Decline of the Empire

DOTE Predictions For 2011

What will 2011 bring? Broadly speaking, predicting more of the same (high unemployment, high Wall Street profits) is always a safe bet. As to specific events, who knows what will happen? I could go out on a limb here and predict various collapses and crises, but I might be wildly off the mark. Being wrong would put a serious dent into my well-earned reputation for infallibility, so that's not a good way to go

I have already made one prediction. In The Coming Economic Propaganda Blitz, I predicted that GDP will grow and grow in 2011 thanks to tax breaks and money printing. But, the lives of the large majority of Americans will continue to deteriorate despite the continuing miracle of statistical growth. GDP is as phony as a 3-dollar bill.

I learned a few things this year. Back in the spring, I thought a "double-dip" was likely in 2010. How naive I was! Due to the way GDP is measured, there was no way in hell the government was ever going to say we were in recession (again). It is thus not a surprise that the "Great Recession" officially ended after the 2nd quarter of 2009, but most Americans still think—with good reason—that the downturn never ended. I won't make that mistake again.

Rather than predict what's going to happen in 2011, I'm going to tell you what's not going to happen. That's far more revealing of where we stand than making some pointless predictions about the future. Here's the list—

• There will be not be a redistribution of the wealth in 2011—unless, of course, you regard the rich getting richer and everybody else getting poorer as a redistribution.


• Spencer Bachus, who I described as Corruption Incarnate, will not become a changed man. Mr. Bachus, a Republican who represents Alabama's 6th district, recently told The Birmingham News that “In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.” Spencer is the new head of the Financial Services Committee in the Republican-controlled House of Representatives.


• The United States will not become a serious enterprise. The 2011 deficit will be huge, the accumulated debt will continue to grow, and the Fed's "accommodative" monetary policy will remain in place (0% interest rates). Ben Bernanke may go on 60 Minutes again to explain that because the money he is printing is not actually circulating in "The Economy" where you and I live, he is therefore not printing money.


• There will not be a people's revolution in the United States—unless, of course, there are owner lock-outs of the players in at least two of the following three sports leagues: the National Football League (NFL), the National Basketball League (NBA) and the National Hockey League (NHL). Right now there is a possibility of a lock-out in all three in 2011.


• Paul Krugman, Thomas Friedman and other New York Times columnists (excluding Bob Herbert) will not be any closer to being in touch with Reality than they were in 2010.


• There will not be a suddenly blossoming of environmental consciousness in which America takes the lead in halting the steady deterioration of the oceans, the warming of the climate, and the mass die-off of animal and plant species all over the world. Scientific knowledge will continue to be conflated with misunderstood Mayan prophecies.


• Barack Obama will not wake up one day and start channeling Franklin Delano Roosevelt.


• Those on Wall Street will not suddenly realize that avaricious acquisition of everything is not the sole purpose of Life On Earth.


• Our elected representatives in Congress will not put themselves on trial, find themselves guilty of wanton corruption, gross negligence, meanness of spirit, mind-boggling stupidity, and all-around depravity, and then go on to amend all the rules of our political system to reinstate a Democracy, or failing that, a Republic.


• The Housing Market will not make a miraculous comeback in 2011. The ranks of the jobless will be little changed by the end of next year. Those who do get jobs will be cleaning hotel rooms or serving caffè lattes.

How confident am I about these predictions? 100%. No doubt about it. What goes up must come down. Wherever you go, there you are. Plus ça change, plus c'est la même chose. 2 + 2 = 4. See ya' next year.

The Bears Are Wrong!

I would like to think that DOTE readers are among the best informed in the world. Week in and week out, I present the "bearish" case, often with data or charts. If you read this blog faithfully, you know all about the backsliding Housing Market. You know all about the grim long-term unemployment picture. You know all about the grotesque wealth & income inequality in the United States. You know all about impossible household mortgage debt and the government's growing public debt. Recently I showed you the savings rate and personal income data, which doesn't look good.

And that's just the economic side of things. I am not just a pessimist without cause. I didn't just wake up one day and say "things aren't looking so good, maybe the Empire's in decline, I think I'll start a blog about it." The declining Empire argument takes into account downhill trends that have been in place for almost thirty years.

There has been a spate of stories lately about Bulls versus Bears. The mood is decidedly bullish. America has turned the corner, we're back on a healthy (GDP) growth path. Much of this happy feeling emanates from the stock market being up. When stock prices are up and moving higher, even people who don't own stocks become crazed, or in the words of Alan "Bubbles" Greenspan, irrationally exuberant. So-called "consumer" confidence is strongly correlated with the DJIA (the Dow) or with the S & P 500.

As they have in the past, many now feel that the sky's the limit for stocks, business profts and the economy. Of course, when most people decide that Happy Days Are Here Again, that's when smart people start to worry—

Indeed, some market strategists worry that investor optimism itself may be a headwind to another strong year for the market. Consider how stocks performed in other recent periods of optimism. In October 2007, a survey by the American Association of Individual Investors found that 55 percent of investors were bullish; in the 12 months that followed, the S.& P. 500 fell 37 percent. Similarly, in March 2000, investor bullishness reached 66 percent. And a year after the fact, stocks were down 25 percent.

