Why Won’t “Fiscal Hawks” Discuss The Real Issues?

By Simon Johnson and James Kwak

During this hot summer of fitful economic growth, high unemployment and an oil slick visible from space, Washington is obsessed with…deficits. The resurgence of this periodic fascination is not entirely surprising, given our historically large current deficits. According to the Congressional Budget Office, the 2010 deficit will come in at $1.3 trillion, almost 10 percent of our gross domestic product and, along with the deficit of 2009, the highest level since World War II.

Imminent fiscal collapse has even become a theme for literary novelists – in Gary Shteyngart’s “Super Sad True Love Story,” American fiscal policy has become a bad joke and the Chinese threaten to stop buying our government debt. And the overextension of government is again a big theme; sales of Ayn Rand’s “Atlas Shrugged” are up sharply, although the book was first published more than 50 years ago (it is in and out of the Top 100 list on Amazon).

Deficit fears do have a real foundation. But it is not, as some assume, simply that government spending is out of control. Our current deficits result from the recent financial crisis and recession, and they will recede as the economy recovers. But the federal government also faces a long-term, structural gap between its revenues and its spending commitments – a gap due to policies established decades ago.

To see where our current deficits come from, we need only look at the budget office’s baseline projections. In January 2008, the budget office projected that total government debt in private hands – the best measure of what the government owes – would fall to $5.1 trillion by 2018 (23 percent of GDP). As of January 2010, the budget office now projects that debt will rise to $13.7 trillion (more than 65 percent of GDP) – a difference of $8.6 trillion. Of this change, 57 percent is due to decreased tax revenues resulting from the financial crisis and recession; 17 percent from increases in discretionary spending, much of it the stimulus package necessitated by the financial crisis; and another 14 percent to increased interest payments on the debt – because we now have more debt.

The lessons are obvious. First, we need to restore the economy to healthy growth. Here the latest news is mildly encouraging – the world economy is growing, although not as fast as we would like. But the financial crisis will leave a scar on our economy. Long-term unemployment will permanently reduce the skills of too many workers, cutting productivity and increasing spending on the social safety net.

Second, we need to protect our economy from the next financial crisis. The Dodd-Frank financial reform act is a modest step in that direction, but it is unlikely to solve the problem of systemic risk. As long as massive financial institutions continue to take on huge amounts of risk, there remains a strong possibility that governments will once again face unexpected liabilities and collapsing tax revenues in a financial crisis – pushing up debt by another 40 percent or so of GDP. Yet discussion of this risk was largely absent from the recent Senate debate on financial regulation.

Financial crisis and recession are only half the story. The other half is long-term entitlements. Under the Congressional Budget Office’s “alternative fiscal scenario,” which includes policy changes that are politically likely, government debt in private hands will grow to 185 percent of GDP by 2035 as Social Security, Medicare, Medicaid and other health care programs grow to consume almost all tax revenues.

This should not be a surprise. In 2000, the budget office had already projected that these programs would grow to more than 16 percent of GDP by 2040 – a figure virtually identical to current estimates. This was predictable because it rested on two simple trends: changing demographics and, more importantly, high health-care cost inflation.

For many commentators, the only possible response is immediate austerity – the course being taken in Britain and parts of the euro zone. Already the national debt is being used as a hammer to beat down any proposed government spending, no matter what its merits. If we continue to spend, the argument goes, markets will lose faith in our ability to repay our debts, interest rates will skyrocket, the dollar will collapse and our way of life will be at an end.

While this argument is plausible in the abstract, there is no reason for panic. For starters, the Treasury Department can currently borrow money at historically low interest rates. This is no surprise. Investors around the world like saving in a safe currency, the dollar has traditionally been seen as the safest of currencies and recent developments in Europe and the rest of the world have done nothing to change that.

It is true that markets can suddenly lose confidence in a country, with severe economic repercussions. But there is no magical threshold that suddenly makes a country a poor credit risk; Japan’s net government debt relative to its economy is roughly at Greek levels, yet Japan can still borrow money cheaply. A country’s ability to borrow is determined by its economic fundamentals, its position in the international economy and the credibility of its political system relative to other systems.

So while an extra dollar of spending today is an extra dollar (plus interest) of debt later, what really matters are policies that affect taxes or spending year after year. In contrast, $34 billion for extended unemployment benefits – a temporary program that will become smaller as unemployment falls – has no appreciable impact on our structural deficit.

What do matter are taxes and entitlements. Therefore, the coming battle over the Bush tax cuts is of real importance. According to the Congressional Budget Office, extending the Bush tax cuts would add $2.3 trillion to the total 2018 debt. The single biggest step our government could take this year to address the structural deficit would be to let the tax cuts expire. And a credible commitment to long-term fiscal sustainability should reduce interest rates today, helping to stimulate the economy.

Critics say that this amounts to increasing taxes at a time of high unemployment, and that instead the tax cuts should be extended as a stimulus measure. This overlooks the fact that tax cuts are an inefficient form of stimulus, because many people choose to save their additional income instead of spending it.

If the goal is to boost growth and employment immediately, it would be better to let the tax cuts expire and dedicate some of the increased revenue to real stimulus programs. Alternatively, if some tax cuts are extended – as it seems likely that at least those for the middle class will be – there should be provisions to eliminate them automatically when unemployment falls to a preset level. 

