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Cross posted at our new beta site Voices on the Square and The Starz Hollowz Gazette
Yes, this is true. It's not a popular saying, but I'm not here to make everyone feel good for 2012 electioneering while people are suffering to feel a sense of belonging among the Washington elite prognosticating over poll numbers instead of real issues. As we have this debate over 4 percentage points in the tax code, the overall omission of most Americans suffering from the fallout of the housing bubble is insulting.

That's right. This debate ignores the big elephant in the room; the millions of people underwater defrauded into mortgage debt and other private debt chaining them to their deflating assets with no sufficient income prospects added up and compounded in a usurious fashion sucking demand out of the economy. For those that do not "got theirs jack" and can't afford cable news to cheer along with this partisan war syndrome dynamic, this actually matters.

It matters because as I have chronicled here, here, here, and here, the Foreclosure Fraud Settlement was an insult to the millions injured from the fallout of this bubble once NY AG was bought off to prop it up with stilts. Banks were given credit for the HAMP mods in addition to being propped up by the other failed HARP program. Basically those that defended that settlement or any of these programs anymore have to admit now they knew nothing.

For want or need of a nice election tune, many are tuning in to this election while too many are tuning out these debilitating economic problems because the absolute failure to deal with them at all. I partially understand, it is daunting and demoralizing, but whether one wants to tune in to these problems or not, the song remains the same.

It's the song of the decade and it goes well beyond this election.

Now there are other solutions besides debt forgiveness, but none theoretically as quick and feasible. Also I'm beginning to tire myself out talking about the President and everyone in Congress being stuck on stupid when it comes to deficits and the federal budget they write while knowing nothing at all about national accounting. Nope, we do need Modern Monetary Theory, deficits, and a job guarantee, but Post Keynesians are right too; we need a private debt jubilee.

Those are the few solutions that would work and no one in the beltway, even the progressive beltway, is talking about them at all. So I was rather surprised and delighted to see Steve Clemons and Richard Vague pick this up and articulate it rather well despite some small nitpicks I have.

Want Economic Growth? Forgive and Restructure Debt for American Working Families

It's private debt that matters most.

There is about $24 trillion in consumer and business debt held in the United States today and this dwarfs the federal debt, money supply, and the nation's GDP.  

Smiley faceIn a short report (pdf) we are releasing today that explores the behavior of private debt before and after economic crises -- not only in the U.S., but in Japan as well as a number of European nations -- we have noted that (1) a fast run-up of private debt combined with (2) a level of private debt more than 150% of GDP were evident in both the Great Recession of 2008-2009 as well as in America's Great Depression.

Federal debt was inconsequential to these crises.  Charts in the report (pdf) we are posting today make clear that Spain, economically beleaguered today, was in excellent federal balance sheet health before the recent Eurozone financial quakes started.


In ancient times and as recorded in the old Testament of the Bible, the Land of Israel forgave all debts periodically, and the economic basis point for lands and slaves was reset in what was called "Jubilee."

Yes, I love the point about Spain having their budget balanced and still falling into recession because of the massive global housing bubble that hit them that we and the U.K exported across the world. I love it because it stops deficit terrorists in their tracks because they have no answer to it like they have no answer to how Japan has never defaulted even though it was downgraded by S&P and had a debt to GDP ratio of over 200%. The biblical reference to Israel's jubilee is prescient and kind of makes us look bad in modern times when we are supposed to be more evolved.

I think it's time we at least live up to some of the worthy economic standards of ancient biblical tribes. Even Kings forgave debt about every 7 years or so. Can we live up to that and at least talk about this? Or will I be crucified for bringing it up and having lack of faith that an election will solve this problem even though the lack of mention signals it won't even come close?

It basically goes down to economist Michael Hudson's accurate prescient adage:

"Debts that can't be paid won't be paid."
Here's one of Hudsons' colleagues at the UMKC talking about the head of FHFA Edward Demarco's continuing opposition to principal write downs.

The Black Financial and Fraud Report: Agency Says No to Mortgage Relief

JAY: And what alternative does the Obama administration have? Some people have suggested perhaps the Fed could do something like this in terms of pressuring the big banks. I guess that wouldn't affect Fannie and Freddie mortgages so much, but a lot of these mortgages are also held by big banks. Is there some policy alternative there?

BLACK: There's probably no effective alternative. Obama, of course, could use the bully pulpit and urge the largest banks to do this, urge them to come together and create a plan. If they were to do that, that would pressure Fannie and Freddie to do the same thing. But I really can't see the big banks answering the call of the Obama administration in helping to get it reelected.

