Tag: deficits

Feb 20

Analyzing the blur (Part 2)

Part 1 described how humans face multiple ongoing, interlocking and spiraling crises of existential proportions, all of which can be conveniently subsumed under the theme of carrying capacity, the ability of an environment to support a population at the limit of sustainability, a limit we have exceeded.   The basic elements of the story are these: Through the exploitation of fossil fuels, humans have over-run the planet, cantilevering the entirety of complex industrial society on finite sources of fossil fuels, which we are using to extract itself other resources unsustainably to the point of collapse while altering the basic chemical and biophysical operating conditions of life.  Thus, the collapse of the physical environment threatens mass extinction on the order of five previous mass extinction events on Earth.  This is not exactly news, yet it’s tenaciously more controversial than it should be.  Today’s tour examines how we got locked into one particular death spiral, the “debt spiral,” that keeps us locked into the fossil fuel death spiral.

*     *     *

The very recent “success” of humans in economically advanced countries has culturally engendered a misleading assessment of human accomplishment, deranged notions of wealth, and conditioned unwarranted expectations for more of the same.  To borrow a phrase from Jim Hightower, industrial humans were “born on third base and thought they hit a triple.”  The baptismal font of fossil fuels has fostered a belief system in which the religion is growth and the supreme being is the Lord of More, an orthodoxy that is both irrational and nearly ubiquitous in industrialized nations, and probably far more damaging than any conventional dogma Richard Dawkins has railed against.  The irrationality of this system stems from the simple fact continual growth of any kind is impossible in a finite world.

Despite its root insanity, this belief system has been not merely elevated as a national narrative, but has been reified as the operating system of our physical economy in the form of debt-based financing.  Still worse, as the leading global power of “The American Century,” we have pushed to globalize this operating system on the rest of the world, to exert a kind of neocolonial control over resources and political systems through inventive regimes of debt and discipline, and largely succeeded.  

On the ascending limb of resource extraction, economic growth, and credit expansion, debt-based assets could be rolled over into the foreseeable future, and interest-laden fiat capital could function as a tradable substitute for actual resources, such as oil.  The belief in infinite resource extraction has allowed debt-based fiat economies to runaway from ecological reality.   As alluded to in part 1, we are hitting hard limits to physical capacity, leaving only imaginary exponential functions to vary to infinity.  The master resource of oil has by any reasonable estimate begun its terminal decline, which guarantees economic contraction, which in turn certifies the impossibility of rolling all the old debt into new debt.  Thus the viral proliferation of the operating system has also hit hard limits, and the ascending limb of inflationary credit expansion has transformed into its nasty alter ego of deflationary credit contraction.  The American wealth pump has begun to run in reverse.  How did we get here?

Jun 18

Get Ready To Eat Cat Food

Cross posted from The Stars Hollow Gazette

Here comes Simpson-Bowles to spare the bloated Pentagon budget and avoid letting the Bush/Obama Tax Cuts expire:

Geithner praises Simpson-Bowles framework as the way forward

U.S. Treasury Secretary Timothy Geithner recently suggested the Simpson-Bowles deficit reduction framework is the way forward in terms of balancing the federal budget. [..]

“We need to take advantage of the incentive created by the sequester and these expiring tax cuts to force this town to confront and take on the things that divide us now in these long-term fiscal reforms so we can go ahead and govern,” he said. “This is a place where people spend a lot of time worrying whether Washington can work again and for Washington to say, ‘We’re going to defer,’ I don’t see how that would be helpful to confidence.” [..]

David Dayen at FDL News Desk adds his take on Geithner’s appearance before the Council on Foreign Relation:

The lame duck session has so many fiscal issues expiring at the same time that many view it as an opportunity to put together the long-sought “grand bargain” on deficit reduction. Erskine Bowles and Alan Simpson have recently come out of their shells and resumed a high-profile media tour in an effort to get their framework into the discussion for the lame duck session. The Bowles-Simpson plan does include tax increases of hundreds of billions above the Bush tax cut rates, albeit lower than what would occur if the Bush tax cuts were allowed to completely expire.

Because of this, Democrats like Nancy Pelosi have embraced Bowles-Simpson to tease Republicans for their opposition to higher tax rates. But that also puts Democrats on the hook for embracing cuts to the social safety net, including Medicare and Social Security. And on Wednesday, Geithner said that Bowles-Simpson is “the only path to resolution politically [and] growing essentially economically, and I think that’s where it’s going to end up.” He didn’t make the caveats on Social Security or other entitlements.

David also noted that Sen. Max Baucus (D-MT), chairperson of the tax writing Senate Finance Committee, would hold hearing in the next few weeks on Bowles-Simpson and Domenici-Rivlin, which combine revenue-raising tax reforms with restraint on entitlement spending. Baucus told The Hill:

“My view is everything’s on the table,” Baucus said. “That’s a psychology which I think is very important to keep people talking, keep people working.”

