Category: Economy

Cross posted from The Stars Hollow Gazette

With states and cities struggling to balance their budgets with lay offs of workers, cuts to benefits and wages, as well as, reduction of aid to schools, hospitals, clinics, and other agencies, states government desperate for revenue are looking to on-line gambling but may run up against the obstacle of the Justice Department:

It’s an idea gaining currency around the country: virtual gambling as part of the antidote to local budget woes. The District of Columbia is the first to legalize it, while Iowa is studying it, and bills are pending in places like California and Massachusetts.

But the states may run into trouble with the Justice Department, which has been cracking down on all forms of Internet gambling. And their efforts have given rise to critics who say legalized online gambling will promote addictive wagering and lead to personal debt troubles.

The states say they will put safeguards in place to deal with the potential social ills. And they say they need the money from online play, which will supplement the taxes they already receive from gambling at horse tracks, poker houses and brick-and-mortar casinos.

“States had looked at this haphazardly and not very energetically until the Great Recession hit, but now they’re desperate for money,” said I. Nelson Rose, a professor at Whittier Law School, where he specializes in gambling issues.

When it comes to taxing gambling, he said, “the thing they have left is the Internet.”

Meanwhile the Obama administration is mulling over whether to take a tougher approach to economic issues:

Mr. Obama’s senior adviser, David Plouffe, and his chief of staff, William M. Daley, want him to maintain a pragmatic strategy of appealing to independent voters by advocating ideas that can pass Congress, even if they may not have much economic impact. These include free trade agreements and improved patent protections for inventors.

But others, including Gene Sperling, Mr. Obama’s chief economic adviser, say public anger over the debt ceiling debate has weakened Republicans and created an opening for bigger ideas like tax incentives for businesses that hire more workers, according to Congressional Democrats who share that view. Democrats are also pushing the White House to help homeowners facing foreclosure.

Even if the ideas cannot pass Congress, they say, the president would gain a campaign issue by pushing for them.

“The president’s team puts a premium on being above the partisan fray, which is usually the right strategy,” said Senator Charles E. Schumer of New York, the No. 3 Democrat in the Senate. “But on this issue, when he knows what the right thing to do is, and when a rather small group on one side is blocking any progress, you have to be willing to call that group out if you want to get anything done.”

While Obama drags his feet staying with his bipartisan tick that has made matters worse, the housing market continues to sink under the weight of 4.6 million homes with delinquent mortgages and real estate owned sitting empty and the jobs market stagnates with the U3 at 9.1% mostly because 193,000 people dropped out of the labor force and weak jobs growth. There were only 117,000 jobs created in July not nearly enough to even keep up with population growth.

Calculated Risk has two great graphs that illustrate the two problems:

Click in images to enlarge

It well past time for Obama and the Democrats to stop whining about the obstructive Congress. So whatsoever the White House puts forth won’t get passed, at least make it a fight you can take to the street to say you at least tried to do something. Pragmatic won’t get it done, it hasn’t for the last three years.

It’s been a rather tough week for capitalists. With people waking up from the illusion of money and riots erupting in otherwise reserved England, I almost feel a little sorry for the advocates of Milton Friedman. Almost.

As you scrape together your last dollars to exchange for gold and throw another bucket of water on your burning London flat, have you considered abandoning this system? There is a choice, you know. We choose to have this system and all the pain that comes with it. Not offering opposition to a bad system is making a choice to continue with the dysfunction.

What’s that? You didn’t know you had choices? No one has explained to you the alternatives? Well, if you don’t feel obligated to ride this sinking ship to the bottom of the ocean, come along with us as we start talking solutions.

In Part I of this three part series, we discussed the history of a little known cooperative venture called Mondragon. This company went from a twelve-man paraffin stove manufacturing plant to a conglomerate that holds Wal-mart at bay in miniscule country of Basque, and employs 130,000 people. The cooperative has a remarkable 80% success rate in business ventures, far outstripping the typical success rate of 20% (less in this market). It has consistently helped the Basque people strengthen their communities with education, health care, housing and a robust social safety net.  It creates jobs where none existed before, stabilizing their economy while nearby Spain and Portugal flounder.

How could this one company achieve such miraculous results? Well, it may actually be a divine intervention–through a Jesuit priest named Don Jose. In this segment, I delve deeper into Don Jose’s unique genius in devising the Mondragon system.

Everyone seems focused on this comment answer to a regular folk:

“Corporations are people, my friend.”

