Today, FPer DemFromCT reminded us of the oncoming locomotive, steaming towards us just down the mid-term election tracks
, that's about to derail our Party's agenda, head-on, as we sit here pondering Democratic life after November.
Seriously, does anyone in this community think our Party's going to have a snowball's chance in hell of pushing through its plans, after the 2010 vote is tabulated, if we allow the GOP--with their 41-59 majority in the Senate--to continue driving policy, as we have until now? The rightwing, corporate media frames this to the extreme, but it is this zeitgeist, now, with which we must contend.
As a diary currently on the Rec List reminds us, the economic "debate" on Capitol Hill has been diminished to fighting for the literal SURVIVAL of those most devastated by the current state of our economy
So, Larry Summers ponders his navel, and we point our fingers at Republicans, but we somehow get into this whole cognitive dissonance "thing" when we're reminded that Republican Ben Bernanke runs the Fed...
Should You Be Worried About Inflation? What About Deflation?
By Mark Thoma | Jul 13, 2010 |
Will the Fed be Successful?
...I have little doubt that the Fed has the will and the means to control inflation, and that it will do whatever is necessary to keep inflation under wraps. What is less clear is whether the Fed has the will and the means to combat the deflationary pressures we are now facing. As for the means, it will be difficult to generate new loan demand by working on the supply-side of credit alone. The Fed may have the ability to help a bit by using quantitative easing, or by generating expectations of future inflation to lower long-term real rates. But this works on the demand side, not the supply side, and, in any case, to the extent that the Fed can help, it's not clear that the will is there to do so. The failure of both monetary and fiscal policy makers to do all that they can to offset the deflationary pressures that are becoming more and more evident is worrisome -- and fiscal policy makers have more responsibility here than monetary policy makers since fiscal policy has a better chance of stimulating new demand. But both need to do what they can given the poor outlook for the economy, and the failure to aggressively pursue policies to offset deflationary pressure would be a big mistake.
Meanwhile, Paul Volcker, a former Fed Chair who was also appointed by a Democrat, is now disappointed at the end result of our legislative branch's bogus regulatory reform charade. Then again, it's easy to understand given that this is the reality of his efforts to reinstill sanity into the marketplace: "Volcker Rule May Give Goldman, Citigroup Until 2022 to Comply."
Volcker Rule May Give Goldman, Citigroup Until 2022 to Comply
By Bradley Keoun - Jun 29, 2010
Goldman Sachs Group Inc. and Citigroup Inc. are among U.S. banks that may have as long as a dozen years to cut stakes in in-house hedge funds and private- equity units under a regulatory revamp agreed to last week.
Rules curbing banks' investments in their own funds would take effect 15 months to two years after a law is passed, according to the bill. Banks would have two years to comply, with the potential for three one-year extensions after that. They could seek another five years for "illiquid" funds such as private equity or real estate, said Lawrence Kaplan, an attorney at Paul, Hastings, Janofsky & Walker LLP in Washington.
Giving banks until 2022 to fully implement the so-called Volcker rule is an accommodation for Wall Street in what President Barack Obama called the toughest financial reforms since the 1930s. The Glass-Steagall Act of 1933 forced commercial banks such as what is now JPMorgan Chase & Co. to shed their investment-banking units in less than two years.
Yes, I don't think Paul Volcker was thinking about taking 12 years to put a saddle on Wall Street when he recently stated: "The Time We Have Is Growing Short."
Regrettably, with every Wall Street lobbyist's breath behind closed doors, the heavily-diluted financial regulatory reform bill (FinReg) morphs into a bigger farce with every passing day.
--Over the past 24 hours, we're hearing that DINO Senator Ben Nelson may have compromised the one dim light that remained in that now-deeply-captured piece of rotting legislative sausage--up until yesterday, Democrats could at least point to a Consumer Financial Protection Agency that may have been run by one of the few middle class heroes still standing amidst this squid pro quo clusterf*ck--but even the potential management of that Board by Elizabeth Warren is in question today, now moreso than ever.
Also over the past 24 hours, never minding the Bureau of Labor Statistics' June Employment Situation Report (SEE: "Recovery Slows With Weak Job Creation in June") from 11 days ago:
--much of the hoopla regarding our so-called "recovery" was really just a historically-expected inventory restocking episode that, sans maintenance of now-expired governmental small business supports, appears to be falling flat on its face, from a manufacturing and industry standpoint; the consensus is that growth is slowing down (I'm being real kind here), significantly, for the second-half of the year, at best;
--we're learning in today's Wall Street Journal that there are Federal Reserve Board Governors that are being quite vocal about their concerns regarding deflation, with other Board members staying mum on the matter but making another round of preparations (more quantitative easing, etc.) to attempt to continue to fight it;
--retail sales/consumer spending fell, significantly, in June (and, I'm continually reminded how these metrics are being compared to the period of our economic nadir, the first half of 2009, so, relative to that, of course, everything is "up, year-over-year"); as Calculated Risk reminds us, "The year-over-year comparisons are easy now since retail sales collapsed in late 2008. "
--With the recent expiration of the federally-subsidized mortgage credit program(s), it's no wonder we're seeing headlines such as this, today: "MBA: Mortgage Purchase Applications lowest since December 1996," as well.