In his comprehensive article on Geithner’s alliance with JP Morgan CEO Jamie Dimon and Cat Food Commission co-chair former Sen. Alan Simpson (R-UT), Richard (RJ) Eskow had this to say about the coming of Simpson-Bowles:

Geithner said Simpson-Bowles was the perfect recipe: “tax reforms that raise a modest amount of revenue tied to spending savings across the government that’s still preserving some room to invest in things that matter to how we grow moving forward.” He added, “There’s no plausible way to get there economically or politically without that kind of balanced framework again that marries tax reform with broader spending reforms,”

Geithner is joining leading Democrats on the Hill like Sen. Max Baucus and Rep. Nancy Pelosi in backing the plan. And take careful note of the fact that they’re all using the phrase “tax reform” instead of “tax increases.” They don’t just plan to pay for the wealth and misdeeds of the Dimon crowd with your Social Security and Medicare benefits. They also plan to raise your taxes, not theirs. The Simpson Bowles plan would actually lower the top tax rate for people like Jamie Dimon, while “tax reform” would tax away tax deductions for the middle class’s health insurance, mortgages, and other expenses.

All our elected officials are completely out of touch with what Americans want and need. Yes, indeed, something wicked this way comes.

Apr 27

The Good, the Bad and That Dead Fairy

Cross posted from The Stars Hollow Gazette

The Confidence Fairy is Dead but its ghost is still haunting the halls of the European Union countries and the United States, as Herr Doktor notes:

This was the month the confidence fairy died.

For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. [..]

The good news is that many influential people are finally admitting that the confidence fairy was a myth. The bad news is that despite this admission there seems to be little prospect of a near-term course change either in Europe or here in America, where we never fully embraced the doctrine, but have, nonetheless, had de facto austerity in the form of huge spending and employment cuts at the state and local level.

Krugman also pointed the de facto austerity policy of the Obama administration and Congress have added to the stagnant job market:

Here’s a comparison of changes in government employment (federal, state, and local) during the first four years of three presidents who came to office amid a troubled economy:

Public Employment in 3 Administrations

That spike early on is Census hiring; [..] If public employment had grown the way it did under Bush, we’d have 1.3 million more government workers, and probably an unemployment rate of 7 percent or less.

The job market is taking its toll on consumer spending which will continue to slow down any recovery:

More Americans than forecast filed applications for unemployment benefits last week and consumer confidence declined by the most in a year, signaling that a cooling labor market may restrain household spending. [..]

“There has been some slowdown in the labor market,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly projected the level of jobless claims. “That makes consumers feel less confident, and makes them more cautious about their spending. We could see some weakness in April payrolls.”

And even though the predictions about the housing market have been optimistic don’t be fooled, there is a dark side as falling home prices drag new buyers under water

More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame.

That figure, provided to Reuters by tracking firm CoreLogic, represents about one out of 10 home loans made during that period.

It is a sobering indication the U.S. housing market remains deeply troubled, with home values still falling in many parts of the country, and raises the question of whether low-down payment loans backed by the FHA are putting another generation of buyers at risk.

As of December 2011, the latest figures available, 31 percent of the U.S. home loans that were in negative equity – in which the outstanding loan balance exceeds the value of the home – were FHA-insured mortgages, according to CoreLogic.

In an interview with The European Nobel Prize winning economist, Joseph Stiglitz said:

…When you look at America, you have to concede that we have failed. Most Americans today are worse off than they were fifteen years ago. A full-time worker in the US is worse off today than he or she was 44 years ago. That is astounding – half a century of stagnation. The economic system is not delivering. It does not matter whether a few people at the top benefitted tremendously – when the majority of citizens are not better off, the economic system is not working… [..]

The argument that the response to the current crisis has to be a lessening of social protection is really an argument by the 1% to say: “We have to grab a bigger share of the pie.” But if the majority of people don’t benefit from the economic pie, the system is a failure. I don’t want to talk about GDP anymore, I want to talk about what is happening to most citizens.

Meanwhile back in Europe with the distinct possibility that French President Nicholas Sarkozy may lose to the Socialist candidate François Hollande, some leaders are getting the message but aren’t ready to give up totally:

Dutch Prime Minister Mark Rutte and Finance Minister Jan Kees de Jager struck a deal with the opposition and got a majority backing on an austerity package to meet the 3 percent budget deficit target in 2013, after seven weeks of talks with Geert Wilders’s Freedom Party failed and led to the collapse of the minority government.

The package increases the value-added tax to 21 percent from 19 percent, doubles the bank tax to 600 million euros ($791 million) and changes the financing of mortgages, De Jager said in a letter to parliament yesterday.[..]

The Labor Party, the Socialist Party as well as the Freedom Party of Geert Wilders didn’t back the agreement. “This is a bad package and the people with a state pension will pay the bill,” Wilders said in parliament.

In an editorial in Bloomberg News, the editors expressed their ideas how European leaders can “boost economic growth in the euro area”:

First, Europe’s leaders must recognize that common deficit rules alone will not guarantee the currency union’s survival. When countries such as Italy and Spain fall into a spiral of shrinking output and rising budget deficits, countries with stronger economies must be willing to help, either by transferring funds or by stimulating their own demand.