This post appeared today on the NYT.com’s Economix blog; it is used here with permission.  If you would like to reproduce the entire piece, please contact the New York Times.

208 thoughts on “Why Won’t “Fiscal Hawks” Discuss The Real Issues?

  1. The current debt and deficit hysteria is 100% beside the point. Per se debt and deficit to GDP ratios are meaningless. These are endogenous figures which simply mirror what is going on in the real economy. This is a matter of accounting and accounting identities won’t go away even if neo-classical economists wish so and dish out their fairy tales.

    If the economy contracts the automatic stabilizers kick in (increase in total unemployment benefit payments and decreased tax revenues) and vice versa. The stabilizers work anti-cyclical. And if the private sector wishes to de-leverage and save all the government should do is accommodate this desire, which means more debt given that the external sector is in deficit.

    Last but not least the US government is the sovereign monopoly issuer of its free-floating, non-convertible FIAT currency, the US$. By definition the US government faces no solvency risk. The only risk is inflation stemming from nominal demand exceeding real output capacity.

    If financial markets don’t like treasuries anymore so what? The government spends by crediting bank accounts. To issue debt $:$ for its spending is a voluntary constraint. Beside where will financial markets go? US treasuries are risk-free interest bearing financial assets. If the US government stops issuing debt the first thing which will happen is, that hoards of barbarian Wall Street lobbyists will arrive at the gate of Congress demanding their corporate welfare = treasuries.

    CBO latest report on “Social Security, Medicare, Medicaid” is mainstream rubbish. To quote Bill Mitchell: “It reads like an undergraduate essay on steroids where the primary source material was Mankiw’s Principles of Economics. It is totally mainstream in its macroeconomics and delivers an almost juvenile representation of what is going on.”

    More here: http://bilbo.economicoutlook.net/blog/?p=11057

    PS: I’m a little bit disappointed that Johnson and Kwak subscribe to this scare-mongering propaganda.

  2. Oh, for heaven’s sake. Removing the wage cap on Social Security will make that program financially robust for 75 years. Improving Medicare and extending it to all Americans is the ONLY way to control health care costs AND quality.

    Withdraw from Iraq and Afghanistan, slash the military budget, design and build a decent power grid for the 21st century.

    This country now works just fine for the wealthiest 5 percent of the population, who have grabbed 95 percent of the money, land and resources. Not satisfied with that, they’re now going after the 5 percent now shared by the rest of us. Let’s hang on like hell to our 5 percent.

    For longer-term planning, check out http://www.steadystate.org.

  3. All this just obfuscates the criminal war upon the people the elites are furiously waging. It’s becoming ever more untenable to have such “analysis”.

    Was it common during WWII in countries invaded by Germany to analyze the economic factors which affected Hitler’s pace and mode of warfare?

    That’s what’s happening when any analysis says anything about “austerity” other than:

    “Austerity” is a program of plunder, of robbery. It’s the next step wherever the Bailout no longer provides sufficient plunder returns. All those who advocate it are conscious malevolent criminals, plain and simple. They’re waging criminal war upon the people. They should be fought accordingly and dealt with accordingly, in exactly the same way as any violent foreign invader. They ARE such a foreign aggressor, a cancer from within which must be cut out of us with all necessary rigor.

  4. Onubre Einz, who follows the American economy for the French ‘Le Monde” ( http://criseusa.blog.lemonde.fr )
    looks at the problem from a different angle, not to be forgotten: US’GDP grew Q2 by $ 151 billion,
    At the same time, the American federal debt grew by USD 486 billion and the fiscal deficit by USD 286 billion.In order to produce one dollar growth contribution, the Government thus had to ‘make use’of USD 2,83 of financial deficit and USD 1,89 of fiscal deficit

  5. I agree with your larger point, but I wish people would stop talking about “Social Security, Medicare and Medicaid” in the same breath as though their problems are the same. Projected growth in Social Security spending is miniscule compared to the growth of Medicare and Medicaid. Yet every attempt at controlling costs has been met with cries of “death panels.” That’s where the hawks’ lack of seriousness is most apparent, in my oppinion.

  6. Many things I want to express here and not sure if I can do it succinctly.

    First I believe the vast majority of the problems we are looking at right now were created by Ronald Reagan. When you look at 14% of a budget just spent on interest payments alone it is really a monstrous amount. That falls directly at the feet of Ronald Reagan, and I even blame Ronald Reagan more for this than “W” Bush. Any illiterate teabagger who questions that just needs look at the numbers/facts shown at this link, and I feel confident even a dimwit teabagger could grasp it looking at the graphs.

    Second, I look at current deficit spending is best looked at in this analogy, which I believe to be a relatively proper analogy:
    “You” are America. “You”, “Mr. America” have a family to feed and bills to pay for now and the future. You (Mr. America) are going to a job interview or maybe your first day at work. If you miss it, you know you will be out of work and cannot pay your bills. You attempt to start your car in the driveway and realize you’ve made a terrible terrible mistake. No gas in your car. Now you are faced with a choice: Ask your neighbor if you can siphon half the gas out of his car and put it into your car and give him an IOU of $20. Or say to yourself that adding another $20 to your family’s debt burden (current deficit) is the last thing you should do in your current situation, and give up on that job. What should you do??? I think the choice is obvious you’re going to siphon that gas come hell or high water. The siphoned/borrowed Gas here obviously represents targeted spending in growth industries and temporary stimulus with a view/perspective to the temporary stimulus’s long-term economic impact.