--Small business, the primary driver of U.S. recovery's past, is crashing and burning before us as we coddle the Wall Street vampire squids--and, by now, if you don't realize that they don't give a rat's ass whether Main Street lives or dies, I've got a bridge to sell you. As I noted in a diary on Monday evening, the small banks--the traditional drivers of small business commerce on Main Street--are getting devastated while Wall Street doesn't miss a meal. In fact, the Congressional Watchdog Committee on the TARP is telling us this, today: "Watchdog sees little evidence TARP helped small banks." (And, contrary to one commenter's attempt to tell us otherwise, in my previous diary on this matter--this happens to me a bit too frequently these days, on this reality-based Democratic blog, but I perservere--the reality is the NFIB says that small business IS getting hammered.)
As we appeal to the GOP's misbegotten sense of compassion (damn, talk about time ill-spent) to apply dressings to our society's symptoms, Yves Smith reminds us--yet again, today--it's really all about the disease. Then again (how quickly we forget), she's also reminding us it's really all about what Simon Johnson was talking about, earlier in 2009, in The Quiet Coup: "58% of Real Income Growth Since 1976 Went to Top 1% (and Why That Matters)."
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58% of Real Income Growth Since 1976 Went to Top 1% (and Why That Matters)
Wednesday, July 14, 2010
If you have any doubts about how easy it is for someone who works hard in the US to get ahead, consider this factoid from Martin Wolf's latest comment in the Financial Times, on Raghuram Rajan's new book (see Satyajit Das' review here:
Thus, Prof Rajan notes that "of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households".
It isn't merely stunning, it's destructive.
Rajan isn't the first to put together the story line recounted by Wolf, but it is likely that his book does it in a more comprehensive fashion. We noted that Thomas Palley (along with others) was writing about the change in economic policy and the drivers of growth in 2007. He argued that policy-makers retreated from full employment as a goal, since it allows workers to demand higher wages, which in turn causes inflation. Reducing worker bargaining power led to disinflation, lower interest rates led to rising asset prices, which in combination with financial innovation, created an until-recently reinforcing cycle whereby rising asset prices funded consumption. Palley further contended that this was inherently a self-limiting paradigm, and we had reached the end of the road. A host of others, such as Steve Waldman in 2008, described the dangers:
Credit was the means by which we reconciled the social ideals of America with an economic reality that increasingly resembles a "banana republic". We are making a choice, in how we respond to this crisis, and so far I'd say we are making the wrong choice. We are bailing out creditors and going all personal-responsibility on debtors. We are coddling large institutions of prestige and power, despite their having made allocative errors that would put a Soviet 5-year plan to shame. We applaud the fact that "wage pressures are contained", protecting the macroeconomy of the wealthy from the microeconomy of the middle class.
Yves here. Wolf's comment is forceful, yet it contains enough econ-speak that its sense of urgency might be missed by generalist readers. He focuses on deep seated political issues that will make it hard to blaze a path out of our financial stress. The first is that social contracts are breaking down in the US and Europe:
I think of it as the end of "the deal". What was that deal? It was the post-second-world-war settlement: in the US, the deal centred on full employment and high individual consumption. In Europe, it centred on state-provided welfare.
Yves here. Now some readers may simply snort and say, "Well we can no longer afford that." But that's simplistic and misleading. We DID afford it. What led to the change in the deal was the staflationary 1970, which was driven both by a commodity prices (most notably the oil crisis) AND labor baragaining power (workers were able to demand that wages keep pace with inflation, which when inflation got beyond a modest level, meant it started to become self-reinforcing).
So the new program was to reduce workers' bargaining power, both by combating unions, and by tolerating un and underemployment. Rising worker wages had been seen as crucial to greater prosperity; it was quietly abandoned as a policy goal. But this has profound implications. As rising income inequality demonstrates, the benefits of growth accrued substantially to those at the very top. But absent a few wastrels, people with that level of income are not going to spend as much of their income on consumption as those less well off. Thus (in very crude terms) Keynes' problem of the paradox of thrift, that the understandable desire of households to save can result in insufficient demand, becomes even more acute when it it pretty much only the rich who are getting richer.
Wolf describes the results:
...a number of significant economies have built their economies around exports. The resultant dependence on foreign demand means the credit-dependence they proudly avoid at home emerges abroad. The constraint upon them is what Prof Rajan describes as a "politically strong, but very inefficient domestic-oriented sector". The problem is that the countries that used to provide the demand - the US, at world level, or Spain, in the eurozone - have over-indebted private sectors. So we see a zero-sum battle over shares of structurally deficient global demand. This is a threat to survival of the eurozone and even the open world economy.....
The west is not the power it was; its debt-fuelled consumers are not the source of demand they were; the west's financial system is not the source of credit it was; and the integration of economies is not the driving force it proved to be over the past three decades. Leaders of the world's principal economies - both advanced and emerging - will need to reform co-operatively and deeply if the world economy is not to suffer further earthquakes in years ahead.
Yves here. I am not terribly optimistic about the survival of the "open world economy". I believe that (absent measures like Keynes' Bancor proposal) large trade flows over time produce destabilizing international capital flows. Citizens are not prepared to suffer sudden, dramatic losses of savings and high odds of unemployment or reduced income in the name of world trade. Containing the downside would require a considerable loss of national sovereignity, which again few are prepared to accept.
Moreover, much of America seems blithely unaware of our diminished role in the world. Likewise, financiers, having wrested massive concessions from national governments (bailouts with almost no concessions demanded of them) if anything view themselves as even more influential than before the crisis. In other words, both the distorted self image of key players and a reluctance to admit the deep seated nature of the problems make a happy resolution unlikely.
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Happy Bastille Day, Kossacks! "Are The Guillotines Being Sharpened?"