No, their chance to do something about this was in the massive foreclosure litigation. Remember when the largest banks engaged in massive foreclosure fraud to the tune of 10,000 times a month, you know, more than 100,000 times a year, and they were sued by many of the state attorney generals? And, unfortunately, the Obama administration pressured the states to enter into a very weak settlement. This is when the Obama administration was completely in bed with the big banks. And so they didn't get as part of that settlement anything really significant in reducing the principal amount of the debt. There are some programs, but they're trivial compared to the scope of the problem.

I like how Bill Black delves into the fake stress tests many delusional Democrats touted as being serious(during Geithner's PPIP proposal run-up which still tells us nothing about bank solvency), even though Black lines up the multiple banks that failed right after being shown solvent by their fraudulent pseudo accounting methods. Economic history is hard to deny even though many will try.

I also agree with Black that there were options during the proceedings of the Foreclosure Fraud sellout, but they were pissed away. FHFA is an independent agency so DeMarco can't be fired. However that is also a poor excuse I have heard more than once. Yves Smith lays out why rather well why that is the case as she always does.

Why “Firing Ed DeMarco” is No Solution to FHFA Refusal to Engage in Principal Modifications (Updated)

As much as this blogger is firmly of the view that this is a poor economic decision (deep principal mods are a sound idea, as long as you have a decent approach for vetting borrower income and other debt payments to see if they are viable with a mod), I have to hand it to DeMarco as a bureaucratic infighter. He is effectively throwing the abortion of HAMP results in Treasury’s face. Recall that HAMP did not require borrowers to default in order to qualify for mods, yet many did out of misdirection by servicers. Now in fact, servicers are unlikely to play that game this time, since a principal mod reduces their servicing income. But the fact, as detailed by Neil Barofsky in his book Bailout, that Treasury was indifferent to how homeowners fared under HAMP, and merely saw this as a vehicle for “foaming the runway,” meaning spreading out the number of foreclosures over time, rather than saving borrowers, led to irresponsible actions (like ordering servicers to sign up people for trial mods initially without even qualifying them), numerous changes in program design (disastrous for highly routinized servicers) and lack of concern with the fact that many people lost their homes by virtue of HAMP who might have kept them, has produced some data (in particular, informed estimates of the number of people who defaulted to qualify for HAMP) against the Administration.


The way to beat this is not via taking out a contract on DeMarco, it’s in doing a better job of promoting the merits of principal mods and debunking the “deadbeat borrower” meme.


Update 7:00 PM: Adam Levitin points out, per Ezra Klein, that Obama could get rid of DeMarco via simply making a permanent appointment on a recess. Technically true, but Obama had that option to him long ago, in fact back in 2010 when the Senate let his appointee Joseph Smith hang in the breeze and Smith withdrew. And he also could have done it earlier this year, when DeMarco first made his opposition to principal mods clear (he deferred taking a stand as long as possible).

To replace DeMarco at this juncture would be waving a red flag in front of Fannie and Freddie hating Republicans, and would bolster Romney’s campaign by giving them a solid anti-Obama talking point. And the reality, as we indicated above, is that Obama has never been serious about helping homeowners. He’s never crossed swords with the folks who demonize borrowers in distress, never had any of his minions get tough with recalcitrant servicers. He has plenty of latitude to make an impact, and the only thing he threw his weight behind was the cosmetic, bank-serving mortgage settlement. He’s clearly made the calculation, and he has determined he is well served with DeMarco in place as a scapegoat.

There's always a scapegoat too many partisans point to to keep Democrats from doing their jobs. This involves this president doing recess appointments whenever he can make to stop Republican obstruction, just like George W. Bush used to do when Democrats didn't like his appointments. But president Obama didn't even want to appoint Elizabeth Warren that way even though he had to appoint Richard Cordray that way. He could have gotten rid of DeMarco through a recess appointment of his nominee from NC, but the absence of such a move speaks volumes, especially since Demarco has become a convenient scapegoat.

This recess appointment to get rid of DeMarco was not on the agenda even though FHFA own or guarantee roughly half of all underwater mortgages. Doesn't sound like it was thought of as a pressing problem by this administration and everyone who makes this excuse since we didn't hear anything back in 2010. Principal write downs would benefit the agency as well as the economy.

Adding that fact onto the Foreclosure Fraud sellout in general is just uninspiring. This is a big enough problem to make these points and they need to be made even during an election. To want them to go away is to want people and their concerns and well being to go away. There's never going to be more leverage than right now to advocate for those enslaved by private debt.

So basically, to sum up, there are no excuses even about Ed Demarco that excuse the President from drastically mishandling this. SIGTARP Neil Barofsky lays these indisputable facts out in this new book. He knows better than you or I because he was actually there. Maybe you don't care, but you should.

I'm sorry this real world problem ignored by the beltway in this diary doesn't inspire hope, but it really shouldn't. We can only hope this issue even gets a mention much less any real solution to it that is not a giveaway to the banks. I hope that changes for the good of the people and not the SCOTUS definition of people; real people who need real help.