When Yahoo's Tech Ticker hired Dan Gross, formerly of Newsweek, I knew what was going on. Gross was hired to inject some much needed optimism into the discussion. The obvious problem was that everytime Aaron Task and Henry Blodget sat down to analyze some aspect of the economy, they ended up concluding that things were going to hell in a handbasket. Bringing Gross in was Yahoo's way of tempering their well-founded, sensible pessimism with some delusional happy talk. Optimism is popular. Optimism attracts viewers (or "eyeballs" as they're called in the business). Optimism is good for business.

Consider this post an open thread. The video below is entitled It's Official: The Bears Were Wrong! Watch it, analyze it. Be critical, be skeptical, dissect the arguments. If you are a regular DOTE reader, you are perfectly capable of understanding why the bullish sentiments expressed by Dan Gross are complete nonsense. Let me give you example. Listening to Gross, one could almost imagine that America has a trade surplus! Nothing could be further from the truth.

Feel free to comment on the video. I'm going to let you do the work today. Enjoy.

 

The Afghan War, Terrorism And Media Propaganda

As 2010 winds down, I am reminded that there is no Imperial policy more reprehensible and shameful than the war in Afghanistan. This war is constantly presented to Americans as an integral part of the War On Terrorism, but it is no such thing. The Afghan war is a pointless, expensive, destructive exercise in futility whereby American power is projected into southern Asia for God Only Knows what purpose at this point. Those who remember the Vietnam War, which was a much, much bigger senseless, destructive exercise in futility, know what I'm talking about.

Some folks old enough to remember Vietnam chained themselves to the White House fence earlier this month to protest the Afghan war. If you didn't hear about it, that's no surprise, as Dave Lindorff reports at the website This Can't Be Happening—

There was a black-out and a white-out Thursday and Friday [December 16^th and 17^th] as over a hundred US veterans opposed to US wars in Afghanistan and elsewhere around the world, and their civilian supporters, chained and tied themselves to the White House fence during an early snowstorm to say enough is enough.

Washington Police arrested 135 of the protesters, in what is being called the largest mass detention in recent years. Among those arrested were Ray McGovern, a former CIA analyst who used to provide the president’s daily briefings, Daniel Ellsberg, who released the government’s Pentagon Papers during the Nixon administration, and Chris Hedges, former war correspondent for the New York Times.

No major US news media reported on the demonstration or the arrests. It was blacked out of the New York Times, blacked out of the Philadelphia Inquirer, blacked out in the Los Angeles Times, blacked out of the Wall Street Journal, and even blacked out of the capital’s local daily, the Washington Post, which apparently didn't even think it was a local story worth publishing an article about (they simply ran a photo of Ellsberg with a short caption)...

Clearly, in the US the corporate media perform a different function [than real reporting]. It’s called propaganda. And the handling of this dramatic protest by American veterans against the nation’s current war provides a dramatic illustration of how far the news industry and the journalism profession has converted itself from a Fourth Estate to a handmaiden to power.

It's true—the "media" in this country are nothing more than servants of Imperial power. What they don't tell you is often far more important than what they do. And weirdly, even as the story about the war protest was blacked out, an ABC/Washington Post poll showed that 60% of Americans believe the war has been a total disaster—

A record 60 percent of Americans say the war in Afghanistan has not been worth fighting, a grim assessment — and a politically hazardous one — in advance of the Obama administration's one-year review of its revised strategy.

Public dissatisfaction with the war, now the nation's longest, has spiked by 7 points just since July. Given its costs vs. its benefits, only 34 percent in the latest ABC News/Washington Post poll say the war's been worth fighting, down by 9 points to a new low, by a sizable margin.

You're allowed to think the war is a waste of time, but Heaven Help You if you protest it. And here's another story you're not likely to hear much about. Apparently some reporters at the Wall Street Journal—the mainstream media is not yet a total loss—got a hold of some UN maps that contradict the story that progress has been made in Afghanistan.

The Wall Street Journal was able to view two confidential "residual risk accessibility" maps, one compiled by the U.N. at the annual fighting season's start in March 2010 and another at its tail end in October. The maps, used by U.N. personnel to gauge the dangers of travel and running programs, divide the country's districts into four categories: very high risk, high risk, medium risk and low risk.

In the October map, just as in March's, nearly all of southern Afghanistan—the focus of the coalition's military offensives—remained painted the red of "very high risk," with no noted improvements. At the same time, the green belt of "low risk" districts in northern, central and western Afghanistan shriveled.

The security situation in Afghanistan is getting worse, not better, but that's not the "official" story as reported by Salon in two separate stories—

The big takeaway from the Obama administration's review of the Afghan war this month was that the strategy is working. But a new independent assessment [the UN maps story] suggests just the opposite: that, in fact, the situation is deteriorating.

[And from Salon's report on the Obama administration review.]