    Now, that being said, I do not think QE is the answer. I think targeted fiscal spending is a much better way than “QE” spending which goes to corrupt bankers to sit in their reserves. And I think it is absolutely asinine for Larry Summers to give Obama this advice (of QE), if that is in fact what he is doing now.

    I also want to say that I totally agree with Mr. Johnson and Mr. Kwak that the tax cuts should expire, at least for those in the higher income brackets. I think Jennifer Taub explains this quite well at this link:

  7. Any deficit reduction analysis that does not include both the revenue and the expenditure sides of the federal balance sheet is folly. All businesses and individuals always look to both sides of the balance sheets to balance their budgets. Each then considers ways to increase revenue and decrease spending.

    Focusing on SS and Medicare alone is a deliberate attempt to destroy the programs under the guise of deficit reduction. None of the commissioners are prepared to seriously look at tax entitlements, or federal contracting entitlements.

    Deficit reduction commission, what a joke.

  8. The problem in this ‘analysis’ is Johnson/Kwak’s unhealthy obsession with ‘financial institutions taking risk’ as the core issue that needs to be resolved.

    laughable is the reasoning that 50% of the lesson learned is that we need to restore growth and other 50% is the need to put banks out of business. (First and Second above..)

    Banks taking risk = debt going to 40% of GDP?? Ha Ha…come on, who are you trying to make a fool of? no wonder nobody is reading their book.

    to an educated person, not a single financial crisis in recent history of financial crises can be attributed to ‘excessive risk taking’
    – 2007 Credit Crunch = American population excessive borrowing to live the american dream and make a quick buck from flipping a home
    – 2010 Sovereign Debt crisis = European governments overspending
    – 2001 financial crisis = technology bubble
    – 1998 = Russia defaults on debt
    – 1997 = Asian government currency crisis
    – 1994 = Mexico defaults on debt

    – Johnson, Kwak = undereducated from too much time in school. At least Kwak is trying to reform himself by getting an internship. There is hope.

  9. Isn’t it odd that the only time Republicans are concerned about the federal deficit and the debt is when democrats are spending money? When the Republicans were in power, they claimed that deficits did not matter. Then they went on a reckless borrowing and spending spree. Where was their concern for their grandchildren who now must pay the bill, you know the grandchildren that the democrats are supposedly stealing from?

  10. “The Beltway priority on cutting Social Security benefits before Medicare simply reflects that Social Security is paid to the beneficiaries (retirees, survivors, etc.) themselves, whereas the “beneficiary” of Medicare payments is really the health care industry, about whom the DC establishment must think twice before challenging.”


  11. And they are, at least in one instance, quite literally foreign – Israel – with American lobbies threatening and bullying on their behalf. Where the peoples’ interest is decidedly in lasting peace, these scum shill endlessly for war with Iran and anyone else that might stand in the way of Israel’s expansionist designs. They are indeed foreign bodies like cancer awaiting the people’s scalpel. I say prepare the operating room.

  12. Yeah, I don’t know why you opted to join the Social Security fearmonger gang. You might as well have said that Social Security, Medicare, Medicaid, floor polishing for the capitol building, and coffee served at Treasury Department meetings will consume all tax revenus

  13. On the fiscal worries from “high health-care cost inflation” —

    When economists refer to “inflation,” they are usually referring to BLS-generated figures. My understanding, mostly from Dean Baker’s book, Getting Prices Right,” is that most of the cost increases we see in health care are attributed to quality improvements as opposed to inflation.

    From that perspective, it becomes more a question of prioritizing spending –whether to invest new spending on higher quality, more expensive, health care– than a budget issue framed around maintaining entititlements.

  14. Only the simple can place blame on one person’s policies. Clearly the best place to gather information is the Huffington Post.
    Tax cuts let them expire as we start to see our economy turn around, they must expire.
    Mr. Johnson, I ask you how many times were we told that the Stimulus Bill co authored by the Apollo Alliance would provide the needed funds for the teachers? I have counted 6 times. Was this another to big to fail situation?
    We the American people must demand these clowns stop, no new spending and no new laws.
    How can anyone say that a the financial reform bill is anything but a serious joke?
    Mr. Johnson in case you missed it Mr. Dodd did in fact address the most important issue in his bill he has hiring guidelines. This is exactly what we needed.
    What great work, really solid work by these politicians.

  15. I was thinking about the lead content in children’s “bounce houses” and whatever in the drywall and maybe even in our imported china-ware. Have we become victims of our greed for cheap? A society’s values are reflected in it’s economy. The deficit hawks are driving it into the ground.

  16. Was there any calculation of the Bush tax cuts effects on Clinton’s surplus before voting on it?

  17. Back in the 70’s I questioned an entrepreneur on her spending. Her reply, “You have to spend money to make money”. Has that changed?

  18. >>Ha Ha…come on, who are you trying to make a fool of? no wonder nobody is reading their book.