And to a degree they should be no matter what the corporate controlled supreme’s say. But it’s the Con phrase following that should also raise the ire:

“Of course they are. Everything corporations earn ultimately goes to people.”

Cross posted from The Stars Hollow Gazette

While the proposed corporate tax holiday was dumped out of the debt ceiling agreement doesn’t mean it’s dead. What’s a corporate tax holiday you ask? Here’s a little history from Matt Taibbi of Rolling Stone:

For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.

Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.

Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.

Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.

Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs..

Now, there is a proposed bill that would lower the corporate tax rate to 5.25% for all profits that are brought back to the US. Needless to say it didn’t create one job in 2004 and it won’t this time either.

More from Taibbi:

For people interested in this story, I definitely recommend reading this Bloomberg article focusing on Cisco, one of the biggest lobbyers in favor of the tax holiday. This is a company whose CEO, John Chambers, wrote an editorial last October in the Wall Street Journal predicting that the tax holiday would generate a trillion dollars in repatriated earnings, money that Chambers insisted would outdo even Barack Obama’s stimulus as a job-creation engine:

   The amount of corporate cash that would come flooding into the country could be larger than the entire federal stimulus package, and it could be used for creating jobs, investing in research, building plants, purchasing equipment, and other uses.

And yet: Chambers’s company, Cisco, would not commit to creating so much as a single job if the tax holiday is passed. As it is, the company has already committed to a wave of layoffs. When asked a question about Cisco’s plans w/regard to a potential tax holiday, the company’s spokesman, John Earhardt, declined to answer. From the Bloomberg piece:

   It’s unclear whether any jobs would come from Cisco, which announced plans in May to shed an unspecified number of workers. Earnhardt, the spokesman, declined to comment on hiring plans for the company, whose customers include Verizon Communications Inc. (VZ) and AT&T Inc. (T)

There is little doubt that if this bill passes, Obama will sign it.

Cross Posted from The Stars Hollow Gazette

Coming to a country near you:

Frustration in this impoverished neighborhood, as in many others in Britain, has mounted as the government’s austerity budget has forced deep cuts in social services. At the same time, a widely held disdain for law enforcement here, where a large Afro-Caribbean population has felt singled out by the police for abuse, has only intensified through the drumbeat of scandal that has racked Scotland Yard in recent weeks and led to the resignation of the force’s two top commanders.

The riot was the latest in what has turned out to be a season of unrest in Britain, with multiple demonstrations escalating into violence in recent months. And there was not long to wait until a new one erupted: across London, skirmishes broke out on Sunday between groups of young people and large numbers of riot police officers, which one officer said were drawn from forces around London.  

snip

Economic malaise and cuts in spending and services instituted by the Conservative-led government have been recurring flashpoints for months.

Late last year, students demonstrating against a rise in tuition fees occupied a building near Parliament and clashed repeatedly with the police. Prince Charles and his wife, Camilla, the Duchess of Cornwall, were attacked in their Rolls-Royce as protesters – some of whom were subsequently jailed – shouted “Tory scum,” a reference to the Conservative Party’s traditional links with the aristocracy, and “off with their heads!” In March, a reported 500,000 people marched against the cuts, with some protesters occupying the exclusive food store Fortnum & Mason – Prince Charles’s grocer.

On Saturday night, as rioters in Tottenham threw fireworks and bottles at police officers, one man shouted, “This is our battle!” When asked what he meant, the man, Paul Rook, 47, explained that he felt the rioters were taking on “the ruling class.”

Rioting and looting that started in the London suburb of Tottenham on Saturday evening was sparked by the shooting of a 29 year old black man during a car stop by police earlier that day. There is a lot of conflicting reports about what sparked the incident in the first place but what is known is the young man, a father of four and alleged cocaine dealer was armed, was shot once on the chest by a police officer and died. A peaceful protest march of about 200 degenerated into gangs attacking police cars, shops, banks and other buildings with widespread looting around Tottenham. The unrest in and around London has now spread across England to Bristol, Birmingham, Liverpool and Nottingham.

There are more reasons for this rioting and goes to the heart of the Cameron government’s austerity that has cut the social safety net for the very poor and unemployed who are mostly minorities.

Like many European cities, London is in the midst of serious fiscal inadequacies, and poor neighborhoods such as Tottenham and Hackney have suffered the most. Unemployment is rampant in such areas, especially in North London.