The White House today [December 16] released a summary of the results of its Afghan war review (the full version is classified), attempting to put a positive spin on a war that is claiming more American lives and dollars than ever before.

The review summary offers no specifics or evidence to back up its conclusions, but here is the key paragraph propaganda message:

Specific components of our strategy for Afghanistan and Pakistan are working well and there are notable operational gains. Most important, al-Qa’ida’s senior leadership in Pakistan is weaker and under more sustained pressure than at any other point since it fled Afghanistan in 2001. In Pakistan, we are laying the foundation for a strategic partnership based on mutual respect and trust, through increased dialogue, improved cooperation, and enhanced exchange and assistance programs. And in Afghanistan, the momentum achieved by the Taliban in recent years has been arrested in much of the country and reversed in some key areas, although these gains remain fragile and reversible.

One could list lies, contradictions and omissions in offical statements and reporting about Afghanistan all day long and still not be nearly finished. After all, the war is entering its 10^th year.

Here is the bottom line: the media have bludgeoned Americans with the terrorism threat over and over and over again ever since the 9/11 attack. The true purpose of this reporting could not be more obvious, whether it's done intentionally or simply because the media is psychologically co-opted. A fearful populace is an obedient populace. We must be reminded time and time again that radical Muslims or others who reject the wonderful benefits of Western Civilization are a greater threat to the American Way Of Life than astonishing wealth inequality, growing poverty, predatory and parasitic Wall Street banks, corrupt politicians and any of the thousand other ills that beset the United States.

How bad has the terrorism propaganda become? I want you to watch this video of the PBS News Hour "news wrap" for Monday, December 27^th.  Watch it very carefully in light of what I just told you.

Did you get that? The "news wrap" for the day includes—

• Drone attacks killed 18 "suspected" militants in Pakistan
• A female suicide bomber killed 43 at a UN food distribution center in Pakistan
• Experts defused a parcel bomb delivered to the Greek embassy in Rome by Italian anarchists
• Police in Britain charged 9 terror suspects with plotting bomb attacks
• Government troops were on patrol in Nigeria after Christmas violence between Christians and Muslims
• The US Senate race in Alaska is settled, Lisa Murkowski will take the seat
• Wall Street had a quiet day, the Dow was down 18 points to close at 11,555

Terrorism, terrorism, bomb threat, terrorism, Muslims versus Christians, politics, and the stock market. I hope you realize that the selection of stories which PBS deemed "newsworthy" on Monday is distorted beyond all recognition, a total assault on your peace of mind, and otherwise completely deranged. That's how bad things have become. And now, to complete this exercise in consciousness-raising, watch the video again.

Borrow Like There's No Tomorrow

The silence lately about America's public debt problem has been deafening. When nobody wants to talk about a problem, avoidance is always a solid indication that we've gone into deep denial about that problem. The public debt is the well known "elephant in the room" that nobody wants to see. Thus I am and am not surprised at the tepid response to the Hugh Jidette (a word play on "huge debt") for president campaign. Here are a couple examples—

 

The facetious Hugh Jidette campaign is being run by the Pete Peterson Foundation. You can find the details at OweNo.com. Here's the challenge—

Here’s how we’ve gotten to this point: The federal government has to borrow money when the revenues it collects are not enough to cover the amount it spends — a budget deficit.  Over the last 10 years and at other times in history, our government has run large deficits.  During these years, the government has borrowed more and more to make up the difference.  Today our accumulated national debt stands at a staggering $44,000 for every person in America.

Of course, like with a credit card, carrying a “balance” is not free.  Our government now spends about $200 billion every year just on interest payments, and we get nothing for it.  Half of this money goes overseas to foreign countries that own our debt.

That’s bad, but the worse news is that our debt is projected to grow and grow far into the future.  This is due to several factors, including the rapidly increasing cost of health care, and the fact that people are living longer. In the next few decades, the number of people aged 65 or older is projected to double, which means more people receiving more benefits.  Official government projections show federal debt doubling by the 2020’s, tripling by the 2030s and even quadrupling by the 2040’s.  That means that, unless we change our course, $13.6 trillion could grow to more than $50 trillion.

If America were to borrow this much, interest costs would explode.  By 2027, interest would be the largest item in the federal budget.  Eventually, interest would take up 100% of all of the money the federal government collects...

Of course, our debt problem will never get to the point where all the government does is make interest payments. I most recently covered the debt problem in The Debt Countdown Begins, so I won't repeat what I said in that post. But I have a few things to add about the silence.

Our general denial about the debt is all the more remarkable because we are witnessing debt obligation crises in California, New Jersey, Illinois and many other states, cities and municipalities. I don't usually cover this issue because Mike Shedlock ("Mish") covers it thoroughly at his popular blog Global Economic Trend Analysis. There's simply no way in hell the states, cities, etc. can cover the pension and other benefits they've promised to public employee unions.

All those agreements must be renegotiated or there will be defaults. That's all there is to it. Yet, public employees are fighting like crazy to keep these benefits which eventually will not be paid because they can not be paid. Thus they are shooting themselves in the head.

Although there are substantial differences between a "dead-beat" state like Illinois and the United States—America has an army, a navy and a money printer, whereas Illinois does not—the similarities outweigh the differences when it comes to un-payable debt obligations—except, that is, where denial is concerned. Whereas people like New Jersey governor Chris Christie are now trying to actively deal with the problem, which has made him a hated figure to teachers and firemen, the denial at the federal level is like a suffocating blanket.

In fact, misguided Ohio Congressman Dennis Kucinich wants to introduce legislation that would take the money printer away from the Federal Reserve and give it to the Congress. We could wipe out our federal debt obligations in no time! I'd like to go on the record right now in saying that this is the single stupidest idea I have heard since our economy melted down. Just how far up your rear-end do you have to have your head to come up with an idea like that?

The notion that America's debt problems are merely political problems— just another squabble between liberals who don't care about debt versus conservatives who do—is easily the second stupidest idea I have heard in recent years. I'll cover the details in a future post, but it boils down to this: paring down debt requires austerity, and thus some of the pigs at the trough must eat less. Who will be forced to go on a diet? Nobody wants to give up their Free Lunch, so nobody is willing to take the debt problem seriously.

So-called liberals like Paul Krugman or Dean Baker rationalize debt problems away, saying interest on the debt doesn't matter in the long run. This is a very deep form of denial. So-called conservatives pretend to care about debt and the size of goverment, but then they run up the debt as fast as they can whenever they get the chance, or they create brand new agencies we don't actually need—see Homeland Security. Again, this is another deep form of denial. My aphorism is politics makes you stupid.

Thus the enduring prescription is: borrow like there's no tomorrow. But one day soon, tomorrow will come.

 

The Coming Economic Propaganda Blitz

Let this post serve as your first warning. The Bureau of Economic Analysis (BEA) within the Commerce Department is going release the advance estimate for 2010 4th quarter Gross Domestic Product (GDP) on January 28, 2011. This estimate is likely to show the economy growing at a 4% (or better) annual rate. But that won't be the end of it—not by a long shot. Due to the Fed's bond buying (QE2) and the massive tax cuts just enacted by Congress, growth in subsequent quarters is also going to be considerably higher than it would have been.

Well, you might say, isn't that a good thing? Doesn't that indicate that "The Economy" is finally kicking into gear? That's certainly what the Powers That Be want you to believe. The problem is that there are two economies, not one. See my post "The Economy" — America's Great Lie. There's the economy where the well-off and the rich folks dwell, and there's the other one where ordinary Americans live. If the former is thriving, and it is, and the official statistics lump the two together, it will appear that everybody is better off.

At economicpopulist.org, Robert Oak took a tour through the BEA's personal income and outlays report for November, 2010. Before I present some of the data, let me jump to Robert's conclusion, which I have edited slightly for clarity—

For the first two months of the three which make up Q4 GDP, or October, November and December, it's looking like at least 4% growth in the Q4 GDP report for PCE (Personal Consumption Expenditures). PCE was 2.4% in Q3 2010 GDP.

I calculate that if there is no PCE growth for December, PCE would still show 3.97% growth in Q4 2010 GDP.

The only good news in this report is PCE, once again, but in reality, the middle class is getting squeezed so one must wonder where the money is coming from to increase PCE.

[My note: PCE accounted for 71% of GDP in the last (3rd quarter) report.]

Let's look at some data. First, the personal savings rate is going the wrong way. The graph and quote below are from Doug Carey's The Savings Rate Is On The Decline.

Lost in all the hype over stronger consumer spending and GDP numbers is the fact that the U.S. personal savings rate, which had been on the rise, is now falling. The Commerce Department reported today that consumers saved 5.3% of their disposable income in November, down from 5.4% the previous month and down from 6.3% in June of this year. The savings rate had hit a recession high of 8.2% in May of 2009...

... Many thought that the savings rate would blow through 7% and stay there for several years. But they underestimated what the Federal Reserve can entice people to do.

Part of the Fed’s goal in pushing down short-term interest rates was to goad people into stopping their new-found frugality and begin spending again. It is much tougher for people to save money when their money market and checking accounts pay them 0%. Therefore, instead of rebuilding their balance sheets, consumers appear to have taken a break and begun their spending ways again. Ben Bernanke is a Keynesian through and through and he believes that real economic growth can come from consumers overextending themselves and spending more. So far his plan seems to be working, at least in terms of the mathematics of GDP.

The drop in the savings rate from 8.2% to 5.6% has added over $30 billion to the consumer spending side of the GDP accounts, which results in an extra 2.5% of GDP growth over one year.

Whether or not this can or will last is yet to be seen...

[My note: Disposable income is income less taxes.]

I think we can safely assume that the 77% of American workers living paycheck-to-paycheck have virtually no savings, and they certainly aren't socking away some money every week. However, those among the other 23% who have substantial checking or money market accounts paying 0% interest have indeed picked up their spending, having been goaded into abandoning the new frugality by the wily chairman of the Federal Reserve. The rising stock market has helped in this regard. Here again, clever Ben has helped push stock prices higher. At least on paper, many among those who had some savings feel richer than they did a year ago.