    I dunno – – I tried to reserve their book it the library and I was 37th on the wait list.

  19. What point is there in trying to justify the position of one of these bands of jackels over the other? I mean you perceive a material difference between these two varieties of pus? I know its difficult to abandon the illusion that the system really works and that it all simply a question of voting for the right party, but can’t you at least try?

  20. We also have a short- to medium-term structural deficit, the result of credit-driven malinvestment and artificial consumer demand. The bubble in tax revenues isn’t going to reflate either. The composition of employment 5, 10, or 20 years will be substantially different from now–less finance and retail, I’d wager, and the adjustment won’t occur overnight. Don’t ask the CBO estimates to do things they weren’t designed for.

  21. Yes, this is a key point. Those who focus only on spending cuts don’t really care about deficits–they are the same ones who exploded the deficits through irresponsible tax cuts and unfunded wars. They are ideologically opposed to the programs they now seek to cut and are using the deficits as a pretext.

  22. It is very difficult to know, in health care, when we are seeing a real quality improvement, as opposed to just “innovation.”

    For example, plain film mammograms are largely being replaced by digital mammograms at this time. Is this a quality improvement? Certainly digital images are easier to store and transmit. And the images are crisper and easier for radiologists to read. But in terms of the point of doing mammograms–detecting breast cancers–there is merely suggestive evidence that they do this better for women age 40-49, and equally good or better evidence that they are no better at all and possibly somewhat worse for women age 50 and above. (And since the vast majority of breast cancers occur in women over the age of 50, a decrement in detection in that age group outweighs an increase in detection among the younger women.)

    Interestingly, although the actual costs of producing and using digital mammograms are about the same as those of film mammograms, Congress directed Medicare and Medicaid to pay nearly twice as much for them (and most private insurers go along). So the health care industry is making a bundle off this transition, and it is really unclear whether the net effect on cancer detection is positive or negative. Meanwhile, government programs that provide free mammograms to women who can’t afford them are now trying to figure out who to drop from their programs given that they must now pay a higher price per mammogram. The impact of that on breast cancer detection will almost certainly be adverse (though if done carefully it can be minimized).

    Many innovations in health care are like this–though from the media you would think we have just one miraculous breakthrough after another.

    If you look carefully at patterns of health care spending, I think you will find that most of the current growth consists of expanding the application of existing (or slightly innovated) tests and treatments to more people for whom the benefit is questionable (or even where it is known to be harmful), along with price increases.

    If health care spending only grew in proportion to quality improvement, it wouldn’t be a problem.

  23. I can’t justify it. My question is can they? Reminds me of the end of a college roomate’s argument, ” I’m right, your wrong that’s all”,as he stormed out of the room.
    And as to your question,”I know its difficult to abandon the illusion that the system really works and that itS all simply a question of voting for the right party, but…”
    I resigned my support three months after the election, saying,”Your losing me. “, nothing has changed.

  24. During World War II I do not think that there was much thought devoted to the federal budget and debt in the face of an enemy devoted to crushing the USA. If survival is paramount, the debt and deficit are meaningless.

  25. Curious Simon J Needs an Internship that you continue to brute the canard that the 2007-8 crisis was the result of “American population excessive borrowing to live the american dream and make a quick buck from flipping a home”, and somehow ignore the criminal activities and PONZI schemes conjured by the predatorclass finance oligarchs in the form of toxic, unregulated derivatives products which ballooned to a $600Trillion market of worthless paper and fairy dust.

    Word Russ. The predatorclass is the arch enemy of, – and prosecuting a war on America’s poor and middleclass.

    Socalled politicians are owned controlled spaniels of the predatorclass.

    The judicial system forcefully persecutes thehavenots, and delicately ignores, cloaks, or excuses thehaves.

    That thing they call the Constitution, and the peoples former rights, freedoms’ and privileges are now torn, tattered, goddam pieces of paper.

    Our corporate leaders are sociopaths, a predatorclass den of vipers and thieves.

    There is only one hope, and only one way for the poor and middleclass to restore our former rights, freedoms, and privileges and some vestige of our once more perfect union – the people must declare and prosecute war on the predatorclass who has declared and is prosecuting a war on us.

  26. Ian wrote:

    “Way too much hyperbole in this particular discussion.”

    ” One cannot make an omelet without breaking eggs… but it is amazing how many eggs one can break without making a decent omelet. …”

  27. TonyForesta quoted:

    Steve Keen, Associate Professor of Economics & Finance @ University of Western Sydney

    AUGUST 12, 2010 – excerpt

    “The record $6 billion profit that the Commonwealth Bank is expected to announce today is a sign of an economy that has been taken over by Ponzi finance.

    Fundamentally, banks make money by creating debt, and the amount of debt we’ve been enticed into taking on is the sign of a sick economy rather than a healthy one.

    The level of private debt that is actually needed to support business and maintain home ownership at historic levels (ownership levels have fallen over recent years!) is possibly as little as one sixth the current level.”

  28. “If the goal is to boost growth and employment immediately, it would be better to let the tax cuts expire and dedicate some of the increased revenue to real stimulus programs.”

    Okay, you take money from people, route it through Washington, and dole it out to politically connected people.

    Yeah, that should work.

