start throwing things around when he'd get stressed out. Is that the guy you want alone with you wiping your butt in your hospice room when you're 92?

          Would any of us want to buy food sold in a dirty grocery store? And how much luck is a doctor going to have to save your life in a filthy operating room?

          Tyler Cowen's shell game is an insult to every citizen.
          And it's a injury to every citizen with limitations whether they're born with them or acquire limitations by tragic accident or simply aging.

          Richard H. Serlin, April 05, 2015 10:59

          High Inequality and High Mobility = Very High Risk Lives

          Well, Cowen is always happy to mislead for the libertarian/plutocratic cause, and he has to, as the truth gives no chance to his side in a democracy.

          But this extreme inequality is fine of we have high mobility is so wrong, because high mobility is high chance to go up, and high chance to go down. If it's just high chance to go up, that's just growth (which is decreased when you don't invest in the 99+% to give as much as possible to the 1%, or 0.1%).

          High inequality with a high probability of plunging into the abyss because of high mobility? That's just a terribly risky life for you and your family, and risk decreases utility and welfare. Who wants to live in a world made that dangerous. And certainly the high mobility that the rich will allow is among the 99%, not among the 0.1%.

          bakho, April 06, 2015 5:33

          If Cowen is truly concerned about mobility, he would promote policy to encourage mobility.
          Improve childhood nutrition
          Universal PreK
          Health Coach Programs
          Programs that would give teens facing double digit unemployment, their first job and on the job training.
          Programs that would improve the skill set of youth who are not college bound.
          Free Community college, etc.
          Raising the MinWage
          Less inequality in distribution of resources among communities

          I have yet to see him promote any of these measures.

          A little parity perhaps?
          written by Kat, April 06, 2015 8:34

          I just read an AP story about the plight of some poor, poor Americans that had property confiscated under the Castro regime. Congress is on the case-- after all the descendents of these "victims" are so poor they cannot even afford to repair their concrete steps. I did not see skills training mentioned as a fix for their plight.
          I think if you thought really, really hard you might be able to come up with a few examples of the US government using its force to confiscate property or support the confiscation of the value of labor from a person. In these cases training is the key to redistributive justice.
          And I have yet to see skills training as an answer to all the job creators who simply cannot make a go of it without subsidies and tax breaks.

          written by Bloix, April 06, 2015 9:57

          "We want to make sure that our children have the opportunity to enjoy better lives than we do."

          I have never met an upper middle class parent who wants his kid to have "the opportunity" to have a better life. These parents do not say, "I want my child judged fairly on his merits, and if he winds up as a barista that's fine with me."

          written by urban legend, April 06, 2015 2:19

          All wage workers need to be organized. The elite forces have spent 200 or so years trying to give the public ill thoughts about labor unions, with but a very brief reprieve roughly between roughly 1934 and 1947 -- with Taft-Hartley "right-to-work" reinforced by the anti-union propaganda film, "On the Waterfront," signalling a return to corporate and corporate media-bashing of all collective bargaining activities. Those toxic forces are really feeling their oats right now, having even compromised the Democratic Party with fundamentally anti-worker people like Rahm Emanuel and Arne Duncan. Only the unions themselves, a few stalwart Democratic office-holders and some bloggers are offering resistance.

          There have been embers of recognition that the engineered weakness of labor has coincided with -- and almost surely played a huge causative role in -- the disconnection between productivity and labor compensation. It is going to be a long and continuous, never-ending slog to start the country in the other direction. It's a simple story to make: labor union weakness = low wages = poor demand = weak economy for almost everyone, including small businesses. Hillary Clinton could campaign on that equation, even without attacking Wall Street (other than the dishonest players, whom she must make clear she will not defend), and present herself as the true champion of business because she, unlike the Republican candidates who pretend to be pro-business but actually are the opposite, will follow policies that will promote the growth of demand for their goods and services.

          FDR proved you could talk common sense economics like this to the American people. Obama looked like he was campaigning on the equation, but it turned out he was only a little for it and was even actually against it in some respects. He made virtually no push-back against the negative propaganda about unions that has prevailed for three generations. Let's hope this time can be different. But it won't be different unless the people who understand the equation put heavy pressure on all Democratic candidates to think and talk that way.

          written by Bob Hertz, April 06, 2015 7:45

          I fully support all the posts that call for greater bargaining power for workers.

          However, I do wish to point out that many many workers with tiny or nonexistent productivity gains have seen very nice increases in their incomes in the past two decades.

          College professors and senior nurses and federal statisticians do very valuable work.
          But most of them work fewer hours than they did 20 years ago and have fewer students or patients than 20 years ago.......yet this "EdMed" complex has had very nice wage gains, to say nothing of benefits that private sectors workers can only dream of.

          If you rented a meeting hall and had a gathering where the only attendees would be those whose incomes had gone up faster than inflation, I do NOT think that the hall would be filled with persons who increased their productivity. I think it would be filled with persons who had credentials and connections.

          accelerating inflation
          written by Dishwasher, April 07, 2015 2:01

          And many of the policies that would most obviously promote equality also promote growth. For example, a Fed policy committed to high employment, even at the risk of somewhat higher rates of inflation, would lead to stronger wage growth at the middle and bottom of the wage ladder, while also likely leading to more investment and growth.
          I agree with you on doctors, lawyers, and other highly-paid professionals.

          On minimum wage, to me a minimum wage is a second best solution, a wage subsidy or a basic income guarantee better distributes the burden of helping low income workers.


          written by Dishwasher, April 07, 2015 2:23

          Above I should have said isn't it accelerating inflation that helps debtors and wage earners and not just inflation? And it cannot continue to be accelerated without very bad consequences.

          [Apr 07, 2015] Decisions Life and Death on Wall Street

          Apr 07, 2015 | Jesse's Café Américain

          I have just started reading a new book by Janet Tavakoli called Decisions: Life and Death on Wall Street.

          There is also a paperback version of it available in the US and Canada here.

          This is a non-fiction story of her travels in the world of finance that asks the question, 'What would you be willing to do for money and power?'

          As usual Janet does not pull her punches. The description on Amazon is rather intriguing.

          In New York, the Federal Reserve Bank hides damaging information about too-big-too-fail banks from the public eye. A prominent bank CEO seems on the verge of a nervous breakdown.

          In Washington D.C., a former Wall Street regulator checks into a hotel using the name of a hedge fund manager for an illicit meeting with a prostitute. In a D.C. suburb, the CFO of a beleaguered mortgage giant chooses a drastic personal end to "relentless pressure".

          In a picturesque suburb of Zug, Switzerland, the CFO of a major insurance company decides to end his life. In London, a financier kills himself in a way he once said he never would.

          In her new memoir, Janet Tavakoli shines a bright light on the money-driven culture of Wall Street and Washington, and the life and death consequences of our decisions that put profit above all.

          "The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers-not incompetent bankers-paid the price.

          By [the late 1980's], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.

          Banks didn't have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money."

          If 'rule under law' were more than just a slogan in the United States, men who occupied the senior-most positions in too-big-to-fail banks would have been disgraced, prosecuted, and jailed. But no bank executive was held accountable."

          [Apr 07, 2015] Economists, financial markets and theory-induced blindness

          Idea of theory-induced blindness
          Institute for Financial Transparency

          In Transparency Games, I get to talk about how economists, both academic and those working for the financial regulators, have theory-induced blindness when it comes to how financial markets actually work.

          Theory-induced blindness is the application to economists of Upton Sinclair's line, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it." For economists, it is reflected in their inability to see what is actually happening in the financial markets when it contradicts their beautifully derived theory.

          In talking about his idea of theory-induced blindness, Daniel Kahneman said

          The mystery is how a conception that is vulnerable to such obvious counterexamples survived for so long. I can explain it only by a weakness of the scholarly mind that I have often observed in myself. I call it theory-induced blindness: Once you have accepted a theory, it is extraordinarily difficult to notice its flaws. As the psychologist Daniel Gilbert has observed, disbelieving is hard work.

          The efficient market hypothesis (EMH) is the classic example of a theory that was widely accepted and, as a result, it became extraordinarily difficult for economists, both academic and those working for the financial regulators, to notice its flaws. Flaws that were revealed by the financial crisis.

          EMH looks at the issue of how financial market prices reflect the available information. EMH has 3 forms; the strongest of which asserts that even information that is hidden from most market participants is reflected in the price. EMH effectively says that even in the absence of transparency, prices reflect what would occur if transparency existed.

          For their original tests of the theory, economists chose the most transparent financial market in the world. A financial market which also just happens to have restrictions on insider trading. That market was the US stock market. Prices in this market confirmed the theory.

          Unfortunately, the US stock market is currently a special case. This was clearly shown by the financial crisis when the market for private label mortgage-backed securities effectively froze and the price for these securities dropped significantly (think from the 80s to the 20s). The price for these opaque securities on Day 1 didn't reflect their underlying fundamentals. Fundamentals which due to a lack of transparency the buyers did not have access to. Rather, the price buyers paid reflected the maximum price Wall Street could obtain based on the story it told about the underlying fundamentals. Wall Street had an incentive to maximize the price because it pocketed the difference between the price it sold the securities at and the price it paid for the mortgages it bundled into the securities.

          The financial crisis also showed that within the US stock market EMH did not hold for all stocks. In particular, it did not hold for bank stocks. Why? Given how they are paid, there is no reason to think that bankers would not try to maximize their compensation by hiding the losses sitting on and off their balance sheet. They could do this because, as the Bank of England's Andrew Haldane said, banks are black boxes.

          One of the benefits of the Transparency Label Initiative™ is it addresses theory-induced blindness when it comes to the EMH. Specifically, it ensures there is the transparency in the financial markets that the theory assumes is there.

          [Apr 03, 2015] West is trying to buy allies of Russia

          This is extremely strong move by the US diplomacy (EU vassals were just token players, extras in the play) which considerably weakens Russia political and economic position. It also shows that drop of oil prices was a well though out strategic move with several possible surprises in the sleeves.
          Apr 03, 2015 | svpressa.ru

          How the lift sanctions against Iran will affect the position of Russia in the world

          Lengthy negotiations the six world powers (Russia, USA, UK, France, Germany, China) in Lausanne ended with agreement on the lifting of restrictions against Iran. Foreign Minister of this country Mohammad Zarif called the historical results of the negotiations. Similar opinion is shared by U.S. President Barack Obama, who compared the agreements with agreements between the United States and the Soviet Union during the reign of Reagan and Nixon. The world market after the statements of the leaders of the six responded to a decrease in oil prices. But the question arise: will the economy of Russia suffer as a result of this shrewd move, and will Russia be able to maintain a trusting relationship with its ally in the Middle East or it will change camps.

          The EU and the US sanctions against Iran seriously limited the foreign trade of Tehran. They were introduced under the pretext of preventing Iran's development of its own nuclear weapons. Iran argued that solely interested in building on their own territory of the nuclear power plants and is not intended to have weapons of mass destruction. But the official representatives of the West did not believe statements by Iran leadership, fearing that obtaining a nuclear weapon by Iran will seriously alter the geopolitical balance in the middle East.

          In recent years tensions between Iran and the West only grew. This played against attempts to isolate Moscow, which, after the reunification of the Crimea with Russia was forced to start organizing the "anti-Western coalition." to counter Western sanctions. But Tehran clearly did not enjoyed its permanent status of a "rogue state" assigned by the USA, and the new President of Iran Hassan Rouhani began to hint that he might compromise and accept the demands of the West.