Currently, that would mean more German spending. [..] The Bundesbank would also need to live with a little more German inflation than the current 2.1 percent. Higher prices in Germany would help make other euro- area economies and their exports more competitive, reducing both their current account deficits and Germany’s surplus.

Second, the agreement should give Spain and Greece in particular more time to bring down debts piled up over the past 30 years. Requiring them to slash education, research and development, and other budgets will only stunt their future growth potential. To calm markets concerned about Spain’s deficits, the rest of Europe — Germany again — and the International Monetary Fund would have to provide more bailout funds.

Finally, the pact should acknowledge one of the most immediate requirements for a return to economic expansion: Recapitalization of private sector banks so that they can start providing businesses with more credit. Without that, Europe is doomed to anemic growth and a persistent confidence crisis, no matter what documents its politicians may sign.

Stiglitz in his interview makes two important points. First, “The question of social protection does not have to do with the structure of production

It has to do with social cohesion or solidarity. That is why I am also very critical of Draghi’s argument at the European Central Bank that social protection has to be undone. There are no grounds upon which to base that argument. The countries that are doing very well in Europe are the Scandinavian countries. Denmark is different from Sweden, Sweden is different from Norway – but they all have strong social protection and they are all growing.

Hear that, Mr President and Congress? Get your hands off reduction in the social safety net.

And second, that here in the US, “politics is at the root of the problem“:

Most Americans understand that fraud political processes play in fraud outcomes. But we don’t know how to break into that system. Our Supreme Court was appointed by moneyed interests and – not surprisingly – concluded that moneyed interests had unrestricted influence on politics. In the short run, we are exacerbating the influence of money, with negative consequences for the economy and for society. [..]

The diagnosis is that politics is at the root of the problem: That is where the rules of the game are made, that is where we decide on policies that favor the rich and that have allowed the financial sector to amass vast economic and political power. The first step has to be political reform: Change campaign finance laws. Make it easier for people to vote – in Australia, they even have compulsory voting. Address the problem of gerrymandering. Gerrymandering makes it so that your vote doesn’t count. If it does not count, you are leaving it to moneyed interests to push their own agenda. Change the filibuster, which turned from a barely used congressional tactic into a regular feature of politics. It disempowers Americans. Even if you have a majority vote, you cannot win.

The Europeans may well be the “game changers” because the election of their politicians doesn’t hinge on campaign contributions, long drawn out primaries or a rigid two party system that has degenerated into a lack of political choice. We need to kill the fairy once and for all and put governance in the hands of the American people.

Dec 07

War: What is it good for?

Photobucket

(via  Bianco Research via Ritholtz)

Update:

It’s back.

Aug 20

Karl Rove hurls a Time Bomb of Deceit into the Town Square

As if we didn’t have enough volatile “wedge issues” to put the Nation on Perpetual Pause — Karl Rove has decided to stink up the place, with yet another outrageous Word Bomb …

GOPers Revise History: Say Dems Have Tax Hike Ticking Time ‘Bomb’

Christina Bellantoni, TPMDC — August 19, 2010

Karl Rove’s Crossroads GPS this week detailed the “seven public policy initiatives” that will be most important for Congress next year. The group runs ads against Democrats across the country.

On the list at No. 1: “Stop the Obama tax hike time bomb scheduled to detonate on January 1, 2011.”

That’s not a typo. Rove’s group is claiming that Obama set the timer on that so-called “bomb.”

Talk about Revisionist History — of course consider the source — wasn’t it Rove, who claim to have the “Real Numbers” a few years back …

Jul 09

Austerity versus Stimulus: Just the Facts

  The most heated debate in Washington these days involves deficits and unemployment. There are lots of heated rhetoric, finger-pointing, and hyperbole.

  What there isn’t is a surplus of actual facts.

 For instance, this headline reads “U.S. should cut deficit to spur recovery, IMF says”. It implies that cutting the deficit would automatically increase economic growth.

  That sounds good to me. The problem is that the IMF never actually says that. In fact, the article spends most of its time warning about a drop in economic growth.

 The headline was misleading, as is just about everything said in this debate.

Image Hosted by ImageShack.us

Dec 05

“Our Resources Are Limited”

Just two days after announcing the escalation of the war in Afghanistan, President Obama held a jobs summit:

With unemployment levels above 10 percent, Obama said “We cannot hang back and hope for the best.”

But, mindful of growing anxiety about federal deficits, Obama also tempered his upbeat talk with an acknowledgment that government resources could only go so far and that it is primarily up to the private sector to create large numbers of new jobs.

He said while he’s “open to every demonstrably good idea … we also though have to face the fact that our resources are limited.”

Beyond the question of why a Democratic president is giving lip service to deficit hawks at a moment that screams for more Keynesian stimulus, the real question is this: why is it that we have to endure nearly a year of grueling political games just to get a weak, watered down health care bill that we have been told, all along, has to be deficit-neutral, yet no one bats an eye at throwing tens of billions more each year into wars?

A couple weeks ago, CBS News reported: