The Obama Administration has been an utter failure. The President ran on the promise of Change We Can Believe In, and then served us a different flavor of Business-As-Usual. In offering us more of the same, Obama's people failed to comprehend the biggest economic crisis since World War II. Our crumbling economy is the predictable result. Neglect, insincerity, mediocrity—these are the keywords describing their failure.
Ultimately, it has been impoverished Imperial thinking that is turning America into a Third World Country. Interfluidity blogger Steve Randy Waldman offers us a rare glimpse into this thinking in Monday at the Treasury: an overlong exegesis. Every so often Treasury officials meet with selected bloggers—I don't know how they are selected. Waldman feels as though he was "neutered a bit" in going to the meeting, but that does and does not show up in his review, which I will deconstruct today. It's as though Waldman sipped on the Kool-Aid but didn't down the whole glass in a way I hope to make clear below.
Look at Waldman's post to see who attended the meeting. Treasury Secretary Tim Geithner was there, and according to Yves Smith, Timmy "gives good meeting." I'll bet he does!
The get-together covered a wide array of problem areas, including financial reform, derivatives trading, Fannie & Freddie, America's trade deficit, and the macro-economy. I can't cover all that today, and there is no need to because "all roads lead to Rome" at the Treasury. I will jump right in with the discussion of our economic prospects.
Finally, our conversation turned to the current macroeconomic doldrums. Thankfully, there was none of the “let’s look on the bright side” chipperness of Timothy Geithner’s recent New York Times op-ed. Treasury officials didn’t downplay how bad things are. They did point out that considering the headwinds the economy faces, things are a bit better than they might be.
The account went roughly like this: Last year, after the doldrums of March, the economy grew faster and performed better than most would have forecast. But recently it encountered two obstacles, one expected, the other an unexpected near cataclysm. The spurt of GDP growth due to post-panic inventory restocking was always going to end.
But a sovereign debt crisis in Europe strong enough to shake confidence and financial markets in the US was not expected. Taking all that into account, things are a bit better than they might have been. One Treasury official pointed out that if we could return to the path of consensus growth forecasts from just before the troubles in Europe, we would have two or three difficult years ahead of us yet, but would be on a decent path.
I took this as a kind of optimistic but plausible thought experiment on where we might be going. I’m not going to belabor the obvious critique of this account, that it focuses too much on statistical growth and financial market performance and too little on employment (which, in the optimistic thought experiment, would follow statistical growth with a lag).
[My note: I covered Tim Geithner's New York Times editorial in Welcome To The Recovery!]
No, no, Mr. Waldman! Let's belabor the obvious point. I am hesitant to trot out the "whiz kid" so soon after his inaugural appearance yesterday, but if the shoe fits, wear it!
This is the first time I've heard that the European Debt Crisis is responsible for the economy's failure to gain traction. Now, this in itself does not prove the theory wrong, but a plausible explanation for why I've never heard this story before is that it never occurred to anyone—until now—to put it forward.
And the reason why it never occurred to anyone to float this particular trial balloon is due to the fact that Treasury's self-serving story is nonsense, concocted, silly, an exercise in denial, a canard, a red herring, a fabrication. In other words, it is total bullshit, not "an optimistic but plausible thought experiment" as Waldman puts it.
Not only is this story an example of the post hoc ergo propter hoc fallacy in which correlation in time is conflated with causation, but it also conveniently places the reason for our economic woes on foreign shores. It is a wild flight of fantasy to suppose that the crashing housing market or persistent high under-employment in the United States has anything to do with the debt-ridden PIIGS blowing up, or the problems of the European banks which lent them money.
Now is not the time for my standard lecture on the deep, structural problems that plague our economy, problems which were 30 years in the making. However, there is insight to be gained by considering the fact that the European Debt Crisis did cause some temporary perturbations in the American Financial markets last spring, as Waldman notes. (This is not to say that there won't be more contagion in the future.)
This theme—Finance equals the Real Economy—runs throughout Waldman's account of thinking at the Treasury, as in this discussion of HAMP—
The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt.
Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend.
The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock.
I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.
[My note: From Bloomberg—"Federal efforts to help have had little success. Of 1.31 million loan modifications started under the Obama administration’s Home Affordable Modification Program, 48 percent were canceled by the end of July, the Treasury Department said Aug. 20. More than half of all modifications defaulted again within 12 months, the Office of the Comptroller of the Currency said June 23."]
It is well-known that HAMP and other foreclosure abatement programs were aimed at propping up the banks. And it is also well-known that bailing out Fannie & Freddie has been a not-so-covert bank bailout. Waldman refers to the "larger concerns" of Treasury officials. What might these concerns be, if they are not the health & welfare of the system, the economy, and ordinary Americans?
I think there may some confusion when I say that Treasury officials and others Inside The Beltway are corrupt. This is my fault, for I have not been explicit in the past. Corruption need not be conscious, wherein (for example) an official receives bribes for political favors. Corruption can also be a state of mind, an unconscious bias that guides cognition and shows up in decision-making. And here that bias is obvious: the health of Real Economy is conflated with the health of the Finance Industry time & time again.
Saying "Treasury officials are not cruel people" as Waldman does is beside the point. Their very corruption (bias) means they are not sincere about helping the hoi polloi, the "little people" in America. From the very start, the people Obama appointed (like Tim Geithner) continued previous efforts (by W and ex-Goldman CEO Henry Paulson) to bailout the banks at the expense of jobs creation and debt relief for ordinary Americans.
Waldman makes it clear that he knows all about these distorted priorities, but does not seem to understand psychologically how the corruption works. He still wants to argue about policy details, but that's pointless in a situation like the one we find ourselves in—the fix is in.
The Obama story has always been that we'll be just fine if only we can get the credit flowing again...
From Mish's Contained Depression
Where does this leave us? How will we go forward now? You will find the answers offered at Treasury very disappointing. Regarding the current downhill slide of the economy, they have nothing to offer—
I was impressed that Treasury officials had a pretty good understanding of the impediments to growth going forward. They understood that the core problem preventing business expansion isn’t access to capital but absence of demand. But I got the sense that, as they see things, they are boxed-in on that front, paralyzed and hoping for the best.
Waldman must be easily impressed. When it comes to remedial actions to take care of the banks, there are many "successes" like HAMP to point to. When it comes to lifting the Real Economy out of the "doldrums" as Waldman put it, Treasury officials are paralyzed and hoping for the best. In other words, they don't have a clue about how to proceed. Nor do they understand why demand is falling off—crushing household debt and job uncertainty come to mind. As I said at the top, they have failed to comprehend the biggest economic crisis since World War II.
This failure shows up again in the discussion of America's persistent, pernicious trade deficit. (Look this up under problems in the economy, structural.)
A Treasury official agreed enthusiastically about the importance of finding more sustainable patterns of trade. But he characterized trade balance as a medium-term issue that might resolve itself over time, especially if China (which he described as the “anchor” of a whole block of trade partners) allows its exchange rate to appreciate.
He suggested that although the issue is important, we could worry about other things for now and save trade balance for later if it fails to self-correct.I disagreed...
Not only is Treasury hoping for the best in the Real Economy, but they are also waiting for the trade deficit to "self-correct." This kind of ignorance denial really does take your breath away.
My own exegesis is getting overly long, so I need to cut this off. There is plenty of other material in Waldman's post, which is 4 pages long single-spaced. For example, blogger John Lounsbury brought up a "touchy" subject—
Amid the talk about flagging demand, blogger John Lounsbury had the courage to “drop a stink bomb”, as he put it. He said that in his view, the United States needed to move from a consumption to a production oriented economy, and that we ought to use the tax system to get there, increasing taxes on consumption and reducing taxes on capital.
Had the courage to drop a stink bomb? I had no idea that moving from a consumption-oriented economy to a production-oriented economy which creates Real Work For Real People was the least bit controversial, regardless of how we get there, among open-minded, intelligent people familiar with the situation. (Again, look this up under problems in the economy, structural.)
There's a hole you can drive a truck through in Waldman's account. And certainly we can't expect Treasury officials, who are also thinking Inside The Box, to see what's missing. Taken altogether, the problems in finance, housing, the macro-economy, jobs, the trade balance, foreign wars, etc. point to a society falling apart, or as I characterize it, an Empire In Decline. There is a big Forest & Trees problem here. Discussing these issues singly, as Waldman does, gives them the appearance of being manageable. But each affects all the others. Taken altogether, a much more threatening picture emerges.
I am grateful to Randy Waldman for publishing this account of his meeting at the Treasury. However deep and long-lasting America's crushing problems turn out to be, we can rest assured of one thing: the bozos at Treasury and elsewhere in the Obama Administration have no clue about how to fix them, and in any case, their corrupt, impoverished thinking precludes realistic solutions.
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