          Concluded at Lausanne agreements, Iran accepted an obligation for 15 years not to build new facilities for uranium enrichment and not to enrich uranium to the level of over to 3.67%, while also reducing the number of centrifuges from the current 19 thousand to six thousand. In response to the Tehran gets the opportunity to export the energy to the West.

          The appearance on the world market of oil and gas from a new player at the current moment of low energy prices might trigger further collapse in the price of "black gold" which will jeopardize the economy of Russia. At the same time, the removal of restrictions on the development of the Iranian nuclear program will enhance the ability of Russian companies to participate in construction of nuclear power plants. It also indirectly created a new prospects for cooperation in military-technical sphere.

          It is possible that the West went to the lifting of sanctions, based on geopolitical considerations. Shiite Iran is supporting the rebels Houthis in Yemen and efforts of the coalition led by Saudi Arabia may not lead to success. This can threatens oil supplies to Europe and the USA. In addition, Iran has long expressed his desire to join the Shanghai cooperation organization, collective security Treaty organization and BRICS. Here West was forced to give Tehran a bone to block or slow down such moves.

          The lifting of the sanctions on Iran may lead in the near future to the fall in oil prices. But this probably will be a short-term phenomenon caused by excessive speculation. In itself, the lifting of sanctions in the future for a few months will not affect the market, " said the Director of the Center for the study of world energy markets energy research Institute of Russian Academy of Sciences Vyacheslav Kulagin. No additional quantities of oil and gas on the market will be added to market immediately. But if the current economic situation in the world will stay then in the future the lifting of the sanctions on Iran will led to significant changes. Iran will obtain access to Western investments and technology. But again, in a short term the world energy market is not affected.

          But if we talk about the future after 2020, Iran could become a leading exporter of oil and gas. Oil and gas production will increase. It is worth noting the value of the field "South Pars". Even before the sanctions, there were dozens of projects in this field, including some with the participation of Russian companies. If those projects will be revived, then they will have a serious impact. But this impact will be felt in 2020 or even 2030. In this timeframe Russia will get a serious competitor in the commodities market.

          It is worth considering the geopolitical factor, in particular, the current situation in Yemen. Iran supports the Shiite population of this country, but does not yet have the financial capacity to significantly affect the situation. But in the future if the investment is going in Iran, such opportunities will appear. Accordingly, re-configuration of forces in the Middle East will be a bigger question than it is today.

          [Apr 03, 2015] Americans Not In The Labor Force Soar To Record 93.2 Million As Participation Rate Drops To February 1978 Levels

          "... the labor force participation rate dropped once more, from 62.8% to 62.7%, a level seen back in February 1978, even as the BLS reported that the entire labor force actually declined for the second consecutive month, down almost 100K in March to 156,906. ..."

          So much for yet another "above consensus" recovery, and what's worse it is, well, about to get even worse, because while the Fed keeps baning some illusory drum that slack in the economy is almost non-existent, the reality is that in March the number of people who dropped out of the labor force rose by yet another 277K, up 2.1 million in the past year, and has reached a record 93.175 million. Indicatively, this means that the labor force participation rate dropped once more, from 62.8% to 62.7%, a level seen back in February 1978, even as the BLS reported that the entire labor force actually declined for the second consecutive month, down almost 100K in March to 156,906.

          Rationalizing Lunacy The Policy Intellectual as Servant of the State

          March 9, 2015 | naked capitalism

          Yves here. Andrew Bacevich excoriates policy intellectuals as "blight on the republic". His case study focuses on the military/surveillance complex but he notes in passing that the first policy intellectuals were in the economic realm. And we are plagued with plenty of malpractice there too.

          by Andrew J. Bacevich, a professor of history and international relations emeritus at Boston University's Pardee School of Global Studies. He is writing a military history of America's War for the Greater Middle East. His most recent book is Breach of Trust: How Americans Failed Their Soldiers and Their Country. Originally published at TomDispatch

          Policy intellectuals - eggheads presuming to instruct the mere mortals who actually run for office - are a blight on the republic. Like some invasive species, they infest present-day Washington, where their presence strangles common sense and has brought to the verge of extinction the simple ability to perceive reality. A benign appearance - well-dressed types testifying before Congress, pontificating in print and on TV, or even filling key positions in the executive branch - belies a malign impact. They are like Asian carp let loose in the Great Lakes.

          It all began innocently enough. Back in 1933, with the country in the throes of the Great Depression, President Franklin Delano Roosevelt first imported a handful of eager academics to join the ranks of his New Deal. An unprecedented economic crisis required some fresh thinking, FDR believed. Whether the contributions of this "Brains Trust" made a positive impact or served to retard economic recovery (or ended up being a wash) remains a subject for debate even today. At the very least, however, the arrival of Adolph Berle, Raymond Moley, Rexford Tugwell, and others elevated Washington's bourbon-and-cigars social scene. As bona fide members of the intelligentsia, they possessed a sort of cachet.

          Then came World War II, followed in short order by the onset of the Cold War. These events brought to Washington a second wave of deep thinkers, their agenda now focused on "national security." This eminently elastic concept - more properly, "national insecurity" - encompassed just about anything related to preparing for, fighting, or surviving wars, including economics, technology, weapons design, decision-making, the structure of the armed forces, and other matters said to be of vital importance to the nation's survival. National insecurity became, and remains today, the policy world's equivalent of the gift that just keeps on giving.

          People who specialized in thinking about national insecurity came to be known as "defense intellectuals." Pioneers in this endeavor back in the 1950s were as likely to collect their paychecks from think tanks like the prototypical RAND Corporation as from more traditional academic institutions. Their ranks included creepy figures like Herman Kahn, who took pride in "thinking about the unthinkable," and Albert Wohlstetter, who tutored Washington in the complexities of maintaining "the delicate balance of terror."

          In this wonky world, the coin of the realm has been and remains "policy relevance." This means devising products that convey a sense of novelty, while serving chiefly to perpetuate the ongoing enterprise. The ultimate example of a policy-relevant insight is Dr. Strangelove's discovery of a "mineshaft gap" - successor to the "bomber gap" and the "missile gap" that, in the 1950s, had found America allegedly lagging behind the Soviets in weaponry and desperately needing to catch up. Now, with a thermonuclear exchange about to destroy the planet, the United States is once more falling behind, Strangelove claims, this time in digging underground shelters enabling some small proportion of the population to survive.

          In a single, brilliant stroke, Strangelove posits a new raison d'ętre for the entire national insecurity apparatus, thereby ensuring that the game will continue more or less forever. A sequel to Stanley Kubrick's movie would have shown General "Buck" Turgidson and the other brass huddled in the War Room, developing plans to close the mineshaft gap as if nothing untoward had occurred.

          The Rise of the National Insecurity State

          Yet only in the 1960s, right around the time that Dr. Strangelove first appeared in movie theaters, did policy intellectuals really come into their own. The press now referred to them as "action intellectuals," suggesting energy and impatience. Action intellectuals were thinkers, but also doers, members of a "large and growing body of men who choose to leave their quiet and secure niches on the university campus and involve themselves instead in the perplexing problems that face the nation," as LIFE Magazine put it in 1967. Among the most perplexing of those problems was what to do about Vietnam, just the sort of challenge an action intellectual could sink his teeth into.

          Over the previous century-and-a-half, the United States had gone to war for many reasons, including greed, fear, panic, righteous anger, and legitimate self-defense. On various occasions, each of these, alone or in combination, had prompted Americans to fight. Vietnam marked the first time that the United States went to war, at least in considerable part, in response to a bunch of really dumb ideas floated by ostensibly smart people occupying positions of influence. More surprising still, action intellectuals persisted in waging that war well past the point where it had become self-evident, even to members of Congress, that the cause was a misbegotten one doomed to end in failure.

          In his fine new book American Reckoning: The Vietnam War and Our National Identity, Christian Appy, a historian who teaches at the University of Massachusetts, reminds us of just how dumb those ideas were.

          As Exhibit A, Professor Appy presents McGeorge Bundy, national security adviser first for President John F. Kennedy and then for Lyndon Johnson. Bundy was a product of Groton and Yale, who famously became the youngest-ever dean of Harvard's Faculty of Arts and Sciences, having gained tenure there without even bothering to get a graduate degree.

          For Exhibit B, there is Walt Whitman Rostow, Bundy's successor as national security adviser. Rostow was another Yalie, earning his undergraduate degree there along with a PhD. While taking a break of sorts, he spent two years at Oxford as a Rhodes scholar. As a professor of economic history at MIT, Rostow captured JFK's attention with his modestly subtitled 1960 book The Stages of Economic Growth: A Non-Communist Manifesto, which offered a grand theory of development with ostensibly universal applicability. Kennedy brought Rostow to Washington to test his theories of "modernization" in places like Southeast Asia.

          Finally, as Exhibit C, Appy briefly discusses Professor Samuel P. Huntington's contributions to the Vietnam War. Huntington also attended Yale, before earning his PhD at Harvard and then returning to teach there, becoming one of the most renowned political scientists of the post-World War II era.

          What the three shared in common, apart from a suspect education acquired in New Haven, was an unwavering commitment to the reigning verities of the Cold War. Foremost among those verities was this: that a monolith called Communism, controlled by a small group of fanatic ideologues hidden behind the walls of the Kremlin, posed an existential threat not simply to America and its allies, but to the very idea of freedom itself. The claim came with this essential corollary: the only hope of avoiding such a cataclysmic outcome was for the United States to vigorously resist the Communist threat wherever it reared its ugly head.

          Buy those twin propositions and you accept the imperative of the U.S. preventing the Democratic Republic of Vietnam, a.k.a. North Vietnam, from absorbing the Republic of Vietnam, a.k.a. South Vietnam, into a single unified country; in other words, that South Vietnam was a cause worth fighting and dying for. Bundy, Rostow, and Huntington not only bought that argument hook, line, and sinker, but then exerted themselves mightily to persuade others in Washington to buy it as well.

          Yet even as he was urging the "Americanization" of the Vietnam War in 1965, Bundy already entertained doubts about whether it was winnable. But not to worry: even if the effort ended in failure, he counseled President Johnson, "the policy will be worth it."

          How so? "At a minimum," Bundy wrote, "it will damp down the charge that we did not do all that we could have done, and this charge will be important in many countries, including our own." If the United States ultimately lost South Vietnam, at least Americans would have died trying to prevent that result - and through some perverted logic this, in the estimation of Harvard's youngest-ever dean, was a redeeming prospect. The essential point, Bundy believed, was to prevent others from seeing the United States as a "paper tiger." To avoid a fight, even a losing one, was to forfeit credibility. "Not to have it thought that when we commit ourselves we really mean no major risk" - that was the problem to be avoided at all cost.

          Rostow outdid even Bundy in hawkishness. Apart from his relentless advocacy of coercive bombing to influence North Vietnamese policymakers, Rostow was a chief architect of something called the Strategic Hamlet Program. The idea was to jumpstart the Rostovian process of modernization by forcibly relocating Vietnamese peasants from their ancestral villages into armed camps where the Saigon government would provide security, education, medical care, and agricultural assistance. By winning hearts-and-minds in this manner, the defeat of the communist insurgency was sure to follow, with the people of South Vietnam vaulted into the "age of high mass consumption," where Rostow believed all humankind was destined to end up.