Originally posted to The Amateur Left on Thu Aug 02, 2012 at 07:45 AM PDT.

Also republished by Friends of Keith Olbermann and Rachel Maddow and Frustrati.

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Comment Preferences

  •  Tip Jar (34+ / 0-)

    ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

    by priceman on Thu Aug 02, 2012 at 07:45:04 AM PDT

  •  Spot-on, outstanding post (as usual)... (10+ / 0-)

    ...right down to the gritty details (i.e.: the truth about DeMarco and the FHFA).

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Thu Aug 02, 2012 at 07:50:07 AM PDT

  •  Geithner wanted to (14+ / 0-)

    "foam the runway" for the banks.

    Warren asked Geithner repeatedly about HAMP. After several evasions, Geithner said about the banks, “We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.

    This is a revelatory moment for Barofsky in the book, and should be for everyone reading. Geithner’s concern, first of all, was with how the banks would respond to the program, not how homeowners would respond to it. In fact, homeowners are quite besides the point.

    Excellent post, p-man. It reminded me that I've been meaning to purchase and read David Graeber's Debt: the First 5000 years.
  •  Aggressive mortgage mods would go a long way... (8+ / 0-) righting this economy.  It's fair to say that the runup in real estate prices from, say 2002 through 2007 was largely the result of mortgage-related fraud by the banking sector.  As such, you find the prior sale price for a particular property before that period, assume a normal 3% annual increase in valuation, calculate what the sale price should have been, and set the mortgage principal amount at that figure, minus any current paydown of the principal, AND force banks to adjust monthly payments to reflect the newly-calculated amount owed.  Let the banks and bondholders eat the remaining amount (principal and lost interest).

    That's what should be, or should have been, done, in any case.  Whether a legal vehicle still exists to effect it, however, is an open question.

    The road to Hell is paved with pragmatism.

    by TheOrchid on Thu Aug 02, 2012 at 08:02:34 AM PDT

    •  You need more than mods (7+ / 0-)

      But aggressive ones would help. We need to set defined standards in the securitization market because there are none. WE also need less fictitious capital setting those valuations involving it and the appraisal fraud you mention and the like.

      Thank you.

      ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

      by priceman on Thu Aug 02, 2012 at 08:14:19 AM PDT

      [ Parent ]

    •  With better mods -- (3+ / 0-)

      an economy obsessed with deleveraging becomes -- another economy obsessed with deleveraging!

      So yeah, it sounds kinda cosmetic.

      "This is probably the least important Presidential election since the 1950s." -- Matt Stoller

      by Cassiodorus on Thu Aug 02, 2012 at 08:51:01 AM PDT

      [ Parent ]

    •  A restructure of Student Loans ... (2+ / 0-)
      Recommended by:
      aliasalias, poligirl

      ... from compound interest to a one-off premium and payment as a percentage of income over the poverty line would go a long way to righting this economy as well.

      There is a massive amount of "kick the can" going on with student loans, in which non-performing student loans are getting one postponement after another, all the while that the interest due is being rolled back into the principal of the loan.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Thu Aug 02, 2012 at 11:33:20 AM PDT

      [ Parent ]

  •  When you start out claiming that anything (1+ / 0-)
    Recommended by:

    about the future is the truth, you've just about lost me. The future is unknown and unknowable and, therefore, not possibly true or false.

    I will grant you that the Democrats' approach to the money problem is not the best.  However, a problem that was created over many decades cannot be solved in the next hundred days and Republicans are definitely not the people to make a change.  They like living an illusion.

    The notion that money has value and that quantity is inversely related to that value is hard to give up.  After all, a whole class of financial engineers is dedicated to the proposition that a virtual world is just as real as the material one.

    As I've noted a couple of times, the only difference between the people who play with derivatives and CDOs and other innovations and teens who play computer games is that the latter know they're dealing in fiction.

    Moreover, while the financial engineers are bad enough, they're actually part of a much larger class of middlemen who stand at the nexus of trade and exchange with their hand out for a cut of the transaction.  Who all is in this class of legal highwaymen?  They are too many to count but surely include:


    It's a whole host of people who don't even show up in our tally of producers and consumers. In other words, our economic analysis leaves out these parasites.

    Willard's forte = "catch 'n' cage". He's not into "catch and release."

    by hannah on Thu Aug 02, 2012 at 08:07:37 AM PDT

    •  I hear you, Hannah, but it does seem that private (7+ / 0-)

      debt forgiveness, where people get to keep their homes would generate a seismic shift for the better, in our current economy.

      I don't think it solves a lot of other things, which will simply lead back into the same problems we have now, but it sure would give people some breathing room and less anxiety from which they are perceiving everything.

      Frankly, I don't think anyone should have to pay anyone else to have a place to live. It's too fundamental an aspect of life for someone to have the power over someone else.

