Dear Citizens and Elected Officials:
One of my greatest worries for Progressives, and the chances for the Democrats to retake the House, is that all the sources of passion on the left side of the spectrum will not be the determining factor, the ones that flow from Trump’s malevalent policies, but rather instead will turn upon the sense of Independents and Republicans that the performance of the economy should be rewarded — despite the rest of the story.
And that is a very tricky matter for the average citizen. After all, if a left-leaning economist like Dean Baker can praise the low unemployment and low inflation, and proclaim that not a serious thunderclap is in sight, much like Janet Yellen’s departing pronouncements as the outgoing Federal Reserve Chairperson, what is the average citizen to make out of it?
Because to debunk the rosy view centered on those two “green light” numbers, one has to get into even more serious matters, substantive matters of measurement, labor’s share of the income pie, workforce participation, where the corporate investment goes, and many other matters that are the economic equivalent of the literary deconstruction of Ulysses or Finnegan’s Wake.
I’ve written about that in much greater detail over the past seven months, starting in January of this year, but it is hard to make much headway when the Mainstream discourse is on everything but the deeper ills of the economy. For example, see my January 2 post at the Kos: www.dailykos.com/...
So I’m going to share with you my two comments today on Paul Krugman’s New York Time’s column, “Partying like it was 1998.” I don’t think that resonates with the average citizen the way the year 1929 does, but it points in the same direction. We’re at the peak of the business cycle unless you think this one is going to break the precedents of the past 30 years and go on for fourteen…because as you space them out since 1987, they’ve come at just about decade intervals.
Here’s the link to Krugman’s piece: www.nytimes.com/…
And here is what I said in two comments in response, slightly edited for clarity:
It's hard to disagree with this Paul. Sound advice, but you know what the idea of "capital controls" starts in many centrist and all right side of the economic spectrum thinking: it’s government control, loss of freedom...and so on. An ideological response. Red button issue.
But the next set of questions is tougher: could trouble in the Turkish economy be enough to trigger, to cause the interlocking "flows" of the international system we have - to unravel? Are there big speculative bets for or against Turkey, say in the Credit Default (Swaps) — CDS’s betting parlors that have fled to Europe to evade Dodd-Frank, as documented by Maryland's Michael Greenberger?
1 REPLY
For those who want to read Greenberger's worries, here they are: 115 pages...
https://www.ineteconomics.org/research/research-papers/too-big-to-fail-b...
Paul, what do you think of his work? No one has taken it - the possible scene of the next financial crisis, the CDS bets on the weak links - to the level of detail Greenberger has, and specified what they might be betting on. The four biggest US players, all big banks. Turkey's troubles were not named. But student debt, auto loans, real estate loans, esp. commercial retail failures...were. But who knows, since every form of debt-income stream has been securitized, who indeed has command of all the little tributaries which feed into the great debt-betting rivers?
Perhaps the right frame is this: who saw the collapse of Long Term Capital Management in 1998 coming?
Now “Michael Greenberger” is not a household name; but he is a respected legal scholar teaching at the University of Maryland, and a recognized expert in the daunting world of financial derivatives, the instruments which he and I both maintain played a crucial role in generating the shock waves from the collapse of the housing market in 2007-2008. Dean Baker does not share that assessment. Greenberger, who served as Chief of Staff for Brooksley Born at the Commodities Future Trading Commission (1996-1999), the body that was supposed to regulate the brave new world of derivatives, to curb their betting parlor drift. Ms. Born was forced out by Larry Summers, Alan Greenspan, and, subject to more ambiguity, by Robert Rubin, the “Committee to Save the World.” It seems that Born had the better instincts for saving that world because she didn’t have their absolute faith in “self-correcting markets.”
Now Greenberger is issuing a warning that the Credit Default Swaps market is alive again, like a financial Frankenstein, striving to evade Dodd-Frank oversight by moving to weak Europe trading venues even as the bulk of the work in creating the potential new monsters is done here.
The link to the Krugman piece today, which does not mention Greenberger’s exhaustive essay, is Krugman’s wondering about the fragility of markets today, and whether the tremors set off by the fault lines in Turkey’s economy are crucial enough to set off a new Financial Crisis. Or could be dealt with effectively given the weekly chaos of the Trump style.
I think the answer lies in where the contrarians are placing their bets via Credit Default Swaps, which are placed heavily via the energy of some very smart people you and I don’t know, and where they think the weak links are. Please read Michael Lewis’ “The Big Short,” or see the movie from 2015 to get a better idea of the “flows” here; people trying to make a ton of money, very secretively, by betting on the system’s as yet unknown, unacknowledged ticking financial time bombs.
Much more than you think is resting on the unseen and unknown tributaries, which in the financial world, often run deep underground...until...panic sets in and trust evaporates, and the Federal Reserve sets out again to create the trillions to save the speculators — which they would not do and will not do for you and me. We being mere citizens, although it has been said, by the late Sheldon Wolin, that “citizen” is the hardest job in the world.
I’m trying to issue a warning here, just like I have since January of 2018.