Now let's look at Oak's personal income graphs based on data from the St. Louis Fed (FRED).

The first graph shows nominal personal income (PI, in billions of dollars). The second shows real (inflation-adjusted) PI minus transfer payments (in billions of chained 2005 dollars).

If you look at only the first graph showing total personal income, as most people do, you could claim that income has been soaring since the recession officially ended at the end of the 2nd quarter in 2009. However, if you take a look at the second graph showing personal income excluding transfer payments, you get a different story. Transfer payments include social security, unemployment insurance, welfare, veterans benefits, Medicaid, Medicare, food stamps and so on. Once transfer payments are taken out of the equation, personal income is flat at a level well-below what it was in 2008.

The great thing about transfer payments from the government's point of view is that people receiving them spend them, thus boosting Personal Consumption Expenditures. The government simply prints or borrows some money, passes it along to you, and you spend every penny. It's a Wonderful Life! Needless to say, the income data does not paint a picture of a economy that can stand on its own two feet. See my post GDP Is Almost Worthless for some background on these issues.

I could go on and on, but that's enough for today. Throughout the coming year, the government and its media lapdogs are going to tell you that the economy is growing, that the nation is saved, that we went through a bit of a rough patch but everything is OK now. I wish it were so, but for those living in the "lesser" of our two economies, this propaganda blitzkrieg will be a Big Lie easily contradicted by everyday experience.

I will return to this theme repeatedly in the future because it's important. Nothing has fundamentally changed in America's economy. All of the deep structural flaws that plagued the economy before it blew up still exist. If you take away the various stimulus programs, the huge increase in transfer payments, and the abnormal financial conditions put in place by the Fed, the economy you live in would suck even more than it does. Even with them, the economy you live in still sucks big time.

The "official" unemployment rate will likely be over 9% at the end of 2011, despite the miraculous GDP growth we are about to see. If they can't spur a real economic recovery, the government will settle for a statistical recovery instead. And then they will try to convince you that it's the real thing.

As I said at the top, this is your first warning.

Peter Orszag Joins Citigroup — The Meaning Of It All

Some mainstream political journalists are very upset. Their happy world has been turned upside down. I'm a bit behind on this story, but it seems that Peter Orszag, the former head of Obama's Office of Management and Budget (OMB), has joined Citigroup. This quote is from Will Wilkinson at the Democracy In America blog—

LAST July Peter Orszag stepped down from his post as the head of the Office of Management and Budget. As budget director, Mr Orzsag helped shape the first stimulus package and, more visibly, the health-care reform legislation. Apparently, the market values this sort of experience. Last week, Mr Orszag accepted a senior position at the investment-banking arm of Citigroup, an institution that exists in its present form thanks to massive infusions of taxpayer cash. Exactly how much Citigroup pay Mr Orszag is not public knowledge, but swapping tweed for sharkskin should leave him sitting pretty. Bankers who spoke to the New York Times ballparked his yearly salary at $2-3m.

James Fallows rightly observes that not only is the revolving door between Washington and Wall Street unseemly, its frictionless gliding action suggests corruption is built right into the interface between our government and our great profit-seeking institutions...

I love that word! — unseemly. Wilkinson believes the revolving door suggests that corruption is "built right into" the Wall Street/Washington nexus. Similarly, the tendency for apples to fall down to the ground rather than float up into the air suggests that gravity is a powerful force on the Planet Earth. In both cases, perhaps we should wait for additional experiments to verify what everyday experience suggests. We certainly wouldn't want to jump to any conclusions.

Wilkinson quotes The Atlantic editor James Fallows, who apparently has only now gotten his first clue about how the world works. In anyone's life, that first clue is a big one and a very bitter pill to swallow, so Fallows is (almost) unrestrained in criticizing this betrayal—

Shocking, in the structural rather than personal corruption that it illustrates. I believe Orszag (whom I do not know at all) to be a faultlessly honest man, by the letter of the law. I am sorry for his judgment in taking this job,* but I am implying nothing whatsoever "unethical" in a technical sense.

But in the grander scheme, his move illustrates something that is just wrong. The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution -- and then, less than two years after his Administration took office, would take a job that (a) exemplifies the growing disparities the Administration says it's trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service — this says something bad about what is taken for granted in American public life.

One wonders what Fallows has been doing during the many years of free exchange of personnel between the Treasury, Goldman Sachs, Citigroup and the Federal Reserve. Did he just not notice this revolving door? Surely he knows who Bob Rubin is.

Note that Fallows distinguishes between "structural" corruption and "personal" corruption. This is a good point which I've made from time to time myself. Orszag has simply moved from one position within The Money World to another. (And see part II). For those walking the corridors of money and power, there need not be any personal motivation, although there is always some. Such moves are as natural as breathing for those running the Empire. At an insightful level of abstraction, there is little actual difference between the OMB and Citigroup.