      But, that's a much more profound and complex shift to make.

      •  Well, it really depends on who takes care of (0+ / 0-)

        construction, upkeep and maintenance. As someone who does all that, I do feel entitled to charge tenants to use it and wear it out.

        But, the housing bubble and the whole home ownership agenda was a scam to entangle people in their property and make it hard for them to do anything but work and commute in their cages on wheels.

        We have a long history of getting people to trade ownership for human rights. It's a situation that may have been necessary to make owning slaves legal.  The deprivation of human rights is supposed to be reserved as punishment for crime, with the exception of indentured servants (people who subordinated themselves), slaves, children and wives.

        The Africans have always been at the forefront of legal argument to reverse what they saw early as a perversion of law.  One of the first cases challenging inherited slavery was brought in New York, with the plaintiffs arguing against a practice that hadn't been seen before--the passing of the slave status to the off-spring. It seems to be a singular New World contribution to the history of jurisprudence.

        Willard's forte = "catch 'n' cage". He's not into "catch and release."

        by hannah on Thu Aug 02, 2012 at 09:45:23 AM PDT

        [ Parent ]

      •  Solutions are out there - beyond bankers. (2+ / 0-)
        Recommended by:
        chipmo, poligirl

        Think outside the box previously created for benefit of the few.
        Good things are happening - free energy and new ideas.
        Take a look?


        The Keshe Foundation is an independent non-profit and non-religious organization founded by nuclear engineer M.T. Keshe that aims to develop new scientific knowledge, new technologies and new solutions to major global problems like famine, water shortage, lack of electrical power supply, climate change, and disease, through the use of specially developed  plasma reactors which will also give Mankind the real freedom to travel in deep Space.
        There ARE real solutions for all people.
        We don't have to follow the New World Order plan to create even more chaos to push things further down the wrong direction for benefit of the "few".  

        Think and share - we are in this thing together after all.  

    •  My basis is pretty solid (6+ / 0-)

      based on Irving Fischer's deb deflation analysis and the work of Steve Keen, Michael Hudson, economic history, which shows we are dealing with the same problems as we were when the last Housing bubble blew during the Great Depression.

      Yes there were many types of fraud, from appraisal fraud, mortgage fraud, CDS fraud and everything else. But the middle men follow what's allowed of them by the financial engineers, by Congress who legally codified them into existence and their mechanizations and the repeal of depression era laws that caused 50 years of financial stability where much of the middle men existed back then, they just didn't have these types of toys to play with.

      What I'm hearing is a copout IMO.  I also don't appreciate equating me with supporting what the Republicans do in any way. Brooksley Born and the CFTC she ran took care of derivatives until LTCM crashed and she was ignored and boxed out by the Misogynist Larry Summers. I'm supposed to just forget all that because wowy it's so complicated? No, the SEC wasn't always ineffectual and or employees of wall t, but Bill Clinton and Al Gore changed the way regulation worked if you read my last diary. It was more business friendly.

      Glass Steagall was in place. the Bank Holding Act wasn't perverted. financial cirme, even the underlings you mention was prosecuted during the S&L crisis.

      But most of all look at the private debt. that's how you can see the future. Look at the income inequality from 1920 to today. there are definite parallels and Steve Keen called this a long time ago. there was also this kind of fraud during the depression as chronicled by Bill Black.

      ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

      by priceman on Thu Aug 02, 2012 at 08:32:02 AM PDT

      [ Parent ]

      •  The present really isn't comparable to the past. (0+ / 0-)

        Not only have we abandoned the gold standard, but almost all social relationships and transactions have been monetized as never before.
        The familiar and familial services that now have to be paid for that used to be provided as a matter of course have made a big difference.

        While I'd argue that using money in intimate relations where it is easy to remember who owes what to whom is largely a waste of time, money does provide a measure of relative value and a suggestion about what should be changed.

        Money is useful as a measuring stick -- as useful as the centimeter and the inch.  Getting fixated on how much money is being used is a negative. Might as well argue how many angels can dance on the head of a pin.

        Willard's forte = "catch 'n' cage". He's not into "catch and release."

        by hannah on Thu Aug 02, 2012 at 09:52:24 AM PDT

        [ Parent ]

  •  excellent diary, priceman! (6+ / 0-)

    i can't imagine the bankster class agreeing to a jubilee, or even a rigorous program of debt forgiveness and restructuring without some sort of guarantee that there will be a safety net put under employment such that most people will continue to have the means to repay debt.

    this problem cries out for the sort of whole-cloth, comprehensive solution that this administration seems ideologically incapable of considering.  not that there is another administration on offer in our election process that might consider such a thing, either...

    i'm part of the 99% - america's largest minority

    by joe shikspack on Thu Aug 02, 2012 at 08:31:24 AM PDT

  •  The problem with the debt jubilee thing -- (6+ / 0-)

    is that all by itself what you get in the end is a capital strike like what they had in 1929.  If debts are worthless, then the investor class will withdraw from that portion of the economy responsible for circulation, such as businesses.  Why invest in a debt-based economy if they're not going to pay back, when if they shut up about not being able to pay back (like what they do now) and if you can milk a few interest payments out of them you can parade your ownership of their debt on your asset portfolios and "be rich"?  Money then goes into physical assets bigtime.  Super-depression.