          That was the theory. Reality differed somewhat. Actual Strategic Hamlets were indistinguishable from concentration camps. The government in Saigon proved too weak, too incompetent, and too corrupt to hold up its end of the bargain. Rather than winning hearts-and-minds, the program induced alienation, even as it essentially destabilized peasant society. One result: an increasingly rootless rural population flooded into South Vietnam's cities where there was little work apart from servicing the needs of the ever-growing U.S. military population - hardly the sort of activity conducive to self-sustaining development.

          Yet even when the Vietnam War ended in complete and utter defeat, Rostow still claimed vindication for his theory. "We and the Southeast Asians," he wrote, had used the war years "so well that there wasn't the panic [when Saigon fell] that there would have been if we had failed to intervene." Indeed, regionally Rostow spied plenty of good news, all of it attributable to the American war.

          "Since 1975 there has been a general expansion of trade by the other countries of that region with Japan and the West. In Thailand we have seen the rise of a new class of entrepreneurs. Malaysia and Singapore have become countries of diverse manufactured exports. We can see the emergence of a much thicker layer of technocrats in Indonesia."

          So there you have it. If you want to know what 58,000 Americans (not to mention vastly larger numbers of Vietnamese) died for, it was to encourage entrepreneurship, exports, and the emergence of technocrats elsewhere in Southeast Asia.

          Appy describes Professor Huntington as another action intellectual with an unfailing facility for seeing the upside of catastrophe. In Huntington's view, the internal displacement of South Vietnamese caused by the excessive use of American firepower, along with the failure of Rostow's Strategic Hamlets, was actually good news. It promised, he insisted, to give the Americans an edge over the insurgents.

          The key to final victory, Huntington wrote, was "forced-draft urbanization and modernization which rapidly brings the country in question out of the phase in which a rural revolutionary movement can hope to generate sufficient strength to come to power." By emptying out the countryside, the U.S. could win the war in the cities. "The urban slum, which seems so horrible to middle-class Americans, often becomes for the poor peasant a gateway to a new and better way of life." The language may be a tad antiseptic, but the point is clear enough: the challenges of city life in a state of utter immiseration would miraculously transform those same peasants into go-getters more interested in making a buck than in signing up for social revolution.

          Revisited decades later, claims once made with a straight face by the likes of Bundy, Rostow, and Huntington - action intellectuals of the very first rank - seem beyond preposterous. They insult our intelligence, leaving us to wonder how such judgments or the people who promoted them were ever taken seriously.

          How was it that during Vietnam bad ideas exerted such a perverse influence? Why were those ideas so impervious to challenge? Why, in short, was it so difficult for Americans to recognize bullshit for what it was?

          Creating a Twenty-First-Century Slow-Motion Vietnam

          These questions are by no means of mere historical interest. They are no less relevant when applied to the handiwork of the twenty-first-century version of policy intellectuals, specializing in national insecurity, whose bullshit underpins policies hardly more coherent than those used to justify and prosecute the Vietnam War.

          The present-day successors to Bundy, Rostow, and Huntington subscribe to their own reigning verities. Chief among them is this: that a phenomenon called terrorism or Islamic radicalism, inspired by a small group of fanatic ideologues hidden away in various quarters of the Greater Middle East, poses an existential threat not simply to America and its allies, but - yes, it's still with us - to the very idea of freedom itself. That assertion comes with an essential corollary dusted off and imported from the Cold War: the only hope of avoiding this cataclysmic outcome is for the United States to vigorously resist the terrorist/Islamist threat wherever it rears its ugly head.

          At least since September 11, 2001, and arguably for at least two decades prior to that date, U.S. policymakers have taken these propositions for granted. They have done so at least in part because few of the policy intellectuals specializing in national insecurity have bothered to question them.

          Indeed, those specialists insulate the state from having to address such questions. Think of them as intellectuals devoted to averting genuine intellectual activity. More or less like Herman Kahn and Albert Wohlstetter (or Dr. Strangelove), their function is to perpetuate the ongoing enterprise.

          The fact that the enterprise itself has become utterly amorphous may actually facilitate such efforts. Once widely known as the Global War on Terror, or GWOT, it has been transformed into the War with No Name. A little bit like the famous Supreme Court opinion on pornography: we can't define it, we just know it when we see it, with ISIS the latest manifestation to capture Washington's attention.

          All that we can say for sure about this nameless undertaking is that it continues with no end in sight. It has become a sort of slow-motion Vietnam, stimulating remarkably little honest reflection regarding its course thus far or prospects for the future. If there is an actual Brains Trust at work in Washington, it operates on autopilot. Today, the second- and third-generation bastard offspring of RAND that clutter northwest Washington - the Center for this, the Institute for that - spin their wheels debating latter day equivalents of Strategic Hamlets, with nary a thought given to more fundamental concerns.

          What prompts these observations is Ashton Carter's return to the Pentagon as President Obama's fourth secretary of defense. Carter himself is an action intellectual in the Bundy, Rostow, Huntington mold, having made a career of rotating between positions at Harvard and in "the Building." He, too, is a Yalie and a Rhodes scholar, with a PhD. from Oxford. "Ash" - in Washington, a first-name-only identifier ("Henry," "Zbig," "Hillary") signifies that you have truly arrived - is the author of books and articles galore, including one op-ed co-written with former Secretary of Defense William Perry back in 2006 calling for preventive war against North Korea. Military action "undoubtedly carries risk," he bravely acknowledged at the time. "But the risk of continuing inaction in the face of North Korea's race to threaten this country would be greater" - just the sort of logic periodically trotted out by the likes of Herman Kahn and Albert Wohlstetter.

          As Carter has taken the Pentagon's reins, he also has taken pains to convey the impression of being a big thinker. As one Wall Street Journal headline enthused, "Ash Carter Seeks Fresh Eyes on Global Threats." That multiple global threats exist and that America's defense secretary has a mandate to address each of them are, of course, givens. His predecessor Chuck Hagel (no Yale degree) was a bit of a plodder. By way of contrast, Carter has made clear his intention to shake things up.

          So on his second day in office, for example, he dined with Kenneth Pollack, Michael O'Hanlon, and Robert Kagan, ranking national insecurity intellectuals and old Washington hands one and all. Besides all being employees of the Brookings Institution, the three share the distinction of having supported the Iraq War back in 2003 and calling for redoubling efforts against ISIS today. For assurances that the fundamental orientation of U.S. policy is sound - we just need to try harder - who better to consult than Pollack, O'Hanlon, and Kagan (any Kagan)?

          Was Carter hoping to gain some fresh insight from his dinner companions? Or was he letting Washington's clubby network of fellows, senior fellows, and distinguished fellows know that, on his watch, the prevailing verities of national insecurity would remain sacrosanct? You decide.

          Soon thereafter, Carter's first trip overseas provided another opportunity to signal his intentions. In Kuwait, he convened a war council of senior military and civilian officials to take stock of the campaign against ISIS. In a daring departure from standard practice, the new defense secretary prohibited PowerPoint briefings. One participant described the ensuing event as "a five-hour-long college seminar" - candid and freewheeling. "This is reversing the paradigm," one awed senior Pentagon official remarked. Carter was said to be challenging his subordinates to "look at this problem differently."

          Of course, Carter might have said, "Let's look at a different problem." That, however, was far too radical to contemplate - the equivalent of suggesting back in the 1960s that assumptions landing the United States in Vietnam should be reexamined.

          In any event - and to no one's surprise - the different look did not produce a different conclusion. Instead of reversing the paradigm, Carter affirmed it: the existing U.S. approach to dealing with ISIS is sound, he announced. It only needs a bit of tweaking - just the result to give the Pollacks, O'Hanlons, and Kagans something to write about as they keep up the chatter that substitutes for serious debate.

          Do we really need that chatter? Does it enhance the quality of U.S. policy? If policy/defense/action intellectuals fell silent would America be less secure?

          Let me propose an experiment. Put them on furlough. Not permanently - just until the last of the winter snow finally melts in New England. Send them back to Yale for reeducation. Let's see if we are able to make do without them even for a month or two.

          In the meantime, invite Iraq and Afghanistan War vets to consider how best to deal with ISIS. Turn the op-ed pages of major newspapers over to high school social studies teachers. Book English majors from the Big Ten on the Sunday talk shows. Who knows what tidbits of wisdom might turn up?

          On Secular Stagnation: A Response to Bernanke

          economistsview.typepad.com
          Larry Summers responds to Ben Bernanke:
          On Secular Stagnation: A Response to Bernanke, by Larry Summers: Ben Bernanke has inaugurated his blog with a set of thoughtful observations on the determinants of real interest rates (see his post here) and the secular stagnation hypothesis that I have invoked in an effort to understand recent macroeconomic developments. I agree with much of what Ben writes and would highlight in particular his recognition that the Fed is in a sense a follower rather than a leader with respect to real interest rates – since they are determined by broad factors bearing on the supply and demand for capital – and his recognition that equilibrium real rates appear to have been trending downward for quite some time. His challenges to the secular stagnation hypothesis have helped me clarify my thinking and provide an opportunity to address a number of points where I think there has been some confusion in the public debate. ...

          His conclusion:

          I would like nothing better than to be wrong as Alvin Hansen was with respect to secular stagnation. It may be that growth will soon take hold in the industrial world and allow interest rates and financial conditions to normalize. If so, those like Ben who judged slow recovery to be a reflection of temporary headwinds and misguided fiscal contractions will be vindicated and fears of secular stagnation will have been misplaced.

          But throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now. So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment.

          If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. Macroeconomists can contribute by moving beyond their traditional models of business cycles to contemplate the possibility of secular stagnation.

          Bud Meyers:
          "Saving relative to investment" -- Those at the are top hoarding cash; the money supply isn't being re-circulated to drive economic activity; instead it's perpetuating future generations of heirs.

          To expand public and private investment would require changing the tax code and having better enforcement by the IRS (offshore accounts, etc.) An adequate level of demand and its appropriate distribution can be acquired by raising the federal minimum wage to $25 an hour -- all the things that the current congress is against.

          Benedict@Large:

          "Those at the are top hoarding cash ..."

          From the opposite viewpoint, there are few suitable (risk v. reward) investment opportunities. For the same reason, stock buy-backs are popular with corporations.

          The real problem is and has always been a lack of demand. Without demand, there is no reason to invest. Just surplus savings. Excess reserves. Those at the top are simply doing the best they can with them.

          reed hundt

          Gentle economists: a global or even national project to rebuild the energy platform on sustainable and much more affordable grounds would eliminate all vestiges of stagnation. Taxing GHG is only one part, and not an absolutely necessary part, of that project. This is the infrastructure plan par excellence. I might add that the avoided costs are, well, er, mind bogglingly large.

          I predict absolutely no one will comment on what I've posted; no one paid any attention to the same prediction made in or about 1994 by the FCC chairman with respect to the rebuilding of the communications platform. Who was that guy?

          RGC:

          I think we have two distinguishable problems:

          1. Effective demand is inadequate and the private sector is extremely unlikely to provide it any time soon. As mentioned, corporations are swimming in cash and are buying back their stock - meaning they don't see good investment opportunities in their marketplace. If the federal government doesn't spend for infrastructure and other things we are likely stuck.

          2. The FIRE sector is sucking an ever-increasing amount of income out of the real economy. The average consumers' money is going to pay interest on debt rather than goods and services. The Fire sector uses their income to make more loans and thus collect even more interest or they speculate in the price of existing assets. Thus the real economy continues to shrink.

          If fundamental changes re fiscal policy and the treatment of returns to finance versus returns to productive investment are not made, we are screwed.