It is highly entertaining to watch these liberal political types squirm on the heels of Orszag's move. In addition to Fallows and Wilkinson, both Ezra Klein and James Kwak felt compelled to "explain" it and all the bad stuff it signifies, or perhaps I should say all the bad stuff it suggests.

Orszag's move poses an existential crisis for these people. They want to believe in the political system, and they take it very seriously indeed. They spend a substantial part of their lives commenting on America's political life. They make their living doing so. They are heavily vested in the primacy and righteousness of American politics. But then this Orszag guy turns around and joins Citigroup, making a mockery of everything they want to believe. Ultimately, Orszag mocked the very way they define themselves in the world. No wonder they are upset.

Wilkinson struggles mightily with the meaning of it all.

Mr Fallows hits the nail on the head, but what this structural injustice means, politically and ideologically, remains unclear. In my opinion, the seeming inevitability of Orszag-like migrations points to a potentially fatal tension within the progressive strand of liberal thought. Progressives laudably seek to oppose injustice by deploying government power as a countervailing force against the imagined opressive and exploitative tendencies of market institutions. Yet it seems that time and again market institutions find ways to use the government's regulatory and insurer-of-last-resort functions as countervailing forces against their competitors and, in the end, against the very public these functions were meant to protect.

Though he does not use the term, Wilkinson is referring to rent-seeking (see here and here) whereby private institutions (i.e. the TBTF banks) seek competitive advantage in the political arena. He then goes through a painful discussion (for him) in which he reassesses first principles about the balance of power in our so-called Democracy. Nothing less than the death of liberalism—what progessives espouse—is on the line. Wilkinson has only questions at the end—

So what is to be done about the structural injustice spotlighted by Peter Orszag's passage through the revolving golden door? How exactly do we tweak the unjust structure? If the system is rigged, how exactly do we unrig it? In which direction can we muddle without making matters worse?

Just off the top of my head, the first step to Consciousness is to read DOTE. And send money!

But seriously, how exactly do we tweak the unjust structure?  The short answer is: you don't. How exactly do we unrig the system?  You don't.  In which direction can we muddle without making matters worse?  There is no direction to go in. And so on.

Once a person has seen the truth—has gotten that all-important first clue—there are basically two ways to go. If you are a well-known and respected figure like James Fallows or Ezra Klein, once you have fully absorbed the truth and thus painfully acknowledged that your "successful" career is based on a lie, you can continue to do what you're doing, but with a radical change in tone. You can rail about corruption, become marginalized, and ultimately go down in flames. Alternatively, you can follow an entirely different life path which is more personally satisfying, thus leaving our corrupt politics behind.

Of course, there is a third alternative, which is the road most frequently traveled: you can forget that this unseemly thing happened and keep on doing what you're doing.

Mr. Fallows, Mr. Klein, Mr. Kwak, Mr. Wilkinson: the choice is yours.

Remedy du Jour -- December 25, 2010

Merry Christmas! I hesitate to say much today because anything I write will be unworthy and inadequate. Still, I think some things should be said.

Christmas is supposed to be a day of joy and peace, and thus serves as a poignant reminder that America has lost its way. Long-term unemployment and incessant poverty have a way of grinding people down. Americans must now learn to cope with massive economic uncertainty and many, like the 15 million who are jobless or the 43 million on food stamps, must constantly fend off overwhelming feelings of hopelessness and depression.

This is especially hard because we can readily see that those who are supposed to represent our best interests—those in Congress, the President, business leaders, others in authority—do not care about us. During the Great Depression, Franklin Delano Roosevelt spoke directly to the people through the radio. These "fireside chats" boosted morale, and gave people a sense that Roosevelt was on their side, that someone actually cared about them. And it was true—there was nothing fake about it.

Today the President is vacationing in Hawaii, "staying in a five-bedroom beachfront rental home (which goes for $42,000/week) in a town called Kailua, about 15 miles from Honolulu, far from the tourists who populate the center of the city"—and a million miles away from you. Justified feelings of being neglected or forgotten trouble those who are down and out in America.

So here's my wish that those who have been especially hard hit by the Great Recession and its aftermath have a happy holiday. My heart also goes out to those who are volunteering today at soup kitchens, homeless shelters, churches and anywhere else where human suffering is relieved, however briefly. This holiday provides a small opportunity to transcend our problems, if for only a day.

I'll start out with a couple Christmas things, but then thanks to Beethoven, we will joyfully leave this world behind. Enjoy.

 

 

 

 

Bankers And Beatitudes

Christmas eve is a good time to remember that December 25 is a religious holiday, not the end of a shopping frenzy. Unfortunately, those celebrating the latter greatly outnumber those celebrating the former.

Congress has been busy. In fact, they're looking a whole lot like Santa Clause. After dispersing 958 billiion dollars in tax breaks, Congress allocated a few billions for 9/11 first responders, but only after Jon Stewart had shamed and embarrassed them. Stewart should be commended—that is not easy to do. And they passed legislation that allowed gays to serve openly in the military. And then they ratified a nuclear arms treaty with Russia. All of these were bipartisan efforts. Congress is well pleased with itself. The nation is saved!

But let us return to the spiritual nature of Christmas. No money was found to save the 99ers, who will now be living with relatives or in poor houses or in cardboard boxes under bridges. And for a thousand other crimes, on Wall Street, in Afghanistan, in Iraq, in neighborhoods in San Diego, Tampa or Phoenix, in Washington, D.C. and all over this Great Land Of Ours, no one will pay the price. No one will be brought to justice. For the Wall Street bankers, the punishment for fraud was a bailout from the government. For the many innocent victims of these crimes, no such helping hand was extended.

This is the world we live in. We wish it were otherwise, and so have spiritual seekers of every stripe for thousands and thousands of years. In the western world, we seek God's embrace and a place to go—a Heaven—where we might live fulfilled and happy for eternity. We desire a peaceful, loving and just world. There would be no bankers in this place, no rip-off artists in pin-striped suits. Jesus of Nazareth stated our desires in the Gospel of Matthew, 5:3-12. These inspiring words are called the Beatitudes.

Blessed are the poor in spirit,
for theirs is the kingdom of heaven.

Blessed are they who mourn,
for they will be comforted.

Blessed are the meek,
for they will possess the earth.

Blessed are they who hunger and thirst for justice,
for they will be satisfied.

Blessed are the merciful,
for they will obtain mercy.

Blessed are the pure of heart,
for they will see God.

Blessed are the peacemakers,
for they will be called sons of God.

Blessed are they who suffer persecution for righteousness' sake,
for theirs is the kingdom of heaven.

Blessed are you when they insult you and persecute you
and utter every kind of evil against you (falsely) because of me.

Rejoice and be glad, for your reward will be great in heaven.
Thus they persecuted the prophets who were before you.

 

Invest In The USA? Why Bother?

Capital will flow to where there's money to be made. It's just that simple. America's "accomodative" monetary policy has spurred a new wave of corporate borrowing. And where are these multinational entities deploying these new investments? Not in the United States. That money is flowing into emerging economies. Bloomberg reported on the trend in Bernanke's 'Cheap Money' Stimulus Spurs Corporate Investment Outside U.S—

“You’re seeing leakage from quantitative easing,” said Stephen Wood, chief market strategist for Russell Investments in New York, which has $140 billion under management. “That leakage is going into emerging markets, commodity-based economies, commodities themselves and non-U.S. opportunities.”

U.S. corporations have issued more than $1.07 trillion in debt so far this year, according to data compiled by Bloomberg. Foreign companies also are tapping U.S. markets for cheap cash, selling $605.9 billion in debt through Nov. 15 compared with $371.8 billion for all of 2007, before the Fed cut the overnight bank-lending rate to a range of zero to 0.25 percent...

Corporate cash sloshing across U.S. borders is an unavoidable consequence of the Fed’s low-rate strategy, Wood said...

U.S. corporations’ overseas investment in the first half of 2010 exceeded the amount that foreign firms spent in the U.S. on factories and acquisitions at an annual rate of almost $220 billion, according to the Commerce Department.

In the first half of 2006, the last year before the financial crisis, the net flow favored the U.S. at an annual rate of about $30 billion.

Capital was still flowing into the United States in 2006. There were still many suckers to be fleeced. But that's all over now.

One fact making the rounds says that American corporations are sitting on tons of cash. It's true, as the Washington Post's Harold Myerson reported on December 15th—

President Obama is meeting with the chief executives of leading U.S. corporations Wednesday, plainly seeking a rapprochement with American big business. What's by no means apparent, however, is whether our leading CEOs have any intention of reaching a rapprochement with the American people...

When Obama sits down with the CEOs, he doubtless will extol a series of recent policy moves - the tax deal, the free-trade agreement with South Korea - that business largely welcomes. He then will urge his guests to create some jobs here in the United States.

American corporations, according to the Federal Reserve, are sitting on roughly $1.9 trillion in cash at a time when private-sector hiring is stuck at microscopic levels (50,000 net jobs created last month). Small business, dependent as it is on depressed domestic consumption, lacks the funds or incentives to resume hiring. Big businesses, by contrast, are rolling in dough and registering record profits. One reason for their success is they're selling abroad - the most recent survey of the Standard & Poor's index of our largest 500 publicly traded corporations shows that roughly 47 percent of their revenue comes from outside the country.

Dallas Fed President Richard Fisher wonders whether all this "leakage" is a good thing.

In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places. The Treasury International Capital, or TIC, data released yesterday morning show that foreign interest in buying Treasuries remains robust.

Yet, far too many of the large corporations I survey that are committing to fixed investment report that the most effective way to deploy cheap money raised in the current bond markets or in the form of loans from banks, beyond buying in stock or expanding dividends, is to invest it abroad where taxes are lower and governments are more eager to please.

This would not be of concern if foreign direct investment in the U.S. were offsetting this impulse. This year, however, net direct investment in the U.S. has been running at a pace that would exceed minus $200 billion, meaning outflows of foreign direct investment are exceeding inflows by a healthy margin.