    At some point we have to abandon the notion of an economy pursued for the sake of capital accumulation by an investor class.  Otherwise you have the bad end predicted at the end of volume 1 of Marx's Capital:

    Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself.
    though without necessarily any revolution such as that predicted by Marx.

    "This is probably the least important Presidential election since the 1950s." -- Matt Stoller

    by Cassiodorus on Thu Aug 02, 2012 at 08:36:23 AM PDT

    •  Well it's about underwriting standards (5+ / 0-)

      WE don't really need the investor class and their Ponzi finance which is what we see.

      Understanding Minsky's financial instability hypothesis

      Hyman Minsky's theories about debt accumulation received revived attention in the media during the subprime mortgage crisis of the late 2000s.[10]
      Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.

      The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.

      If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.[5]

      Marx didn't deal specifically too much with specific credit systems and not all credit systems are the same and ours is different than the world he lived in, but in general it is definitely possible Marx could be right, he just hasn't been specifically right yet like Minsky. I don't think we need the the investor class, we just need to be free from Ponzi debt so the real economy can heal as much as it can until resources run out and that is where we will see what you're talking about.

      Thanks, Cass!

      ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

      by priceman on Thu Aug 02, 2012 at 08:54:06 AM PDT

      [ Parent ]

      •  I'm not really a marxologist (2+ / 0-)
        Recommended by:
        priceman, poligirl

        nor do I have a lot of knowledge about Minsky or that sort of thing.  So keep me informed!

        Meanwhile, your "private debt to GDP" graph mixes in all of the borrowers regardless of (Minsky's notions of) type.  Here's a puzzle: the Keynesian economy depends, above all, on the maintenance of economic circulation.  Keynes' critique of the government's behavior after the Great Depression, as I understood it, was that when investors withdrew from the economy and created the downturn of 1929-1932, government expansion of the money supply was necessary to restore investor confidence.  

        What we have now is a downturn of a whole different sort than that which occurred in the Great Depression, although your "private debt to GDP" graph captures both of the downturns as downturns quite well.  There was plenty of money in the 2000s -- but large numbers of people were in hock for a far greater sum of money, and so the economy stayed robust until people started deleveraging or defaulting, and then that money disappeared and you had cascading bankruptcies and 2008-2009.  So your suggestion of a jubilee would seem to produce immediate results if enacted.  We can't have an expanding economy if everyone is deleveraging, and so the government should force through a forgiveness of all their debts.

        It would be an immediate solution for the working class to be sure.  The catch is, of course, that as I pointed out above, all of that debt now counts as "assets," and so when debt is wiped out, "assets" are wiped out, and so there goes the investor confidence that was supposed to drive the whole Keynesian scheme.  

        This logic is, of course, contingent upon us all being Keynesians.  If we're not Keynesians, of course, then the logic doesn't apply.  So capital goes on strike?  Have the government the assets of the investor class, and give them to co-operatives.  That of course would depend upon the existence of a government with the courage to do such a thing.

        "This is probably the least important Presidential election since the 1950s." -- Matt Stoller

        by Cassiodorus on Thu Aug 02, 2012 at 09:57:39 AM PDT

        [ Parent ]

        •  I appreciate the comments (5+ / 0-)

          Keynes wasn't right about everything either(but he was right about the need for expanding the money supply though he also stated that monetary policy was limited in its effect and it's true) going by Irving Fischer's hypothesis was passed over for Keynes but Post Keynesians took what works in the General Theory(most of it) and mixed it with Irving Fischer's debt deflation hypothesis and Minsky's Financial Instability Hypothesis and that is where we see Steve Keen and Michael Hudson coming from today with their own contributions of course.

          Real assets are backed by debt that can be paid, which is why treasuries are real assets and everyone goes to them when the going gets rough.

          But I am sticking to my story! The downturns are the same in many ways though with some small differences.

          Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.

          Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.

          Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.

          For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity

          I'm too brain dead to have this out any further right now(lack of sleep), but I appreciate the conversation. I'm not an economist. just a curious unemployed dude who is forced to live with his parents. I try to make sense of things.

          ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

          by priceman on Thu Aug 02, 2012 at 10:34:35 AM PDT

          [ Parent ]

          •  I'm not sure I get the explanation here. (2+ / 0-)
            Recommended by:
            priceman, poligirl

            The downturn that began in 1929 was in fact marked by a serious investor withdrawal from the economy.