  29. Give me a break. Rolling out “stimulus” money onto politically connected people? Like the Corporate elite do today?

    “Stimulus” money is needed to offset bad consquences state cuts and rebuilding infrastructure(because the end of financial crisis, infrastructure is generally in bad shape.

  30. I agree, the oligarchs knew if the government forced them to cover the contracts back in the late 90’s when the derivative thing started at request of the billionaire club.

    Clinton knew this would probably happen along with a VERY select few in Congress, but with Clinton a lame duck and any veto easily overridden, this through the speculation of these contracts into the megasphere and really are the core of fear of liquidating the mortgage assets, which needs to be done.

  31. Why Won’t “Fiscal Hawks” Discuss The Real Issues? Why indeed. It’s hard to believe that a two-year senator from Chicago with a background in “community organizing” presides over this elaborate and opaque system of imperial rule.

    He doesn’t, of course. The real leaders remain hidden behind the cloak of democratic government and all of Washington’s phony institutions. Obama is merely a public relations hologram, a friendly face that conceals the machinations of a global Mafia.

    Other people–whoever they may be–control the levers of power moving the pieces as needed to assure the best outcome for themselves and their constituents. Our system of government has been corrupted and until this is addressed head on one way or the other, no amount of screaming or holding of ones breath till they turn blue is going to change a damn thing unless WE THE PEOPLE make things happen as outlined in the Declaration Of Independence. We have the legitimate and legal right to change government.

    The dollar has been in the process of self-destruction since that clever Chinese agent Richard Nixon defaulted on the US gold obligations in 1971, and of course that Sino-Soviet agent Ronald Reagan who convinced the nation that ‘deficits don’t matter’ if it involved tax cuts for the wealthy. And the coup de grâce has been delivered by Wall Street and their crony capitalists in the government as collateral damage in the reckless promotion of self interest, corruption and fraud.

    Want to change things for the better in this country? Recall the entire government, hit the reset button and try as best as one can, not to screw it up again.

  32. If another economist cites CBO numbers, and only CBO numbers I am going to howl. What the academics neglect, but those of who lead actual lives cannot, is that the crisis at the state and local level is as bad or worse than the federal numbers suggest. And that is without layering in the unfunded pension obligations.

    Can someone please look at the totality of the problem? I suspect the academics don’t have the necessary spreadsheets.

    And btw, please get off the break up the big banks or we are all going to die a horrible death schtick. You lost. Get over it. We still have Basel III and however the regs come out.

  33. No the problem is not the debt the problem is how the spending occurs, and that the US is turning from a market driven economy into a bureaucracy driven one.

    If a banker wants to give a loan to a small business or an entrepreneur, then he needs to put up 8 percent in capital but, if he instead lends that money to the government, so that it is some bureaucrat who finds the small business or entrepreneur that should be stimulated, then he needs zero capital. This is plain crazy, but this is not something that the owners in this pro Basel-line blog care to discuss.

  34. Re: @ RJ___I’d rather see it doled out to some “99”er – about to find himself/herself, and family (through no fault of his/her own?) sleeping in the gutter than some (extented tax cut, this!)fat cat buying another villa off the isle of Crete. PS. We all know the politics involved here…but I’m willing to turn my head for this (the motives are but boiled down carrion for DC’s prime-cut feeding frenzy)…ill-gotten they be – “whatever flavor de`jour of humanity” for the salvations of the many souls whose very lives depend upon it, however this tragic “Passion Play” – plays out? Thanks Simon, and James :^)

  35. An article posted at Bloomberg two days ago really fleshed out the problem as it is and deserves a good read by anyone wishing to understand where we are.

    U.S. Is Bankrupt and We Don’t Even Know
    By Laurence Kotlikoff
    Aug 10, 2010

    Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

    What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

    Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

    But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

    The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

    Kotlikoff is a professor of economics at Boston University.

  36. Last I heard, the current administration along with their Wall Street lobbyists were fighting Basel III tooth and nail because it will literally end their current game of corruption. Imagine, total transparency, no more off ledger transaction while all such transactions are fully taxable. That might just put a bit of a chink in a number of black op’s especially the building of seven new bases in Columbia. Nothing like keeping a region unstable through our continuous meddling in others affairs.

  37. who are these 5% of people?

    steadystate.org is interesting.
    I agree that endless growth is probably not realistic. I think all the worlds growth in the 1900’s was due to industrial revolution and fossil fuels. 65,000 man hours of labor in a barrel. more and more use of fossil fuels provided LOTS of wealth. since then growth has been smoke an mirrors driven by boom bust of vaporware .COM and then financial/ housing with all their “innovation.” it’s all perpetual machines!!! no signifcant wealth actually being created, except for using more fossil fuels.

  38. i think it’s george washington’s fault. without him there would be no United States of America.

  39. sorry for the stupid comment. i read the huffington… you’re right. but why did gross federal debt continue going up from 92 to 2000 so much? It looks like Clinton didnt’ slow down much until 2000.

    that graph really makes W look awful with his additions to the debt too! sorry I was one of the idiots that voted for him. I just didn’t like the internet inventor dork.