We will have to watch the data as they unfold to see if this is momentary fillip or evidence of a broader trend. But I wonder: If others cotton to the view that the Fed is eager to Open (the) Spigot, as proclaimed on the front page of the Oct. 6 Wall Street Journal, might this not add to the uncertainty already created by the fiscal incontinence of Congress and the regulatory and rulemaking excesses about which businesses now complain?

As an important member of the Federal Reserve system, Fisher must wonder aloud whether capital outflows "might not add to the uncertainty already created by [name your favorite disaster]." He can not just come out and say that America has been bled dry. Always on the alert for new "consumers" to sell stuff to, multinational corporations are no longer willing to invest in this dry husk called the United States of America.

If we view America as an Empire in rapid decline, this behavior by the multinationals is perfectly understandable. Alas, few are willing to take that point of view seriously. Only in his "darkest moments" does Richard Fisher permit himself to consider the awful implications of the obvious. So he'll watch the data for now, and pass judgment later on whether Federal Reserve policy has "stimulated" every part of the world except its primary target.

Invest in the United States? Why bother? You can't get blood from a stone. One day all this is going to "end" in some sense. All we're lacking now are the gruesome details.

Bonus Video — CNBC talks about corporate profits.

In Jobs, Temporary Is Becoming Permanent

In the video included with my post David Stockman Tells It Like It Is, Aaron Task talked to the former Reagan OMB director about America's alleged economic recovery. In particular, Stockman had analyzed the BLS jobs numbers and found them wanting—

... the headline [for the November jobs report] was weak, but the underlying detail was even weaker... we haven't really had a jobs recovery. And the way you see that is to recognize we have a bifurcated job market. At the bottom there are 65 million jobs, what you might call breadwinner jobs, the middle income economy (in construction, manufacturing, etc.)..

Those 65 million jobs pay $45,000-50,000 a year, you can support a family, you can get by, maybe save a little bit. How many jobs in that sector, that's half of the 130 million we have in the non-farm payroll ... were created in in November? Zero.  How many jobs did we create in that group since last December? Over the 11 months of the so-called recovery? ... Zero.  How many jobs in the middle-income economy did we lose from the peak in December, 2007 to the bottom in December, 2009 ... 6.5 million, 10% of all the jobs in that sector...

[My note: I transcribed Stockton's remarks. The transcript is accurate but not always literal. I have also included the latest U.S. median income data from the Census Bureau below.]

Stockman then points out that America's private-sector created no breadwinner jobs between the year 2000 and December, 2007. Where are the new jobs?

All the jobs are being created in what I call the part-time economy. Restaurants, bars, retail sales clerks, repair clerks, maids, and temp employment agencies... The problem there is that the average compensation for thoses jobs according to the BLS is $20,000, average hours, 26-67 hours, they're not full-time regular jobs, you can't support a family... 80% of the jobs that have been created (since December, 2009) have been in that category...

Now the New York Times has documented what we might call the temporary job economy. The quote and graphic are from Weighing Costs, Companies Favor Temporary Help—

Temporary workers are starting to look, well, not so temporary.

Despite a surge this year in short-term hiring, many American businesses are still skittish about making those jobs permanent, raising concerns among workers and some labor experts that temporary employees will become a larger, more entrenched part of the work force.

This is bad news for the nation’s workers, who are already facing one of the bleakest labor markets in recent history. Temporary employees generally receive fewer benefits or none at all, and have virtually no job security. It is harder for them to save. And it is much more difficult for them to develop a career arc while hopping from boss to boss...

This year, companies have hired temporary workers in significant numbers. In November, they accounted for 80 percent of the 50,000 jobs added by private sector employers, according to the Labor Department. Since the beginning of the year, employers have added a net 307,000 temporary workers, more than a quarter of the 1.17 million private sector jobs added in total...

To the more than 15 million people who are still out of work, those with temporary jobs are lucky. With concerns mounting that the long-term unemployed are becoming increasingly unemployable, those in temporary jobs are at least maintaining ties to the working world...

This year, 26.2 percent of all jobs added by private sector employers were temporary positions. In the comparable period after the recession of the early 1990s, only 10.9 percent of the private sector jobs added were temporary, and after the downturn earlier this decade, just 7.1 percent were temporary [graph left]

Temporary employees still make up a small fraction of total employees, but that segment has been rising steeply over the past year. “It hints at a structural change,” said Allen L. Sinai, chief global economist at the consulting firm Decision Economics. Temp workers “are becoming an ever more important part of what is going on,” he said.

If this shift in hiring patterns does indeed reflect a "structural change" in America's economy, and I believe it does, then jumping from one temp job to another will become a permanent state of affairs for many American workers. Whereas Stockton's "breadwinners" have a modicum of job security, pay somewhere near the nation's median wage and some benefits, these new workers will have no job security, pay well below (about half of) the median wage, and no benefits.

When I talk about the ongoing destruction of our Middle Class and poor people as America's biggest product, these kinds of shifts in hiring—or simply no hiring at all—form the mechanism which drives these deplorable trends. This is why I do not tolerate cheerful bullshit about where America is headed. And neither should you.