            Now I'm sure that in some sense this could be caused by a decline in agricultural prices and incomes.  But I don't think that an argument that "the investor withdrawal from the economy played no part in the Great Depression" would hold any water.  So I don't think that that's what your economists here are trying to argue.  Keynesianism became a hegemonic theory because it underwrote the boom economy of the 1950s and 1960s, when monetary expansion and investor confidence did in fact go together.

            Of course monetary expansion is not going to do anything to counteract the recession, not in the way they're doing it.  Cheaper debt will not oblige the banks to lend to insolvent debtors, nor will it increase investor confidence when nobody has any spare cash.  Maybe they could give everyone enough money to pay off the debts, with a little extra for Christmas shopping?  A super-stimulus?

            The problem with "real economy" theories is that the "real economy" left the US long before the downturn of 2008-2009.  And the real estate Ponzi scheme started in the 1980s.  So we can denounce Ponzi schemes all we want, but the economists managed to milk this one for maybe 20-25 years before they had to retire in confusion.  That's a good chunk of time.  Any good explanation for why reflating the bubble won't work this time will also have to explain why it lasted so long before 2008.

            "This is probably the least important Presidential election since the 1950s." -- Matt Stoller

            by Cassiodorus on Thu Aug 02, 2012 at 12:17:54 PM PDT

            [ Parent ]

            •  That was Joseph Stgilitz+Bruce Greenwald (2+ / 0-)
              Recommended by:
              aliasalias, poligirl

              And I don't mean, nor does he say the investor withdrawal from the economy played no part in the Great Depression, but it wasn't the underlying cause and there was overproduction and price deflation of agriculture and other commodities that started weakening the underlying economy in the 20s during the boom.

              The 1933 banking reforms restored investor confidence with FDIC insurance on deposits to stop bank runs which was the real reason the money supply shrank during the Great Depression. That set off the Keynesian Golden Age you speak of.

              Keynesianism became a hegemonic theory because it underwrote the boom economy of the 1950s and 1960s, when monetary expansion and investor confidence did in fact go together.
              Back to the Stiglitz piece I reccomend reading in full(maybe I'm cutting and pasting too much out of order) and that's just it, the real economy did leave a long time ago, bu ti already started to leave leading up to the 1920s. Just like with the tech bubble and Housing bubble, not everyone was booming.
              At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.

              What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.

              This is very similar to what led up to the asset and credit bubbles of our day. Not enough real income so a turn to credit fueled today's bubbles like back then. So the real economy argument is sound, it's what you described in your comment. There is no financial crisis without consumers to defraud desperate for income they don't have without borrowing anymore since agriculture's decline from 1900-1929, since manufacturing left from about 1968(when it started and the trade deficit started) to flying away completely in the 80s to now where we stuck all those people in subprime.

              ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

              by priceman on Thu Aug 02, 2012 at 12:44:43 PM PDT

              [ Parent ]

      •  & as for Marx... (2+ / 0-)
        Recommended by:
        priceman, poligirl

        my main objection to Marx is the points at which he argues that "the bourgeoisie produces its own gravediggers."  Rather, the best we get with bourgeois production is a population that supports the welfare state, and people must learn through effort that the capitalist system will only last so long before it starts to ruin everything.

        "This is probably the least important Presidential election since the 1950s." -- Matt Stoller

        by Cassiodorus on Thu Aug 02, 2012 at 10:07:25 AM PDT

        [ Parent ]

      •  Agree. Stop funding/borrowing for perpetual wars. (2+ / 0-)
        Recommended by:
        priceman, poligirl
  •  What elephant? (3+ / 0-)
    Recommended by:
    priceman, poligirl, aliasalias
    This debate ignores the big elephant in the room


    "Justice is a commodity"

    by joanneleon on Thu Aug 02, 2012 at 09:33:02 AM PDT

    •  lol. :D (1+ / 0-)
      Recommended by:

      looks around


      Ah, the vampire squids in the room. :-)

      ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

      by priceman on Thu Aug 02, 2012 at 09:48:03 AM PDT

      [ Parent ]

  •  Banks: Jubilee for me... but not for thee! n/t (4+ / 0-)
    Recommended by:
    poligirl, priceman, Russgirl, aliasalias
  •  You are right; how do we keep Romney out without (1+ / 0-)
    Recommended by:

    encouraging Obama's bad side? The election will not deal with fundamental American problems because none of our political leaders want to face those tough issues. It's interesting to talk about debt jubilees which would help reform our corrupt political and financial system, but they aren't going to happen. Maybe ancient Babylonian kings occasionally issued decrees canceling debts, maybe this even happened in ancient israel, as ordered in Leviticus. However, there's always been a huge gap between religious teaching and the acts of "religious people". This is well illustrated by Christian Americans objecting to others helping the poor and needy, viz. Philadelphia laws against feeding the homeless, see ban outdoor feedings.