          The Rage said in reply to RGC

          "Effective demand" is irrelevant with a strong "FIRE" sector. It is credit expansion and financing of that credit expansion that drive the economy.

          So people say "effective demand" is not good enough, but the economy keeps on expanding and expanding as commercial paper surges despite "effective" demand not rising.

          This is why I say there was no recession in the early 2000's. Businesses overreacted to the digital booms end and over cut production while commercial paper was booming. Then they had to snap back over 2003 to reflect reality of condition. It is a different economy and one not built on industrial production or consumer savings. The "real" economy is the FIRE sector.

          To unbuild that, would require a medium nobody wants to go through.

          djb said...

          i am glad to see someone blaming hansen, not keynes for the idea that secular stagnation is best we can do

          keynes is often attributed to having said this in the general theory, but NEVER said such a thing

          he defined several scenarios where it could occur,

          believing a true general theory should be able to explain reality

          but NEVER said that the scenarios were unsolvable

          "But we must not conclude that the mean position thus determined by "natural" tendencies, namely, by those tendencies which are likely to persist, failing measures expressly designed to correct them, is, therefore, established by laws of necessity.

          The unimpeded rule of the above conditions is a fact of observation concerning the world as it is or has been, and not a necessary principle which cannot be changed."

          thats from the end of chapter 18, the general theory


          Fred C. Dobbs said...

          Bottom line, the Bernankes
          & Yellens can only do so much.
          Monetary policy won't get it all done.

          That's where Tim Cook & Elon Musk
          come in, to do the rest.

          Min

          Long Depression 2.0?

          The Rage said in reply to Min...

          Been going on since the early 80's.

          anne said in reply to anne...

          I too come down on the side of Lawrence Summers. The problem in Europe is domestic demand and that could have and should have been handled by a Keynesian spending approach from 2008 on:


          http://research.stlouisfed.org/fred2/graph/?g=VRj

          August 4, 2014

          Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013

          (Percent change)


          http://research.stlouisfed.org/fred2/graph/?g=16ei

          August 4, 2014

          Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013

          (Indexed to 2007)


          Reply

          [Apr 01, 2015] Liquidity Traps, Local and Global (Somewhat Wonkish) By Paul Krugman

          Apr 01, 2015 | krugman.blogs.nytimes.com

          There's been a really interesting back and forth between Ben Bernanke * and Larry Summers ** over secular stagnation. I agree with most of what both have to say. But there's a substantive difference in views, in which Bernanke correctly, I'd argue, criticizes Summers for insufficient attention to international capital flows – but then argues that once you do allow for international capital movement it obviates many of the secular stagnation concerns, which I believe is wrong.

          As it happens, the role of capital flows in the logic of liquidity traps is an issue I tackled right at the beginning, back in 1998; and I've been trying to work out how it plays into the discussion of secular stagnation, which is basically the claim that countries can face very persistent, quasi-permanent liquidity traps. So I think I may have something useful to add here.

          Start with Bernanke's critique of Summers. The most persuasive evidence that the US may face secular stagnation comes from the lackluster recovery of 2001-2007. We experienced the mother of all housing bubbles, fueled by a huge, unsustainable rise in household debt – yet all we got was a fairly unimpressive expansion by historical standards, and little if any inflationary overheating. This would seem to point to fundamental weakness in private demand. But one reason for the sluggish growth in demand for U.S.-produced goods and services was a huge trade deficit, the counterpart of huge reserve accumulation in China and other emerging markets. So Bernanke argues that what Summers sees as evidence of secular stagnation actually reflects the global savings glut.

          That's a good point. But Bernanke then goes on, as I understand him, to argue that international capital flows should solve the problem of secular stagnation unless if affects the world as a whole, because capital can seek higher returns abroad; he also argues that the global savings glut is mainly a thing of the past, and that in any case such problems can be addressed mainly by putting pressure on foreign governments to open their capital accounts and stop pursuing policies that promote excessive current account surpluses. And in these assertions, I'd suggest, he goes somewhat astray.

          Let's first ask whether the possibility of investing abroad obviates the problem of liquidity traps in general (as opposed to secular stagnation.) To do this, consider the analysis I laid out a couple of months ago when I was trying to think about the dollar and U.S. recovery, but run it in reverse. Suppose that a country or currency area – let's call it Europe - suffers a decline in aggregate demand. And suppose that this threatens to push the Wicksellian natural rate of interest – the rate of interest at which desired savings and investment would be equal at full employment - below zero. Can this happen if there are positive-return investments outside of Europe?

          You might think not: as long as there are positive-return investments abroad, capital will flow out. This will drive down the value of the euro, increasing net exports, and raising the Wicksellian natural rate. So you might think that you can't have a liquidity trap in just one country, as long as capital is mobile.

          But this isn't right if the weakness in European demand is perceived as temporary (where that could mean a number of years). For in that case the weakness of the euro will also be seen as temporary: the further it falls, the faster investors will expect it to rise back to a "normal" level in the future. And this expected appreciation back toward normality will equalize expected returns after a decline in the euro that is well short of being enough to raise the natural rate of interest all the way to its level abroad. International capital mobility makes a liquidity trap in just one country less likely, but it by no means rules that possibility out.

          Still, secular stagnation – as opposed to liquidity-trap analysis in general – is concerned with excess saving that lasts a very long time, that's quasi-permanent. So in that case wouldn't we expect capital mobility to be decisive? Shouldn't it be impossible to have secular stagnation in just one country?

          When I first approached this issue, that's what I thought. But I immediately ran up against a big real-world counterexample: Japan. Japan has effectively been at the zero lower bound since the 1990s, and it wasn't until the end of 2008 that the rest of the advanced world joined it there. So why didn't capital flood out of Japan in search of higher returns, driving the yen down and boosting Japan out of its trap?

          The answer is that real returns in Japan weren't exceptionally low – they were, in fact, more or less equal to those abroad. But this equalization of real rates didn't occur through an equalization of Wicksellian natural rates. Instead, what happened was that persistent deflation in Japan, combined with the zero lower bound, kept the actual real interest rate well above the Wicksellian rate. Here's the data from 1996 to 2008, with inflation measured by the GDP deflator and interest rates measured by 6-month Libor:

          [Graph]

          OK, it's not full equalization. but not too far off - despite being at the zero lower bound for many years, Japan ended up offering more or less competitive real returns.

          The moral of the Japanese example is that if other countries are managing to achieve a moderately positive rate of inflation, but you have let yourself slip into deflation or even into "lowflation", you can indeed manage to find yourself in secular stagnation even if the rest of the world offers positive-return investment opportunities.

          Which brings me to the future of the global savings glut.

          As Bernanke notes, as far as big current account surpluses go, Germany is the new China. However, he argues that the large current account surplus of the euro area as a whole is a temporary phenomenon driven by cyclical weakness in the euro periphery, and therefore not likely to be a source of persistent trouble.

          But look at what bond markets are saying! German interest rates – presumably an indicator of perceived euro safe rates – are negative out to seven years; the 10-year rate is only 16 basis points. This is telling us that markets expect the euro area economy to be depressed, and ECB rates very low, for many years to come. In effect, European bond markets are flashing a secular stagnation warning.

          And this makes sense: the case for secular stagnation in Europe is considerably stronger than it is for the U.S.. Working-age population is declining, Japan-style; the euro system, with a shared currency but no fiscal integration, arguably imparts a strong contractionary bias to fiscal policy; and core inflation is already down to just 0.6 percent.

          By the logic I've already laid out, this should imply a persistently very weak euro and a persistently large European current account surplus, as Europe in effect tries to export its secular stagnation – a process limited only by the way low inflation or deflation interact with the zero lower bound to keep interest rates from falling to their Wicksellian equilibrium rate.

          Sure enough, if we try to figure out the market's implied prediction for the euro, it seems to imply persistent weakness. The euro/dollar rate is down around 30 percent from its level before Europe began running such large surpluses. Meanwhile, German 10-year real interest rates are around -1, while U.S. real rates are slightly positive; this implies that markets expect the euro to recover only a third or so of its recent decline over the next decade.

          What this in turn implies is that even if you downplay domestic U.S. weakness and focus on the export of capital from other countries, especially Germany, there's no good reason to believe that this new version of the global savings glut will end any time soon.

          Which brings me to the policy debate. Bernanke seems to be saying that if there is a problem, it can be solved by cracking down on currency manipulation:

          "The US and the international community should continue to oppose national policies that promote large, persistent current account surpluses and to work toward an international system that delivers better balance in trade and capital flows."

          If my analysis of the European problem is right, however, this is pretty much irrelevant: Europe's trade and capital imbalances are the result of fundamental weakness of domestic demand, which is then exported to the rest of us, who aren't that strong either. If true, this says that we have a problem that must be solved with policies that boost demand. So on the policy debate, I come down firmly on the Summers side.

          * http://www.brookings.edu/blogs/ben-bernanke

          ** http://larrysummers.com/2015/04/01/on-secular-stagnation-a-response-to-bernanke/

          [Apr 01, 2015] Fracking Town's Desperate Laid-off Workers: They Don't Tell You It's All a Lie

          Apr 01, 2015 | Alternet
          WILLISTON, N.D.-From the looks of it, the nation's boomtown is still booming. Big rigs, cement mixers and oil tankers still clog streets built for lighter loads. The air still smells like diesel fuel and looks like a dust bowl- all that traffic - and natural gas flares, wasted byproducts of the oil wells, still glare out at the night sky like bonfires.

          Not to mention that Walmart, still the main game in town, can't seem to get a handle on its very long lines and half­ empty shelves.

          But life at the center of the country's largest hydraulic fracturing, or fracking, boom has definitely changed. The jobs that brought thousands of recession­-weary employment­-seekers to this once peaceful corner of western North Dakota over the last five years have been drying up, even as the unemployed keep coming.

          Downtown, clutches of men pass their time at the Salvation Army, watching movies or trolling Craigslist ads on desktop computers. The main branch of the public library is full, all day, every day, with unemployed men in cubbyholes. And when the Command Center, a private temporary jobs agency, opens every morning at 6am, between two and three dozen people are waiting to get in the door.

          Some of these job seekers are sleeping in their trucks, in utility sheds, behind piles of garbage by the railroad tracks, wherever they can curl up.

          Only a year ago, Williston's shale oil explosion was still gushing jobs. From 2010 to 2014, thanks to the Bakken shale oil patch, it was the fastest growing small city in the nation. Williston nearly tripled in size, from 12,000 to 35,000 people. But the number of active rigs used to drill new wells in the Bakken dropped to 111 in March, the lowest number since April 2010, according to state figures. Low oil prices have prompted drilling to slow down, and companies big and small have been laying off workers and cutting hours.

          ... ... ...

          The Salvation Army has offered stranded workers a one­-way ticket back home. But many job seekers seem unwilling to leave-at least not until they can make a success out of their sacrificial move to a place with six months of winter, the worst traffic they've ever seen, and a disgruntled, if not miserable, populace.

          "You just have to cowboy up and expect things to get better," said Terry Ray Cover, a 56­-year-­old farmer and jack­-of-­all-­trades who came from southeast Iowa on a Greyhound bus in November. He'd heard North Dakota was raining jobs.

          "They don't tell you it's all a lie," he said, sipping coffee in the Salvation Army on a frigid day in early March. "Places advertise jobs and then tell you they're not hiring."

          The jobs he sees ads for, Cover said, require certifications and degrees, "like engineering." He had found odd jobs, one at a cattle ranch, since he arrived in Williston. But he hadn't worked in four weeks, despite daily treks to the Command Center.