“Tottenham is a deprived area,” recently laid-off Uzodinma Wigwe told Reuters. “UnemploymentMetro police, as well as a private agency, are investigating the riots and the shooting.

The violence has marred otherwise peaceful rallies in London against government austerity measures.

In March, isolated clashes erupted in London between police and protestors marching from Piccadilly Circus to Hyde Park to Parliament. Police fired tear gas on the protestors, who in turn threw rocks, bottles, paint and light bulbs filled with ammonia at the police officers.  That clash injured 31 police officers and led to the arrest of 214 people.

snip

Earlier in the year, student protests against a tuition hike also turned violent, with students and police clashing on London streets. Demonstrators broke out shop windows and attacked Prince Charles’ Rolls Royce as it rolled down Regent Street. is very, very high … they are frustrated.”

“We know we have been victimized by this government, we know we are being neglected by the government,” said a middle-aged man who declined to give his name. “How can you make one million youths unemployed and expect us to sit down?”

Unemployment here in the US hovers around 9.1%, among African Americans it is 15.9%, nearly double that of unemployed whites (8.1%). While not nearly as bad as 1982 when unemployment for Afican Americans soared to 19.2%, the wealth gap has widened dramatically

ndeed, blacks have suffered disproportionately in the ongoing crisis, since they have lost tens of thousands of manufacturing jobs and endured huge cuts in public sector spending. Black teenagers bear the worst of it – their jobless rate is at a staggering 39.2 percent (versus 23 percent for white teenagers).

According to a recent study by the National Urban League (NUL), almost all the financial/economic gains that blacks have accomplished over the past three decades were wiped out by the Great Recession.

The economic collapse is not only thinning the ranks of the black middle class, but has likely condemned millions more to permanent poverty.

The NUL report further indicated that the nation’s housing crisis has disproportionately hurt black home ownership, which “has fallen at three times the rate of white home ownership.”

These are the same factors that have sparked the violent unrest in England. The president and congress would be wise to cease the talk about spending cuts and talks of more austerity and pay more attention to job creation. The US has seen this many times in it’s 235 year history, the most recent during the 80’s and 90’s when the socio-economic disparity was high as it is now. It is has been proved historically that putting people back to work correct the deficit and reverse the spiral towards recession.

Cross posted from The Stars Hollow Gazette

One  of the signs of insanity is repeating the same mistake in hopes of a different outcome. Seventy five years ago, the congress and President Franklin D. Roosevelt did exactly the same thing that congress and President Barack Obama did on Wednesday with the same results.

FDR’s Recession

By the spring of 1937, production, profits, and wages had regained their 1929 levels. Unemployment remained high, but it was considerably lower than the 25% rate seen in 1933. In June 1937, some of Roosevelt’s advisors urged spending cuts to balance the budget. WPA rolls were drastically cut and PWA projects were slowed to a standstill. The American economy took a sharp downturn in mid-1937, lasting for 13 months through most of 1938. Industrial production declined almost 30 per cent and production of durable goods fell even faster.

Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. In most sectors, hourly earnings continued to rise throughout the recession, which partly compensated for the reduction in the number of hours worked. As unemployment rose, consumers’ expenditures declined, leading to further cutbacks in production.

The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold in the anti-trust division of the U.S. Department of Justice to act, but Arnold was not effective. In February 1938, Congress passed a new AAA bill which authorized crop loans, crop insurance against natural disasters, and large subsidies to farmers who cut back production. On April 2, Roosevelt sent a new large-scale spending program to Congress, and received $3.75 billion which was split among PWA, WPA, and various relief agencies. Other appropriations raised the total to $5 billion in the spring of 1938, after which the economy recovered.

The stock market plummeted over 500 points yesterday wiping out any gains from the recovery since 2008. The market is continuing to fluctuate after rather weak jobs report. While the U-3 dropped to 9.1%, it was due mostly to workers who are no longer seeking employment or are now in the ranks of the under-employed and jobs creation was weak. So after the debt ceiling deal and the worsening European banks situation, investors lacked confidence that the US could increase productivity.

But the White House and Congress insist on sticking to their story that if they hadn’t given the hostage takers all they wanted with no jobs stimulus or revenue increases, they wouldn’t have gotten the debt deal and the markets would have crashed. As John Nichols said in The Nation, “Unfortunately, it was wrong. Not just morally wrong. Not just politically wrong. Not just economically wrong. It was wrong with regard to the cherished markets.”