    Was Obama tricked into appointing Geithner, DeMarco, Postmaster General Patrick Donahoe and the Bowles-Simpson commission? All of these promote the 1% and screw the little people. You, Noam Scheiber and Neil Barofsky are right- these actions were flat wrong. Geithner really spoke about foaming the runway for the banks- that sums up our Obama problem. Romney is much more dangerous than Obama. If he gets in, the Rs (this means people like Ted Cruz) will likely control both House & Senate. This means repeal of the ACA and gutting social security, food stamps & Medicare. If Obama wins, we are likely to have a Congress similar to the present one. Don't tell me to give money to the DNC or Nancy Pelosi, who has spoken favorably of Bowles-Simpson.

    Medicare costs are a problem and must be addressed. Social Security needs no changes other than upping the amount of income subject to SS taxes. Can we put the fear of God into Obama, Pelosi or Reid (even one of them) about SS changes? I'm dubious. I will keep sending them Faxes. I'll work locally against tea partiers and tax cutters. We need a short term strategy to block the worst of the worst and a longer term strategy to bypass  Wall Street control of 95% of Congress. Civil war would bring an effective debt jubilee but it would bring so much death and destruction that only loonies want it

    •  Well OK. (5+ / 0-)
      You are right; how do we keep Romney out without (1+ / 0-)

      encouraging Obama's bad side?

      Is there some "we" here who have the power to "encourage Obama's bad side," or not?

      Let me suggest a more small-scale project.  How about if we, meaning those of us who have been reading priceman's diaries from early on, persuade you that "keeping Romney out" and "without encouraging Obama's bad side" are not our projects because they presuppose an obsession with official leadership.  Neither Obama nor Romney is "for us," so if we are to be "for us" we can't be obsessed with either of them.

      Was Obama tricked into appointing Geithner, DeMarco, Postmaster General Patrick Donahoe and the Bowles-Simpson commission?
      No.  Obama has been like that all along.  Read this article.

      If he gets in, the Rs (this means people like Ted Cruz) will likely control both House & Senate. This means repeal of the ACA and gutting social security, food stamps & Medicare.
      First, read this:

      Then, consider that the main purpose of the ACA will be the permanent subsidy of insurance companies.  Its supposed benefits will be annulled with all that new power the insurance companies will get, along with their new money.  

      I can't claim to be worried.  So let's get back to my proposed solution here -- that we be for each other regardless of how the dance of the Ds and the Rs turns out.  What do you think?

      "This is probably the least important Presidential election since the 1950s." -- Matt Stoller

      by Cassiodorus on Thu Aug 02, 2012 at 11:11:42 AM PDT

      [ Parent ]

    •  IF we can't live up to the many horrors (4+ / 0-)

      of the ancient age and in Levitcus where people are slaughtered and there is genocide when we think of ourselves beyond such things, then that is pretty sad. Money in our system has more to do with why it's probably not going to happen, but there are many narratives that defeat that kind of view.

      Barney Frank: Obama Rejected Bush Administration Concession to Write Down Mortgages

      there wee offers, they just weren't accepted. granted we need to go further, but it is worth pursuing. The bailouts were not popular with anyone, but they were done so I don't really buy the argument in that sense.

      Democrats, real New Deal Democrats(if any are left) will have to stop Obama or Romney from going after SS. Also I disagree with you on SS and Medicare completely.

      Congress is what matters, not the presidential election. Of course Democrats could pathetically cower like they did with Bill Frist in 2005, but they should use the filibuster they refused to alter or kill for real progress to halt this game of 2 steps back.

      But you don't stop trying. You don't waste your resources out of fear you advocate what must be done and it's as simple as that.

      ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

      by priceman on Thu Aug 02, 2012 at 11:14:06 AM PDT

      [ Parent ]

    •  Don't given money to any institutional ... (2+ / 0-)
      Recommended by:
      aliasalias, poligirl

      ... group. Only give time and/or money to individual representatives that we can be confident will raise a stink about any proposal to gut Social Security, Medicare or Medicaid.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Thu Aug 02, 2012 at 11:30:41 AM PDT

      [ Parent ]

  •  And Romney Would be Worse!!! (2+ / 0-)
    Recommended by:
    priceman, poligirl

    President Obama is term limited for 2017, Romney would be at risk of pushing real solutions to these problems back to 2025.

    Rec'd for

    Now there are other solutions besides debt forgiveness ...
    I came into the diary to debate the "only" in the title, but it was qualified in the piece.

    Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

    by BruceMcF on Thu Aug 02, 2012 at 11:28:58 AM PDT

  •  I try to be holistic (0+ / 0-)

    I know that sounds pretentious
    I  don’t agree with Matt Stoller’s article or with the idea that Congressional races can be important and the Presidential race not.