          Cover, bundled in a ski suit, had spent the most frigid nights of winter (­20 Fahrenheit) in a tin shelter he discovered within walking distance of the Command Center, his best hope for work. He was relying on the Salvation Army for his daily bread and new friends for his daily smokes.

          The men-they are all men-hanging out at the Salvation Army for coffee, bread and whatever donated goods there might be on a given day (from 9am to 3pm) have come from all over, including Iowa, Minnesota, Montana, Louisiana, New Jersey and Washington, D.C. They include a number of African immigrants originally from Liberia, Sierra Leone, Nigeria and Senegal.

          But their stories are close to the same. They heard Williston had jobs, and they weren't having any luck back home. So they hopped in their truck, or a Greyhound bus, and hopped off to a rude awakening.

          Most of the men, who range in age from their early 30s to late 50s, have spent 10 nights, the maximum allowed, at a 10­-bed emergency shelter the Salvation Army and a local church set up, leasing 10 beds at a camp for oil workers (a so-­called man camp). More than 100 men applied to stay at the emergency shelter since it resumed operating for the second year in November. (It was set to close March 31 but has extended its season due to demand.)

          ... ... ...

          Ali Singa, who moved to North Dakota from Nashville nine months ago, started out in Fargo, making $11 an hour the day after he arrived in shipping. He stayed for three months before heading to Williston, where he heard he could make more money, enough to send to his wife and three children in Sierra Leone.

          He found work in a nearby oil patch town, Watford City, hauling water, but he was laid off in December and has not been able to land another job. "A lack of a job has trapped me here," Singa said. "Right now, I'm staying with friends. I'm in a very bad situation. You must put this down in your report: At the same time that they're advertising jobs, they're laying people off, and people keep coming and keep coming."

          Singa, a high school French teacher in his native country, moved to Washington, D.C. from the Sierra Leone 10 years ago, seeking a better life for his family back home. But after being laid off from a baggage handler job, he has not had much luck with his relocations.

          Evelyn Nieves is a senior contributing writer and editor at AlterNet, living in San Francisco. She has been a reporter for both the New York Times and the Washington Post.

          [Mar 20, 2015] Here Is The Reason Why Stocks Are Soaring, Or Farewell Recovery... Again

          03/18/2015 | Zero Hedge

          Why are stock soaring in response to the Fed statement and latest set of projections? Because, as Bloomberg promptly calculated, the FOMC revised down all forecasts for 2015 since the previous SEP was released on Dec. 17.

          The median dot for year end 2015 falls to 0.625% from 1.125% in Dec: a whopping 0.50% cut.

          And there goes not only the "recovery" but any imminent rate hike.

          The details:

          • The central tendency for GDP this year is 2.3%-2.7% vs 2.6%-3%. But the real hammer was 2016 and 2017: these were just slashed from 2.5%-3.0% and 2.3%-2.5% as of December, to 2.3-2.7% and 2.0-2.4%.
          • Unemployment rate 5.0-5.2% vs 5.2%-5.3%
          • The Fed now sees PCE inflation at 0.6%-0.8%. This was supposed to be 1%-1.6% just three months ago.
          • Core PCE 1.3%-1.4% vs 1.5%-1.8%
          • And the one that matters most, the "dot plot", saw the median dot for 2016 fall to 1.875% vs 2.5%, and decline to 3.125% from 3.625% for 2017.

          And here is a comparison of the dots since September 2014 courtesy of @Not_Jim_Cramer. The Fed: wrong as ever.

          In other words, what the Fed just said is the following: "it wasn't the snow, it was the economy."

          End Result: Goodbye recovery, hello stock surge.

          Recommended Links

          Google matched content

          Softpanorama Recommended

          Top articles

          [Jun 30, 2017] Elections Absenteeism, Boycotts and the Class Struggle by James Petras Published on Jun 30, 2017 | www.unz.com

          Oldies But Goodies

          [Jun 30, 2017] Elections Absenteeism, Boycotts and the Class Struggle by James Petras

          [Dec 31, 2017] Is [neo]Liberalism a Dying Faith by Pat Buchanan

          [Dec 24, 2017] Laudato si by Pope Francis

          [Dec 22, 2017] Beyond Cynicism America Fumbles Towards Kafka s Castle by James Howard Kunstler

          [Dec 19, 2017] Do not Underestimate the Power of Microfoundations

          [Dec 15, 2017] Rise and Decline of the Welfare State, by James Petras

          [Dec 14, 2017] The 1970's was in many ways the watershed decade for the neoliberal transformation of the American economy and society

          [Dec 12, 2017] When a weaker neoliberal state fights the dominant neoliberal state, the center of neoliberal empire, it faces economic sanctions and can t retaliate using principle eye for eye

          [Dec 12, 2017] Thoughts on Neoconservatism and Neoliberalism by Hugh

          [Dec 10, 2017] blamePutin continues to be the media s dominant hashtag. Vladimir Putin finally confesses his entire responsibility for everything bad that has ever happened since the beginning of time

          [Dec 10, 2017] Russia-gate s Reach into Journalism by Dennis J Bernstein

          [Dec 05, 2017] Controlling speculation in world financial markets Progressive Christians Uniting by Gordon K Douglass

          [Dec 03, 2017] Business Has Killed IT With Overspecialization by Charlie Schluting

          [Dec 03, 2017] Another Democratic party betrayal of their former voters. but what you can expect from the party of Bill Clinton?

          [Dec 01, 2017] JFK The CIA, Vietnam, and the Plot to Assassinate John F. Kennedy by L. Fletcher Prouty, Oliver Stone, Jesse Ventura

          [Nov 30, 2017] Heritage Foundation + the War Industry What a Pair by Paul Gottfried

          [Nov 30, 2017] Money Imperialism by Michael Hudson

          [Nov 29, 2017] Secular Stagnation: The Time for One-Armed Policy is Over

          [Nov 29, 2017] Economics is a Belief System - and We are Ruled by Fundamentalists

          [Nov 29, 2017] Michael Hudson: The Wall Street Economy is Draining the Real Economy

          [Nov 29, 2017] Positive Feedback Loops, Financial Instability, The Blind Spot Of Policymakers

          [Nov 29, 2017] Attack on Sanders Economic Plan By Former Chairs of the Council of Economic Advisors Irresponsible

          [Nov 27, 2017] College Is Wildly Exploitative Why Arent Students Raising Hell

          [Nov 05, 2017] China and the US Rational Planning and Lumpen Capitalism by James Petras

          [Nov 04, 2017] Who's Afraid of Corporate COINTELPRO by C. J. Hopkins

          [Oct 29, 2017] If You Look Behind Neoliberal Economists, You'll Discover the Rich: How Economic Theories Serve Big Business

          [Oct 25, 2017] Tomorrow Belongs to the Corporatocracy by C.J. Hopkins

          [Oct 24, 2017] Goldman Sachs ruling America by Gary Rivlin, Michael Hudson

          [Apr 21, 2019] John Brennan's Police State USA

          [Oct 16, 2017] Governing is complicated as laws and policies affect a diverse spectrum of people and situations. The average person, in my experience, is not inclined to spend the time necessary to understand good laws/policy in a complex society. The one safety check on mob rule is that most people don't become politically active until their situation is relatively dire

          [Oct 13, 2017] Sympathy for the Corporatocracy by C. J. Hopkins

          [Oct 08, 2017] On the history and grand duplicity of neoliberalism

          [Oct 11, 2017] Russia witch hunt is a tactic used by the ruling elite, and in particular the Democratic Party, to avoid facing a very unpleasant reality: that their unpopularity is the outcome of their policies of deindustrialization and the assault against working class

          [Oct 10, 2017] The US Economy: Explaining Stagnation and Why It Will Persist by Thomas I. Palley

          [Feb 26, 2019] Neoliberalism by Julie Wilson

          [Oct 08, 2017] Financialization: theoretical analysis and historical perspectives by Costas Lapavitsas

          [Oct 07, 2017] Finances hold on our everyday life must be broken by Costas Lapavitsas

          [Oct 06, 2017] Prof. Philip Mirowski keynote for Life and Debt conference

          [Oct 06, 2017] How Economists Turned Corporations into Predators

          [Oct 02, 2017] Techs push to teach coding isnt about kids success – its about cutting wages by Ben Tarnoff

          [May 23, 2017] CIA, the cornerstone of the deep state has agenda that is different from the US national interest and reflect agenda of the special interest groups such as Wall Street bankers and MIC

          [Oct 01, 2017] Attempts to buy US elections using perverted notion of free speech were deliberate. This is an immanent feature of neoliberalism which being Trotskyism for the rich deny democracy for anybody outside the top one percent (or, may be, top 10-20 percent)

          [Oct 01, 2017] Bulletproof Neoliberalism by Paul Heideman

          [Sep 26, 2017] Is Foreign Propaganda Even Effective by Leon Hadar

          [Sep 25, 2017] Free market as a neoliberal myth, the cornerstone of neoliberalism as a secular religion

          [Sep 24, 2017] Mark Ames When Mother Jones Was Investigated for Spreading Kremlin Disinformation by Mark Ames

          [Sep 23, 2017] The Exit Strategy of Empire by Wendy McElro

          [Sep 19, 2017] Neoliberalism: the idea that swallowed the world by Stephen Metcalf

          [Sep 19, 2017] Neoliberalism: the deep story that lies beneath Donald Trumps triumph: How a ruthless network of super-rich ideologues killed choice and destroyed people's faith in politics by George Monbiot

          [Sep 16, 2017] The Transformation of the American Dream

          [Sep 11, 2017] Around 1970 corporate managers and professionals realized that they shared the same education, background and interests with capital owners and realigned themselves, abandoning working class and a large part of lower middle class (small business owners)

          [Sep 18, 2017] Critical Realism: Mathematics versus Mythematics in Economics

          [Sep 18, 2017] Looks like Trump initially has a four point platform that was anti-neoliberal in its essence: non-interventionism, no to neoliberal globalization, no to outsourcing of jobs, and no to multiculturism. All were betrayed very soon

          [Sep 18, 2017] Its always bizarre who easily neoliberals turn into hawkish and warmongering jerks

          [Sep 13, 2017] A despot in disguise: one mans mission to rip up democracy by George Monbiot

          [Sep 11, 2017] Neo-classical economics as a new flat earth cult

          [Sep 11, 2017] Neoliberalism is creating loneliness. That's what is wrenching society apart by George Monbiot

          [Sep 11, 2017] The only countervailing force, unions, were deliberately destroyed. Neoliberalism needs to atomize work force to function properly and destroys any solidarity among workers. Unions are anathema for neoliberalism, because they prevent isolation and suppression of workers.

          [Sep 11, 2017] Around 1970 corporate managers and professionals realized that they shared the same education, background and interests with capital owners and realigned themselves, abandoning working class and a large part of lower middle class (small business owners)

          [Sep 05, 2017] Is the World Slouching Toward a Grave Systemic Crisis by Philip Zelikow

          [Sep 05, 2017] A State of Neoliberalism

          [Aug 30, 2017] The President of Belgian Magistrates - Neoliberalism is a form of Fascism by Manuela Cadelli

          [Jul 28, 2017] Perhaps Trump asked Sessions to fire Mueller and Sessions refused?