    Unlike the deficit ceiling standoff in Washington, Europe is experiencing a real financial crisis, and today it began to get out of control.

 The European money markets have begun to seize up as pressure mounts on the Italian and Spanish banking systems, tracking the pattern seen during the build-up towards the financial crisis in 2008.

   “Europe’s money markets are undoubtedly starting to freeze up,” said Marc Ostwald from Monument Securites.

   “It’s not as dramatic as pre-Lehman but it is alarming and shows the pervasive degree of fear in the markets. People are again refusing to lend except on a secured basis.”

 Italian banks have been hit especially hard, with almost daily suspensions of their stock trading due to selling pressure. But today things went to a different level.

 Italian bank’s main stock market collapses, causing the suspension

 They called it a “technical problem” that just happened to coincide with a collapse in Italian bank stocks.

  I’ll keep this short and to the point.

   First of all, the stock market had a horrible day BECAUSE of the budget deal.

MARKET SNAPSHOT: U.S. Stock Losses Intensify After Senate Vote

 I’m watching the numbers now, and stocks will be closing near their lows of the day. People are putting their money where their pocketbook is and saying that the budget deal will hurt the economy.

  How much will it hurt the economy?

JPMorgan Chase has an early answer to that question.

1941, Office of the Archbishop of Spain:

“They just released you?” Archbishop Balbino Oliver eyed the priest standing before his desk with suspicion. Something about the young man unsettled him.

“I believe it was in error. They did not realize I had written so much against Franco. When God spared my life, I enrolled in the seminary.”

He possessed humility. Good. Yet something about the eyes… “Even under the care of the church, Franco may not let you go so easily.”

“Yes, it is best if I left Spain. I could continue my writing in Belgium. I think I can…”

“God granted you a precious gift, my son.” The Bishop leaned back, considering. His left eye. That was it. “It would be unwise to waste the gift with further agitation of forces beyond your control.” Yes, his left eye stared back slightly wider, giving him a permanently quizzical expression. Father Bertolli had mentioned him losing his eye in an accident.

“But the work I’ve been doing…”

“Is against Church official policy.” The Archbishop leaned forward to study the documents the priest had presented him. “You are Basque, no?”

“Yes, but in Belgium…”

“Father Tillous requested an assistant in Mondragon, only 50 miles from where you grew up. Franco is unlikely to bother you, there.”

“Out there, he is unlikely to need to.” The young man bowed his head curtly, murmuring the obligatory goodbye.

The bishop’s gaze followed his receding figure. Even with his back turned, the young man disturbed him. Perhaps something other than his eye then…

Balbino had no way to know, he had just set Don Jose on course to change the world.

  One thing we can all agree upon is that the debt-ceiling stand-off in Washington is a totally manufactured “crisis”. It is a financial crisis of choice. If I was a little more cynical and Machiavellian, I would think they were trying to distract us away from a real financial crisis.

 In fact, there is a real financial crisis happening in Europe. Until a week ago it was all over the front pages – Greece’s default.

 Perhaps you heard something about a bailout of Greece. That news came out right about the time that Greece dropped from the headlines.

 Problem solved, right?

Wrong.

  The bailout plan almost immediately ran into problems.

For starters, the rating agencies downgraded Greek debt to default levels BECAUSE of the bail-out plan.

 Rating agency Moody’s has downgraded Greece’s credit rating from Caa1 to Ca after the deal brokered July 21 by European leaders that included voluntary losses taken by creditors…

  One thing we can all agree upon is that the debt-ceiling stand-off in Washington is a totally manufactured “crisis”. It is a financial crisis of choice. If I was a little more cynical and Machiavellian, I would think they were trying to distract us away from a real financial crisis.

 In fact, there is a real financial crisis happening in Europe. Until a week ago it was all over the front pages – Greece’s default.

 Perhaps you heard something about a bailout of Greece. That news came out right about the time that Greece dropped from the headlines.

 Problem solved, right?

Wrong.

  One thing we can all agree upon is that the debt-ceiling stand-off in Washington is a totally manufactured “crisis”. It is a financial crisis of choice. If I was a little more cynical and Machiavellian, I would think they were trying to distract us away from a real financial crisis.

 In fact, there is a real financial crisis happening in Europe. Until a week ago it was all over the front pages – Greece’s default.

 Perhaps you heard something about a bailout of Greece. That news came out right about the time that Greece dropped from the headlines.

 Problem solved, right?

Wrong.