  40. And so, James and Simon, what will the much ballyhooed Deficit Commission’s recommendations be? They are going to target entitlements and discretionary spending. They will also suggest that increased taxation will have to be on the table. These are good ideas, but none of them will have any stimulative effect in the short run. And, they won’t suggest going back to the tax rates for the wealthy that were in effect from the end of WWII until Reagan cut the high end rate back to 50% in the early 80’s. They won’t want to cut the military budget by 50%. I know that this sounds like a lot, but our policy of military Keynesianism obviously hasn’t worked. We now have nearly 800 military bases on foreign soil. Oddly enough, contrary to what policy wonks tell us and politicians argue, these bases do not, in fact, lead to greater national security. Many of them are seen by the rest of the world as invasive and imperialistic. And they are right. Look at the recent ruckus over our massive presence in Okinawa. The Japanese government enjoys the revenues and rent payments that these bases represent. The indiginous peoples resent the heck out of them. But, will our policy elite consider closing foreign bases? Never, until we the people make them rethink things. Oh, recently Robert Gates announced that the Pentagon will cut its budget by some 100 billion, eliminating many civilian jobs, and consolidating duplicative commands. This is a drop in the bucket. Meanwhile they are building another eight perminent bases in Iraq for after we “bring home the troops.”

    It’s time to put everything on the table, including far higher taxes for the wealthy. It’s time to seriously talk about completely trashing the tax code and moving to a simple flat tax of 20% with a personal exemption of $60,000 and no home mortage deduction (after all the foreclosures are over, the number of people who derive significant benefits from this will drop dramatically). It’s time to consolidate the duplicative government offices, especially regulators, and social programs. It’s time to repeal the health care act and go to straight single payer or a European model, after all, these programs are well developed in other countries and have proven to be major successes compared to what we had or will have under reform. If this issue isn’t seriously addressed, probably nothing else will matter.

    But, Simon, as you have pointed out, we are living in a plutocracy, and much of what I have mentioned and which you advocate does not pass the test with the oligarchs who control our lives by owning our government. This election cycle will be interesting. If a new Congress can’t function better, then Larry Lessig’s idea of changing elections an lobbies by amending the Constitution by national convention may take root and be the next best option, so that we don’t have a major revolution. The Tea Party is the tip of the American public frustration iceberg. Underlying that is hordes of disenfranchised and angry people. It wouldn’t take much to cause the entire system to fall appart if serious change doesn’t happen soon.

  41. This past Sunday, 60 minutes did a very informative peace on end of life treatment costs and how they have gotten completely out of control. It’s stunning that families are not willing to use hospice services, that massive numbers of the dying spend a lot of they end days in the ICU. I don’t know about anyone else, but I just want them to pull the plug when I get to that point. I have a living will. Just let me go. This is not about death panels, this is about basic human dignity and basic human common sense. Death is an irrefutable fact of life. Prolonging life under circumstances where life is absurdly painful and difficult, and allowing hospitals to run endless expensive tests and do endless expensive procedures on grandma in the last couple months of her life is absurd. I’m not heartless. In two months, we’ll be at her funeral, and we needn’t cost taxpayers thousands unnecessarily along the way. Keep her comfortable and let her go when it’s her time. But, there was so much hue and cry from the Republicans about death panels, Medicare doesn’t even cover the cost of end-of-life counseling. Is that the most absurd thing ever?!!!

  42. Re: @ Barbara___”should we resurrect `abel to raze cane` with this prolific babel of conjugal refutation – this softly spoken shard of deception…as the `King of the Beast` devours the offspring of his new harem – justified only by the shaman’s stylish triumph of mystical survival?” PS. How many times can we be brought to slaughter.

  43. Re: @ Andrew___Social Security ,and Medicare were taxed and paid for…”Future” Entitlement Programs, by the american taxpayer, period! It is only Medicaid that is a bonafide “Welfare Entitlement Program”! Sad…sad to say that the “Great Society” Socialist Lnndon (LBJ never gave a darn about the common man..to this day I’m dumbfounded by this change in conscious?) Johnson…created this looped-holed travesty – this manual for navigating the system now prophesying our demise.

  44. “This is the way the world ends
    Not with a bang but a whimper.”

    T. S. Eliot (1888 – 1965), The Hollow Men

  45. Great quote, Anonymous. Here’s another favorite:

    “If the doors of perception were cleansed, everything would appear as it is – infinite”. –William Blake

    And here’s something more germane:

    “Taleb Says Government Bonds to Collapse, Avoid Stocks”


    Nassim Nicholas Taleb, who warned that unforeseen events can roil markets in “The Black Swan,” said he is “betting on the collapse of government bonds” and that investors should avoid stocks.

    “I’m very pessimistic,” he said at the Discovery Invest Leadership Summit in Johannesburg today. “By staying in cash or hedging against inflation, you won’t regret it in two years.”


  46. “Are You Ready for the Next Crisis?”


    “Evidence that the US is a failed state is piling up faster than I can record it.

    One conclusive hallmark of a failed state is that the crooks are inside the government, using government to protect and to advance their private interests.

    Another conclusive hallmark is rising income inequality as the insiders manipulate economic policy for their enrichment at the expense of everyone else.