          [Jul 17, 2017] Tucker Carlson Goes to War Against the Neocons by Curt Mills

          [Jul 12, 2017] Stephen Cohens Remarks on Tucker Carlson Last Night Were Extraordinary

          [Jul 04, 2017] Summers as a defender of Flat Earth theory

          [Jun 24, 2017] The Saudi-Qatar spat - the reconciliation offer to be refused>. Qater will move closer to Turkey

          [Jun 24, 2017] The Criminal Laws of Counterinsurgency by Todd E. Pierce

          [May 08, 2017] Karl Polanyi for President by Patrick Iber and Mike Konczal

          [May 21, 2017] What Obsessing About Trump Causes Us To Miss by Andrew Bacevich

          [May 08, 2017] Karl Polanyi for President by Patrick Iber and Mike Konczal

          [Dec 31, 2017] Truth-Killing as a Meta-Issue

          [Dec 31, 2017] Truth-Killing as a Meta-Issue

          [May 01, 2017] Trump: A Resisters Guide by Wesley Yang

          [Apr 18, 2017] Atomization of workforce as a part of atomization of society under neoliberalism

          [Jan 23, 2017] One way to sum up neoliberalism is to say that everything-everything-is to be made over in the image of the market, including the state, civil society, and of course human beings

          [Dec 30, 2018] The essence of neoliberalism by Pierre Bourdieu

          [Dec 27, 2018] The Yoda of Silicon Valley by Siobhan Roberts

          [Dec 22, 2018] British Security Service Infiltration, the Integrity Initiative and the Institute for Statecraft by Craig Murray

          [Dec 16, 2018] Neoliberalism has had its day. So what happens next (The death of neoliberalism and the crisis in western politics) by Martin Jacques

          [Dec 14, 2018] Neoliberalism has spawned a financial elite who hold governments to ransom by Deborah Orr

          [Dec 11, 2018] John Taylor Gatto s book, The Underground History of American Education, lays out the sad fact of western education ; which has nothing to do with education; but rather, an indoctrination for inclusion in society as a passive participant. Docility is paramount in members of U.S. society so as to maintain the status quo

          [Dec 09, 2018] Neoliberalism is more like modern feudalism - an authoritarian system where the lords (bankers, energy companies and their large and inefficient attendant bureaucracies), keep us peasants in thrall through life long debt-slavery simply to buy a house or exploit us as a captured market in the case of the energy sector.

          [Feb 10, 2019] Neoliberalism is dead. Now let's repair our democratic institutions by Richard Denniss

          [Dec 08, 2018] Internet as a perfect tool of inverted totalitarism: it stimulates atomizatin of individuals, creates authomatic 24x7 surveillance over population, suppresses solidarity by exceggerating non-essential differences and allow more insidious brainwashing of the population

          [Dec 07, 2018] Brexit Theresa May Goes Greek! by Brett Redmayne

          [Dec 03, 2018] Neoliberalism is a modern curse. Everything about it is bad and until we're free of it, it will only ever keep trying to turn us into indentured labourers. It's acolytes are required to blind themselves to logic and reason to such a degree they resemble Scientologists or Jehovah's Witnesses more than people with any sort of coherent political ideology, because that's what neoliberalism actually is... a cult of the rich, for the rich, by the rich... and it's followers in the general population are nothing but moron familiars hoping one day to be made a fully fledged bastard.

          [Nov 27, 2018] The political fraud of Alexandria Ocasio-Cortez's "Green New Deal"

          [Nov 27, 2018] American capitalism could afford to make concessions assiciated with The New Deal because of its economic dominance. The past forty years have been characterized by the continued decline of American capitalism on a world stage relative to its major rivals. The ruling class has responded to this crisis with a neoliberal counterrevolution to claw back all gains won by workers. This policy has been carried out under both Democratic and Republican administrations and with the assistance of the trade unions.

          [Nov 27, 2018] The Argentinian military coup, like those in Guatemala, Honduras, Brazil, Paraguay, Bolivia and Nicaragua, was sponsored by the US to protect and further its interests during the Cold War. By the 1970s neoliberalism was very much part of the menu; paramilitary governments were actively encouraged to practice neoliberal politics; neoliberalism was at this stage, what communism was to the Soviet Union

          [Nov 25, 2018] Let s recap what Obama s coup in Ukraine has led to shall we?

          [Nov 23, 2018] Sitting on corruption hill

          [Nov 03, 2018] Neoliberal Measurement Mania

          [Nov 03, 2018] Kunstler The Midterm Endgame Democrats' Perpetual Hysteria

          [Oct 18, 2018] The Political Economy of the Working Class

          [Oct 13, 2018] To paraphrase Stalin: They are both worse.

          [Oct 09, 2018] NYT Claims Trump Campaign (Almost) Colluded With Israeli Spies

          [Sep 29, 2018] Steve Keen How Economics Became a Cult

          [Sep 29, 2018] Trump Surrenders to the Iron Law of Oligarchy by Dan Sanchez

          [Sep 27, 2018] Hiding in Plain Sight Why We Cannot See the System Destroying Us

          [Sep 27, 2018] The power elites goal is to change its appearance to look like something new and innovative to stay ahead of an electorate who are increasingly skeptical of the neoliberalism and globalism that enrich the elite at their expense.

          [Sep 27, 2018] Hiding in Plain Sight Why We Cannot See the System Destroying Us

          [Sep 25, 2018] The entire documentary "The Spider's Web: Britain's Second Empire" by Michael Oswald is worth watching as an introduction to the corruption in the global finance industry.

          [Sep 23, 2018] UK Begged Trump Not To Declassify Russia Docs; Cited Grave Concerns Over Steele Involvement

          [Sep 16, 2018] I m delighted we can see the true face of American exceptionalism on display everyday. The last thing I want to see is back to normal.

          [Sep 15, 2018] Why the US Seeks to Hem in Russia, China and Iran by Patrick Lawrence

          [Sep 07, 2018] Neomodernism - Wikipedia

          [Sep 07, 2018] Neomodernism - Wikipedia

          [Aug 28, 2018] A Colony in a Nation by Chris Hayes

          [Aug 24, 2018] The priorities of the deep state and its public face the MSM

          [Aug 22, 2018] The US financial sector has manifestly failed at allocating capital properly and is filled with rent seeking by Anatoly Karlin

          [Aug 19, 2018] End of "classic neoliberalism": to an extent hardly imaginable in 2008, all the world's leading economies are locked in a perpetually escalating cycle of economic warfare.

          [Aug 18, 2018] Corporate Media the Enemy of the People by Paul Street

          [Aug 18, 2018] Pentagon Whistleblower Demoted After Exposing Millions Paid To FBI Spy Halper, Clinton Crony

          [Aug 10, 2018] On Contact: Casino Capitalism with Natasha Dow Schull

          [Jul 28, 2018] American Society Would Collapse If It Were not For These 8 Myths by Lee Camp

          [Mar 18, 2019] Doublethink and Newspeak Do We Have a Choice by Greg Guma

          [Jul 23, 2018] The Prophecy of Orwell's 1984. Totalitarian Control and the Entertainment Culture that Takes Over by Edward Curtin

          [Jul 23, 2018] Chickens with Their Heads Cut Off, Coming Home to Roost. The "Treason Narrative" by Helen Buyniski

          [Jul 22, 2018] Tucker Carlson SLAMS Intelligence Community On Russia

          [May 29, 2018] Guccifer 2.0's American Fingerprints Reveal An Operation Made In The USA by Elizabeth Lea Vos

          [Jul 16, 2018] Five Things That Would Make The CIA-CNN Russia Narrative More Believable

          [Jul 16, 2018] Why the Media is Desperate to Reclaim its Gatekeeper Status for News Zero Hedge Zero Hedge

          [Jul 03, 2018] When you see some really successful financial speculator like Soros or (or much smaller scale) Browder, search for links with intelligence services to explain the success or at least a part of it related to xUSSR space , LA and similar regions

          [Jun 25, 2018] The review of A Brief History of Neoliberalism by David Harvey by Michael J. Thompson

          [Jun 21, 2018] The neoliberal agenda is agreed and enacted by BOTH parties:

          [Jun 19, 2018] How The Last Superpower Was Unchained by Tom Engelhardt

          [Jun 17, 2018] The Necessity of a Trump-Putin Summit by Stephen F. Cohen

          [Jun 17, 2018] Neoliberalism as socialism for the banks

          [Jun 06, 2018] Neoliberal language allows to cut wages by packaging neoliberal oligarchy preferences as national interests

          [Jun 10, 2018] Trump and National Neoliberalism by Sasha Breger Bush

          [May 31, 2018] Meet the Economist Behind the One Percent's Stealth Takeover of America by Lynn Parramore

          [May 30, 2018] How Media Amnesia Has Trapped Us in a Neoliberal Groundhog Day

          [May 29, 2018] Guccifer 2.0's American Fingerprints Reveal An Operation Made In The USA by Elizabeth Lea Vos

          [May 27, 2018] America's Fifth Column Will Destroy Russia by Paul Craig Roberts

          [May 27, 2018] Northwestern University roundtable discusses regime change in Russia Defend Democracy Press

          [May 23, 2018] Mueller role as a hatchet man is now firmly established. Rosenstein key role in applointing Mueller without any evidence became also more clear with time. Was he coerced or did it voluntarily is unclear by Lambert Strether

          [May 20, 2018] Yes, Neoliberalism Is a Thing. Don't Let Economists Tell You Otherwise naked capitalism

          [May 20, 2018] "Free markets" as a smoke screen for parasitizing riches to implement their agenda via, paradoxically, state intervention

          [May 09, 2018] Trotskyist Delusions, by Diana Johnstone

          [May 09, 2018] Trotskyist Delusions, by Diana Johnstone

          [Feb 03, 2019] Neoliberalism and Christianity

          [Apr 23, 2018] How Neoliberalism Worms Its Way Into Your Brain by Nathan J. Robinson

          [Apr 23, 2018] Neoliberals are statists, much like Trotskyites are

          [Apr 23, 2018] How Neoliberalism Worms Its Way Into Your Brain by Nathan J. Robinson

          [Apr 22, 2018] The American ruling class loves Identity Politics, because Identity Politics divides the people into hostile groups and prevents any resistance to the ruling elite

          [Apr 21, 2018] Amazingly BBC newsnight just started preparing viewers for the possibility that there was no sarin attack, and the missile strikes might just have been for show

          [Apr 21, 2018] It s a tough old world and we are certainly capable of a Salisbury set-up and god knows what else in Syria.

          [Apr 15, 2018] The Trump Regime Is Insane by Paul Craig Roberts

          [Apr 02, 2018] The Litvinenko Conspiracy

          [Apr 01, 2018] Big American Money, Not Russia, Put Trump in the White House: Reflections on a Recent Report by Paul Street

          [Apr 01, 2018] Does the average user care if s/he is micro-targetted by political advertisements based on what they already believe?