    1. Stoller’s article claiming that this is an inconsequential presidential election is valid only if the outcomes are equivalent. They are not. US militarism is a problem. Do you think that Hillary Clinton and John Bolton or Joe Lieberman are equivalent secretaries of state? Yes, some say Obama is as likely to help attack Iran as Romney, he is too war like for my taste but I see a difference.  Do you think that Ruth Bader Ginsberg, 79, frail and possibly still harboring pancreatic cancer, will last until 2017? Do you want another Scalia or Alito?
    2. Saying that Congressional composition is vital while the Presidential race is a foolish obsession doesn’t compute for me because of the “coat tail effect”.  If Republicans are discouraged and disappointed with Romney in November, many won’t bother to vote. Hence fewer tea baggers will be elected or re-elected. That’s significant. Studies of the coat tail effect, see Congressional elections & coat tails, indicate a much greater effect on House than Senate races. Each election has unique characteristics but enthusiasm matters.

    3. Corporate political power is strong, but chances for denting it are greater where tea-baggers might join in and least when constitutional amendments are required, such as citizens united (remember the ERA?). Tea baggers won’t back strong anti-trust enforcement (too much regulation). On the other hand, they might back vigorous prosecution of obvious bank fraudsters, such as LIBOR manipulation and bogus foreclosures. State legislation allowing businesses to forbid guns on their premises may be productive dividing NRA from pro business Republicans. Single shot deals, like California ballot propositions are usually unwise, but enlisting tea partiers to help whittle corporate power, may be an exception (ju-jitsu).
    4. Don’t be sure that you understand the present and future ACA.  Maybe some Congressional Democrats saw it as a boon for the insurance companies, but curtailing Medicare Advantage shut off major corporate welfare. As a public sector MD, I can tell you that Medicaid expansion will, if it comes, be much more beneficial for little people than for the insurance companies. Since the ACA is sketchy on cost control, as/if it continues in effect, it will carry a growing  impetus toward  curtailing fee for service medicine, restricting profit making insurers and edging toward “Medicare for more” unforeseen by Sens. Backus, Landrieu & Lieberman who voted for it. Are those changes assured? Indeed not, but every year that it remains in effect, the ACA will attract more public support.

    5.  My circle of obligation is 90% hometown, friends & relatives. City elections matter because city councilmen/women decide what gets funded. Many efforts to do good are blocked by city committees of political appointees. Knowing city council people, they aren’t saints, we must pressure them to be sure that they don't vote for measures (often pushed by the local Chamber of Commerce) without understanding their costs and benefits). I do what I can to prevent state and national tax policies from becoming even more unfair. I don’t give money to national political organizations.
    6. Yes, some people suggest voting for Romney as a way to prevent attacks on Iran, like the German leftists in 1933 who said, let the Nazis run the government for a while, they will do so badly that the people will turn to us. Others say, “refuse to vote and notify your local supervisor of elections that you are boycotting the election and that you demand a constitutional convention". (Warren Celli comments on the Stoller article in Naked Capitalism). I can’t support such ideas.

  •  Nice work priceman. (2+ / 0-)
    Recommended by:
    priceman, nicolemm

    Wear Your Love Like Heaven ~ Donovan

    by One Pissed Off Liberal on Fri Aug 03, 2012 at 05:48:37 AM PDT

  •  when the Obama campaign asks me for money (1+ / 0-)
    Recommended by:

    I email back and tell them why I have none :-(  I can't fake it with credit cards much longer, my mortgage is now 50% of my income, and my home is worth about half its selling price   I know I need a principal reduction, but I'd settle for a refi if it gets me to a point where I can hang on. HARP 2.0 is looking kind of iffy right now.

    -7.75, -6.05 And these wars; they can't be won Does anyone know or care how they begun?-Matt Bellamy

    by nicolemm on Fri Aug 03, 2012 at 06:59:20 PM PDT

    •  This makes me even angrier when it's my friends (1+ / 0-)
      Recommended by:

      I hope you are able to hang on and that you at least get a decent refi, though you should have your principled majorly reduced so you don't have to give half of your income to a deflating asset hole(they said it would never happen) you were told your equity would take care of everything. They lied, and told you and everyone else about their "expertise" All politicians in both parties bought the lies, too. They were paid and still are handsomely to prop up the lie while asking you for money.

      This makes me sick. I wish you all the luck and hope you are one of the ones who gets this worked out, my friend.

      ‎A) "Bipartisan usually means that a larger-than-usual deception is being carried out." - George Carlin B) "The administration should be worried about the level of despair here." ~Markos Moulitsas at NN12

      by priceman on Fri Aug 03, 2012 at 11:59:52 PM PDT

      [ Parent ]

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