    Income inequality in the US is now the most extreme of all countries. The 2008 OECD report, “Income Distribution and Poverty in OECD Countries,” concludes that the US is the country with the highest inequality and poverty rate across the OECD and that since 2000 nowhere has there been such a stark rise in income inequality as in the US. The OECD finds that in the US the distribution of wealth is even more unequal than the distribution of income.”


  47. At the risk of putting words in RJ’s mouth, I think that’s exactly his point. Money spent by Washington tends to go to the politically connected (which is mostly the Corporate Elite plus a few assorted others). Look at the “stimulus bill.” Some of it got spent in the real economy, but a good piece of it was (from a stimulus perspective) wasted on tax cuts for rich people and assorted other boondogles for the elite.

    If we could get another stimulus bill passed, my guess is that this one would be even more tilted to the rich than the last one and would end up doing even less good than the first one.

    When all is said and done, nobody in Washington, not Obama, not the Democrats, and certainly not the Republicans, gives a rat’s behind about the unemployed and working people. Only if the wealthy get a cut can anything happen now.

  48. “Post-Anti-Americanism
    Europe can’t even be bothered to hate America any more”


    And when you read about America in European newspapers, what you are likely to find is a tone bordering on pity. The U.S. is depicted as a fraying empire of obesity, ignorance, debt, gridlock, stagnation, and mindless war. Sure, the iPad is cool, but it is evidence of what America was, not what it will be again. The stories are not angry, accusatory, or even ideological. It’s worse: they are condescendingly elegiac.


  49. Here’s more on Reagan of interest: http://www.multinationalmonitor.org/hyper/issues/1984/08/reagan.html
    The Reagan Administration and Multinationals
    Pharmaceutical Exports
    Sanctioning Hazardous Exports
    The U.N. and the World’s Consumers
    The Foreign Corrupt Practices Act
    Tax Havens
    The IMF and Bigt Banks
    The FTC, GM and Toyota
    The SEC
    The Maritime Cartel

    But I think this account of some specific Nixon/Kissinger historic dynamics might be of interest,… they precede Reagan and were power politics personified:


    also see:
    Scenes From the Global Class War By MICHAEL HUDSON counterpunch October 27, 2008

    (especially the section “Financing the U.S. “trickle-down” economy from below”)

    The Lessons of the Savings-and-Loan Crisis
    William Black, Associate Professor, Economics and Law,
    University of Missouri, Kansas City
    Monday, April 13, 2009

    AN INTERVIEW WITH WILLIAM BLACK: The current bank scandal dwarfs

    the 1980s savings-and-loan crisis — and could destroy the Obama presidency.

  50. If history and human nature, assuming it hasn’t changed in the last 5 minutes, have shown me — consistently; I am afraid the people will scream BASTA after it’s far too late.

  51. Don’t worry. Europe is in an even greater pile-o-dung. And they are willfully continuing to wallow in it.

    If PhD dissertations were evaluated with the same level of integrity and rigor applied to the European banks, in the so-called stress test, than most 3rd [U.S.] grade students could easily “earn” those letters behind their names.

  52. If you can make money with low interest rates, that also lower your debt service, why bother producing anything or create jobs?

  53. J&K: “Our current deficits result from the recent financial crisis and recession, and they will recede as the economy recovers.”

    The problem with the explosion of socialised debt stems from the illegitimacy of the bailouts and FED intervention. There was no effort at accountability or transparency in the process. Where did taxpayer dollars go precisely and why? Is there any oversight? It’s the same situation with the billions of dollars ‘misappropriated’/unaccounted for in Iraq. And does anybody else honestly believe that the deficits will recede when the economy recovers?? Puhleese. The U.S. is nothing more than a consumer economy driven by debt. Shredding the credit cards will hasten the inevitable collapse of this spent nation. Let’s make a firm distinction between the fiscal hawks who are manipulating grim realities for self-serving purposes, and the actual grim realities which don’t just threaten ‘entitlement’ spending. Why do the fiscal hawks obsess about social security and medicare and not about the absurd defense budget? How meaningful is any talk about economic recovery, given our nation’s abject bankruptcy?

  54. Too much hyperbole Ian???? Ok, this light moment sponsored by Michelle Obama and Friends European Tourism Bureau (not to be confused with John Boehner’s “Screaming of the Ants” Theatre Playhouse)

  55. I was too generous. It’s really only the top 3% of earners who own the country.

    To quote James Surowiecki in The New Yorker (August 16 & 23): “An annual income of two hundred and fifty thousand dollars puts you in the top three per cent of American households, and is more than four times the national median. You’re rich, and a small tax increase isn’t going to rock your world.”

    He goes on to note that between 2002 and 2007 “the top one per cent has seen its share of the national income double…the top 0.1 percent of earners have seen their share of national income triple over the same period. All by themselves, they now earn as much as the bottom hundred and twenty million people.”

    So hans, I hope you will go back to http://www.steadystate.org, sign their position statement, and get all of your friends to do so also. Otherwise, we’re on a wide highway to nowhere.

  56. Waaaaaaaahh!!!! I can’t play the youtube video!!!! Pooo, people taking fun out of the net. Here try this. Again sponsored by Michelle Obama and Friends European Tourism Bureau. And remember, “Don’t fly us, we’ll fly you”</

  57. Government (not just government spending) is out of control. Passing multiple nebulus 2,000+ page bills with rules and regulations to be written later creates a great amount of uncertainty, causes people to be more cautious and, in turn, stifles growth and innovation. Until government grows up we will be far underperformaing relative to our potential.