          [Mar 31, 2018] RFK and Nixon immediately understood the assassination was a CIA-led wet-works operation since they chaired the assassination committees themselves in the past

          [Mar 18, 2018] Powerful intelligence agencies are incompatible with any forms of democracy including the democracy for top one precent. The only possible form of government in this situation is inverted totalitarism

          [Mar 12, 2018] There is no democracy without economic democracy by Jason Hirthler

          [Mar 12, 2018] Colonizing the Western Mind using think tanks

          [Mar 11, 2018] Washington s Century-long War on Russia by Mike Whitney

          [Mar 11, 2018] I often think that, a the machinery of surveillance and repression becomes so well oiled and refined, the ruling oligarchs will soon stop even paying lip service to 'American workers', or the "American middle class" and go full authoritarian

          [Mar 02, 2018] The main reason much of the highest echelons of American power are united against Trump might be that they're terrified that -- unlike Obama -- he's a really bad salesman for the US led neoliberal empire. This threatens the continuance of their well oiled and exceedingly corrupt gravy train

          [Mar 02, 2018] Fatal Delusions of Western Man by Pat Buchanan

          [Feb 25, 2018] Democracies are political systems in which the real ruling elites hide behind an utterly fake appearance of people power

          [Feb 20, 2018] For the life of me I cannot figure why Americans want a war/conflict with Russia

          [Feb 14, 2018] The FBI and the President – Mutual Manipulation by James Petras

          [Feb 11, 2018] How Russiagate fiasco destroys Kremlin moderates, accelerating danger for a hot war

          [Feb 11, 2018] The Bankruptcy of the American Left by Chris Hedges

          [Feb 10, 2018] The generals are not Borgists. They are something worse ...

          [Feb 10, 2018] More on neoliberal newspeak of US propaganda machine

          [Feb 03, 2018] JP Morgan Oil Could Hit $78 Within Months

          [Dec 31, 2017] Is [neo]Liberalism a Dying Faith by Pat Buchanan

          [Jan 02, 2018] Who Is the Real Enemy by Philip Giraldi

          [Dec 29, 2019] The Collapse of Neoliberalism by Ganesh Sitaraman

          [Dec 21, 2019] Trump administration sanction companies involved in laying the remaining pipe, and also companies involved in the infrastructure around the arrival point.

          [Dec 21, 2019] The ruthless neo-colonialists of 21st century

          [Dec 20, 2019] Singer became notorious for what he did to Argentina after he bought their debt, and he is pretty upfront about not caring who objects by Andrew Joyce

          [Dec 02, 2019] A Think Tank Dedicated to Peace and Restraint

          [Dec 02, 2019] The Fake Myth of American Meritocracy by Barbara Boland

          [Dec 01, 2019] Academic Conformism is the road to 1984. - Sic Semper Tyrannis

          [Dec 01, 2019] Neoliberalism Tells Us We're Selfish Souls How Can We Promote Other Identities by Christine Berry,

          [Nov 24, 2019] Despair is a very powerful factor in the resurgence of far right forces. Far right populism probably will be the decisive factor in 2020 elections.

          [Nov 24, 2019] Chris Hedges on Death of the Liberal Class - YouTube

          [Nov 24, 2019] When you consider military assistance as the way to pressure the country, the first thing to discuss is whether this military assistance serves the USA national interests or not. This was not done

          [Nov 21, 2019] How Neoliberal Thinkers Spawned Monsters They Never Imagined

          [Nov 14, 2019] Neoliberalism Paved the Way for Authoritarian Right-Wing Populism by Henry A. Giroux

          [Nov 13, 2019] The End of Neoliberalism and the Rebirth of History by Joseph E. Stiglitz

          [Nov 13, 2019] Understanding What Sidney Powell is Doing to Kill the Case Against Michael Flynn by Larry C Johnson

          [Nov 07, 2019] Rigged Again Dems, Russia, The Delegitimization Of America s Democratic Process by Elizabeth Vos

          [Nov 06, 2019] Neoliberalism was not conceived as a self-serving racket [of the financial oligarchy], but it rapidly became one

          [Nov 03, 2019] How Controlling Syria s Oil Serves Washington s Strategic Objectives by Nauman Sadiq

          [Oct 28, 2019] National Neolibralism destroyed the World Trade Organisation by John Quiggin

          [Oct 25, 2019] Trump-Haters, Not Trump, Are The Ones Wrecking America s Institutions, WSJ s Strassel Says

          [Oct 24, 2019] Empire Interventionism Versus Republic Noninterventionism by Jacob Hornberger

          [Oct 23, 2019] Neoconservatism Is An Omnicidal Death Cult, And It Must Be Stopped by Caitlin Johnstone

          [Oct 23, 2019] The Pathocracy Of The Deep State Tyranny At The Hands Of A Psychopathic Government

          [Oct 20, 2019] Putin sarcastic remark on Western neoliberal multiculturalism

          [Oct 10, 2019] Trump, Impeachment Forgetting What Brought Him to the White House by Andrew J. Bacevich

          [Oct 09, 2019] Ukrainegate as the textbook example of how the neoliberal elite manipulates the MSM and the narrative for purposes of misdirecting attention and perception of their true intentions and objectives -- distracting the electorate from real issues

          [Oct 08, 2019] Parade of whistleblowers: a second whistleblower is now considering filing a complaint about President Donald Trump's conduct regarding Ukraine

          [Oct 06, 2019] Devop created huge opportunities for a new generation of snake oil salesman

          [Oct 05, 2019] Everything is fake in the current neoliberal discourse, be it political or economic, and it is not that easy to understand how they are deceiving us. Lies that are so sophisticated that often it is impossible to tell they are actually lies, not facts

          [Sep 26, 2019] Did Nancy Pelosi Just Make One Of The Biggest Political Mistakes In History

          [Sep 22, 2019] Neoliberalism Political Success, Economic Failure Portside by Robert Kuttner

          [Sep 22, 2019] It was neoliberalism that won the cold war

          [Sep 19, 2019] Form vs. substance in the neoliberal university

          [Sep 17, 2019] The reincarnation of the idea of Soviet Nomenklatura on a new level in a different social system

          [Sep 10, 2019] Neoliberal Capitalism at a Dead End by Utsa Patnaik and Prabhat Patnaik

          [Sep 10, 2019] How Deep Is the Rot in America s Institutions by Charles Hugh Smith

          [Sep 10, 2019] It s all about Gene Sharp and seeping neoliberal regime change using Western logistical support, money, NGO and intelligence agencies and MSM as the leverage

          [Sep 09, 2019] What's the True Unemployment Rate in the US? by Jack Rasmus

          [Sep 02, 2019] Where is Margaret Thatcher now?

          [Sep 02, 2019] Questions Nobody Is Asking About Jeffrey Epstein by Eric Rasmusen

          [Sep 02, 2019] Is it Cynical to Believe the System is Corrupt by Bill Black

          [Aug 30, 2019] Over 50 and unemployed: Don t panic!

          [Aug 21, 2019] Trump's Deficit Economy is bonanza for large coporation but not for the US workers. Fiscal stimulus now is just pushing on the string

          [Aug 20, 2019] Trump Promised Massive Infrastructure Projects -- Instead We ve Gotten Nothing>

          [Aug 20, 2019] Trump is about the agony. The agony of the US centered global neoliberal empire.

          [Aug 18, 2019] IV- MICHELS: THE IRON LAW OF OLIGARCHY by Dr. Mustafa Delican

          [Aug 14, 2019] Charge of anti-Semitism as a sign of a bitter factional struggle in UK Labor Party between neoliberal and alternatives to neoliberalism wings

          [Aug 14, 2019] The Citadels of America s Elites Fractured and At Odds with Each Other by Alastair Crooke

          [Aug 14, 2019] There is little chance that Western elites will behave any differently than a street corner drug dealer

          [Aug 13, 2019] "Much that passes as idealism is disguised hatred or disguised love of power."

          [Aug 12, 2019] New York Mayor Bill de Blasio has called Epstein's death "way too convenient."

          [Aug 11, 2019] One weak spot of the conspiracy theory that Epstein was killed: Why not terminate him overseas before his return? No mess, no fuss

          [Aug 11, 2019] https://www.mintpressnews.com/mega-group-maxwells-mossad-spy-story-jeffrey-epstein-scandal/261172/ by By Whitney Webb

          [Aug 04, 2019] We see that the neoliberal utopia tends imposes itself even upon the rulers.

          [Aug 04, 2019] to the liberal economists, free markets were markets free from rent seeking, while to the neoliberals free markets are free from government regulation.

          [Aug 04, 2019] Neoliberalism Political Success, Economic Failure

          [Jul 30, 2019] The main task of Democratic Party is preventing social movements from undertaking independent political activity to their left and killing such social movements

          [Jul 29, 2019] Looks like Epstein turned informant for Mueller s FBI in 2008. Likely earlier

          [Jul 29, 2019] Michael Hudson Trump s Brilliant Strategy to Dismember US Dollar Hegemony by Michael Hudson

          [Jul 26, 2019] Tucker What should happen to those who lied about Russian collusion

          [Jul 25, 2019] The destiny of the USA is now tied to the destiny of neoliberalism (much like the USSR and Bolshevism)

          [Jul 25, 2019] The Epstein Case Is A Rare Opportunity To Focus On The Depraved Nature Of America s Elite

          [Jul 24, 2019] Elizabeth Warren Seeks to Cut Private Equity Down to Size

          [Jul 15, 2019] Elizabeth Warren Has Made Her Story America's Story

          [Jul 14, 2019] MODELS OF POWER STRUCTURE IN THE UNITED STATES Political Issues We Concern

          [Jul 06, 2019] Why is Iran such a high priority for US elite? Because Iran successfully booted out the CIA and CIA-imposed regime out of their country and successfully remained independent since then

          [Jul 05, 2019] Who Won the Debate? Tulsi Gabbard let the anti-war genie out of the bottle by Philip Giraldi

          [Jul 05, 2019] Globalisation- the rise and fall of an idea that swept the world - World news by Nikil Saval

          [Jul 05, 2019] The UK public finally realized that the Globalist/Open Frontiers/ Neoliberal crowd are not their friends

          [Jul 05, 2019] The World Bank and IMF 2019 by Michael Hudson and Bonnie Faulkner

          [Jul 02, 2019] Yep! The neolibs hate poor people and have superiority complex

          [Jun 29, 2019] Latest Weapon Of US Imperialism Liquified Natural Gas

          [Jun 27, 2019] The Ongoing Restructuring of the Greater Middle East by C.J. Hopkins

          [Jun 25, 2019] Tucker US came within minutes of war with Iran

          [Jun 23, 2019] It never stops to amaze me how the US neoliberals especially of Republican variety claims to be Christian

          [Jun 23, 2019] These submerged policies obscure the role of government and exaggerate that of the market. As a result, citizens are unaware not only of the benefits they receive, but of the massive advantages given to powerful interests, such as insurance companies and the financial industry.

          [Jun 23, 2019] The return of fundamentalist nationalism is arguably a radicalized form of neoliberalism

          [Jun 22, 2019] Use of science by the US politicians

          [Jun 21, 2019] A Slow Death The Ills of the Neoliberal Academic

          [Jun 19, 2019] America s Suicide Epidemic

          [Jun 19, 2019] Bias bias the inclination to accuse people of bias by James Thompson

          [Jun 09, 2019] The looming 100-year US-China conflict by Martin Wolf

          [Jun 05, 2019] Due to the nature of intelligence agencies work and the aura of secrecy control of intelligence agencies in democratic societies is a difficult undertaking as the entity you want to control is in many ways more politically powerful and more ruthless in keeping its privileges then controllers.

          [Jun 05, 2019] Do Spies Run the World by Israel Shamir

          [May 31, 2019] US energy department rebrands fossil fuels as 'molecules of freedom'...and this is in The Guardian and not The Onion

          [May 25, 2019] The Belligerence Of Empire by Kenn Orphan

          [May 20, 2019] The dirty art of politicians entrapment: Blackmail, smear campaigns, various traps via honey or corruption, hookers, gay sex, pedophilia, or what-have-you, all or in combination

          [May 19, 2019] Some Shocking Facts on the Concentration of Ownership of the US Economy

          [May 17, 2019] Shareholder Capitalism, the Military, and the Beginning of the End for Boeing

          [May 13, 2019] Not Just Ukraine; Biden May Have A Serious China Problem As Schweizer Exposes Hunter s $1bn Deal

          [May 13, 2019] Angry Bear Senate Democratic Jackasses and Elmer Fudd

          [May 13, 2019] US Foreign Policy as Bellicose as Ever by Serge Halimi

          [May 12, 2019] Is rabid warmonger, neocon chickenhawk Bolton a swinger? That s a mental picture that s deeply disturbing yet funny at the same time

          [May 02, 2019] Neoliberalism and the Globalization of War. America s Hegemonic Project by Prof Michel Chossudovsky

          [May 11, 2019] Has Privatization Benefitted the Public? by Jomo Kwame Sundaram

          [May 11, 2019] Leaked USA s Feb 2018 Plan For A Coup In Venezuela

          [May 09, 2019] Another face of austerity, or Trump and his mistreses

          [Apr 28, 2019] Prisoners of Overwork A Dilemma by Peter Dorman

          [Apr 27, 2019] Why despite widespread criticism, neoliberalism remains the dominant politico-economic theory amongst policy-makers both in the USA and internationally

          [Apr 22, 2019] Current Neo-McCarthyism hysteria as a smoke screen of the UK and the USA intent to dominate European geopolitics and weaken Russia and Germany

          [Apr 21, 2019] John Brennan's Police State USA

          [Apr 13, 2019] For those IT guys who want to change the specalty

          [Apr 16, 2019] The incompetent, the corrupt, the treacherous -- not just walking free, but with reputations intact, fat bank balances, and flourishing careers. Now they re angling for war with Iran.

          [Apr 13, 2019] Justice under neoliberalism

          [Aug 14, 2019] There is little chance that Western elites will behave any differently than a street corner drug dealer

          [Apr 10, 2019] Habakkuk on cockroaches and the New York Times

          [Dec 21, 2019] The ruthless neo-colonialists of 21st century

          [Apr 07, 2019] There is no doubt the tight rock structures which are much more difficult to extract oil from than sandstone reservoir can be stimulated in different ways with good result. But that costs a lot of money.

          [Apr 04, 2019] How Brzezinski's Chessboard degenerated into Brennan's Russophobia by Mike Whitney

          [Apr 03, 2019] What We Can Learn From 1920s Germany by Brian E. Fogarty

          [Apr 03, 2019] Suspected of Corruption at Home, Powerful Foreigners Find Refuge in the US

          [Mar 31, 2019] Because of the immediate arrival of the Russia collusion theory, neither MSM honchos nor any US politician ever had to look into the camera and say, I guess people hated us so much they were even willing to vote for Donald Trump

          [Mar 30, 2019] The US desperately needs Venezuelan oil

          [Mar 29, 2019] Trumps billionaire coup détat: Donald Trump is about to break the record of withdrawing his promises faster than any other US president in history

          [Mar 25, 2019] Russiagate was never about substance, it was about who gets to image-manage the decline of a turbo-charged, self-harming neoliberal capitalism by Jonathan Cook

          [Mar 25, 2019] Trump Privatizes America by Michael Hudson

          [Mar 25, 2019] The US steel industry problems are systemic in nature; tariffs are just band aid, more is needed to be done to revive this industry

          [Mar 25, 2019] The Mass Psychology of Trumpism by Eli Zaretsky

          [Mar 17, 2019] As Hemingway replied to Scott Fitzgerald assertion The rich are different than you and me : yes, they have more money.

          [Mar 16, 2019] (Global) peak oil comes in phases. As Art Berman said, shale oil is oil's retirement party.

          [Mar 15, 2019] Patriots Turning To #YangGang In Response To Trump, Conservatism Inc. Failure by James Kirkpatrick

          [Mar 15, 2019] Will Democrats Go Full Hawk by Jack Hunter

          [Mar 11, 2019] The university professors, who teach but do not learn: neoliberal shill DeJong tries to prolong the life of neoliberalism in the USA

          [Feb 24, 2019] David Stockman on Peak Trump : Undrainable swamp (which is on Pentagon side of Potomac river) and fantasy of MAGA (which become MIGA -- make Israel great again)

          [Mar 02, 2019] The Trump presidency From the Manhattan underworld to the White House by Patrick Martin

          [Feb 26, 2019] Neoliberalism by Julie Wilson

          [Feb 26, 2019] THE CRISIS OF NEOLIBERALISM by Julie A. Wilson

          [Feb 22, 2019] Neo-McCarthyism is used to defend the US empirical policies. Branding dissidents as Russian stooges is a loophole that allow to suppress dissident opinions

          [Feb 19, 2019] Tulsi Gabbard kills New World Order bloodbath in thirty seconds

          [Feb 19, 2019] Warmongers in their ivory towers - YouTube

          [Feb 17, 2019] Trump is Russian asset memo is really neocon propaganda overkill

          [Feb 16, 2019] MSM Begs For Trust After Buzzfeed Debacle by Caitlin Johnstone

          [Feb 15, 2019] Consumption of liquid fuels grows over the next decade, before broadly plateauing in the 2030s

          [Feb 15, 2019] You can see how the definitions are going to blur and they're going to allow declaring oil production numbers to be anything that they want them to be.

          [Feb 15, 2019] FOIA Docs Reveal Obama FBI Covered Up Chart Of Potential Hillary Clinton Crimes

          [Feb 12, 2019] Older Workers Need a Different Kind of Layoff A 60-year-old whose position is eliminated might be unable to find another job, but could retire if allowed early access to Medicare

          [Feb 13, 2019] MoA - Russiagate Is Finished

          [Feb 13, 2019] Stephen Cohen on War with Russia and Soviet-style Censorship in the US by Russell Mokhiber

          [Feb 11, 2019] The current diploma mills are the result of the consecutive waves of university reforms since the 1990s to ground knowledge production on market principles. If university employees behave like ruthless rent-seekers, it is because they are forced to do so by the incentive structures that have been imposed on them by Johan Söderberg

          [Feb 10, 2019] Neoliberalism is dead. Now let's repair our democratic institutions by Richard Denniss

          [Feb 05, 2019] The bottom line is that this preoccupation with the 'headline number' for the current month as a single datapoint that is promoted by Wall Street and the Government for official economic data is a nasty neoliberal propaganda trick. You need to analise the whole time serioes to get an objective picture

          [Feb 04, 2019] Trump s Revised and Rereleased Foreign Policy: The World Policeman is Back

          [Feb 03, 2019] Neoliberalism and Christianity

          [Feb 03, 2019] Pope Francis denounces trickle-down economics by Aaron Blake

          [Feb 03, 2019] Evangelii Gaudium Apostolic Exhortation on the Proclamation of the Gospel in Today's World (24 November 2013)

          [Jul 29, 2019] Michael Hudson Trump s Brilliant Strategy to Dismember US Dollar Hegemony by Michael Hudson

          [Feb 02, 2019] The Immorality and Brutal Violence of Extreme Greed

          [Feb 01, 2019] Christianity Opposes Neoliberalism by Robert Lindsay

          [Jan 29, 2019] These 2020 hopefuls are courting Wall Street. Don t be fooled by their progressive veneer by Bhaskar Sunkara

          [Jan 29, 2019] The Language of Neoliberal Education by Henry Giroux

          [Jan 29, 2019] A State of Neoliberalism by Kevin "Rashid" Johnson (New African Black Panther Party)

          [Jan 29, 2019] The Religious Fanaticism of Silicon Valley Elites by Paul Ingrassia

          [Jan 26, 2019] Can the current US neoliberal/neoconservative elite be considered suicidal?

          [Jan 24, 2019] No One Said Rich People Were Very Sharp Davos Tries to Combat Populism by Dean Baker

          [Jan 23, 2019] When neoliberalism became the object of jokes, it is clear that its time has passed

          [Jan 23, 2019] We need political mobilization to fight neoliberalism

          [Jan 22, 2019] The French Anti-Neoliberal Revolution. On the conditions for its success by Dimitris Konstantakopoulos

          [Jan 19, 2019] According to Wolin, domestic and foreign affairs goals are each important and on parallel tracks

          [Jan 14, 2019] Nanci Pelosi and company at the helm of the the ship the Imperial USA

          [Jan 13, 2019] Catherine Austin Fitts – Federal Government Running Secret Open Bailout

          [Jan 13, 2019] Tucker Carlson Routs Conservatism Inc. On Unrestrained Capitalism -- And Immigration by Washington Watcher

          [Jan 13, 2019] There is no free market! It's all crooked by financial oligarchy!

          [Jan 12, 2019] Tucker Carlson Mitt Romney supports the status quo. But for everyone else, it's infuriating Fox News

          [Jan 12, 2019] Tucker Carlson has sparked the most interesting debate in conservative politics by Jane Coaston

          [Jan 11, 2019] Blowback from the neoliberal policy is coming

          [Jan 11, 2019] How Shocking Was Shock Therapy

          [Jan 08, 2019] The smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors

          [Jan 08, 2019] Rewriting Economic Thought - Michael Hudson

          [Jan 08, 2019] The Financial Sector Is the Greatest Parasite in Human History by Ben Strubel

          [Jan 08, 2019] No, wealth isn t created at the top. It is merely devoured there by Rutger Bregman

          [Jan 07, 2019] Russian Orthodox Church against liberal globalization, usury, dollar hegemony, and neocolonialism

          [Jan 07, 2019] The 1920's were marked by a credit expansion, a significant growth in consumer debt, the creation of asset bubbles, and the proliferation of financial instruments and leveraged investments. Now we have exactly the same trends

          [Jan 02, 2019] That madness of the US neocons comes from having no behavioural limits, no references outside of groupthink, and manipulating the language. Simply put, you don't know anymore what's what outside of the narrative your group pushes. The manipulators ends up caught in their lies.

          Sites



          Etc

          Society

          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

          Quotes

          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

          Bulletin:

          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

          History:

          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

          Most popular humor pages:

          Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

          The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D


          Copyright © 1996-2021 by Softpanorama Society. www.softpanorama.org was initially created as a service to the (now defunct) UN Sustainable Development Networking Programme (SDNP) without any remuneration. This document is an industrial compilation designed and created exclusively for educational use and is distributed under the Softpanorama Content License. Original materials copyright belong to respective owners. Quotes are made for educational purposes only in compliance with the fair use doctrine.

          FAIR USE NOTICE This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to advance understanding of computer science, IT technology, economic, scientific, and social issues. We believe this constitutes a 'fair use' of any such copyrighted material as provided by section 107 of the US Copyright Law according to which such material can be distributed without profit exclusively for research and educational purposes.

          This is a Spartan WHYFF (We Help You For Free) site written by people for whom English is not a native language. Grammar and spelling errors should be expected. The site contain some broken links as it develops like a living tree...

          You can use PayPal to to buy a cup of coffee for authors of this site

          Disclaimer:

          The statements, views and opinions presented on this web page are those of the author (or referenced source) and are not endorsed by, nor do they necessarily reflect, the opinions of the Softpanorama society. We do not warrant the correctness of the information provided or its fitness for any purpose. The site uses AdSense so you need to be aware of Google privacy policy. You you do not want to be tracked by Google please disable Javascript for this site. This site is perfectly usable without Javascript.

          Last modified: March, 12, 2020