  58. “Already the national debt is being used as a hammer to beat down any proposed government spending, no matter what its merits.”

    I propose we shut down the Pentagon.

  59. Re: @ Hawkins___Currently (past and present) the US Defense Budget ( portional percentage 2009) stands at $782bn/ 23% of the U.S. Federal Spending/ Outlays (Total $3.518tn) whereas the actual 2009 U.S. Federal Receipts total $2.105tn – thusly we have a net shortfall of $1.413tn. The U.S.Federal Receipts for 2010 (shrinkage/$$$$ ?) will closely mirror 2009 in all probability and that also should hold for 2011(lots of shrinkage/$$$ ??). But here’s the horsefly in the oinment so to say – a nasty horsefly…as we call in Florida “No-See-Em’s” – the off-budget $$$’s allocated for america’s “Two Wars” in 2010/2011 are at $2.17tn and growing. Mr. Gates (another homegrown Texas boy from the Bush’s era?…now a close advisor to Obama/Hillary) offers up a panacea by cutting the defense dept. budget ie.) duplicity by $100bn over the proverbial “10 Year Period (why, oh why is it always ten years of ambiguity to the nth degree), and the brave Congress says “Bravo” too the “I Ain’t No Senator’s Son” worthy admirability of fiscal restraint. These off-budget outlays come directly via Social Security/Medicare receipts. You do the logic? PS. When’s the last time you were willing to swap butter for bullets?

  60. For the point of comparing a previous mammogram with a current one, a digital record is vastly superior. You ask an important question, but perhaps another example would be better.

  61. I guess the BU econ department must be scraping the bottom of the barrel.

    “Bankruptcy” is a meaningless term for a currency issuer in a floating exchange rate regime. The U.S. Government spends by changing numbers in bank accounts. The only limit to this is the real effects it will have in terms of inflation – it can always, operationally, make any payments in US$ it wants. Solvency is never an issue!

    Jim Baird

  62. Well, perhaps there are clearer examples, but I don’t think your point invalidates mine.

    At the end of the day, the bulk of the value created by mammograms is their ability to detect breast cancer. It is all well and good that they are easier for comparing current and previous mammograms, but if that doesn’t result in improved cancer detection characteristics, then we’re paying more but not getting more value for our money.

  63. Stock metrics have registered one Hindenburg Omen (two more are needed to officially have it become Wile E. Coyote freefall. TGIF. :-)

  64. Manhattan Luxury Condos Try FHA Backing in `Game Changer’

    Aug 13, 2010 12:47 PM ET – Bloomberg – excerpt

    “Whitney Gollinger, marketing chief for a Manhattan condo building with an outdoor movie theater and panoramic city views, is highlighting a different amenity to spur sales: the financial backing of the federal government.

    The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.”

    “It’s a government seal of approval,” said Gollinger, a director at the Developments Group of New York-based brokerage Prudential Douglas Elliman Real Estate. ”


  65. “The late Friday afternoon autopilot has kicked in: with carbon-based traders hoping for an early start to one of the last workable Hamptons weekends, volume has plunged, after a promising start. The result, as always, is a gradual meltup in stock, which as has been the case recently, now diverge from bonds on a regular basis. Yet, as we showed previously, the convergence earlier this week was dramatic, and fully on the back of the algos. Take opportunities like this to short or at least, bet on convergence: short stocks, short bonds.”

  66. Zero Rates A ‘Gamble:’ Hoenig

    Fed must start raising interest rates or risk damaging U.S. recovery, official says

    Aug. 13, 2010 2:11PM EDT – Globe&Mail – excerpts

    “The U.S. Federal Reserve is undertaking a “dangerous gamble” by keeping rates at near zero for so long, and it must start raising rates or risk damaging the nascent U.S. recovery, a top Federal Reserve official said on Friday.

    He said it was dangerous now to keep in place a policy meant to provide an emergency jolt to an economy in freefall.

    Internationally, the Basel Committee, which is working on new global banking standards, has agreed to establish capital-to-asset ratios for the largest global banks at levels that leave too small a margin for error, he said.

    “It is a level of risk that I judge unacceptable,” he said.

    And Mr. Hoenig added that recent Wall Street reform in the U.S. to tighten financial regulation would only be successful to the extent that authorities implemented the new law well.”


  67. Re: @ Rickk___Nasty stuff…until tou look under the carpet? The smart money is coming back into New York’s high-end real estate. This is how smart these tricksters are – three years from now they’ll flip`-out of these bargain basement prices…quadrupling their shekels. JMHO

  68. Most U.S. cities plumbing is failing from age. All societies depend on water. We can rebuild this infrastructure or move. What’s it going to be?

  69. Maybe the American republic form of government with separation between the 3 functions(President,Judiciary and Congress) as witnessed over the last 10 years in particular has made for consensus and direction nearly impossible. Note how a parliamentary government in Canada enabled a prime minister Paul Martin to say”come hell or high water” we will defeat the deficit. It was done in 3 years. And 3 years before the WSJ called Canada a banana republic for its deficit. Some banana republic !!!

  70. Said one house member to another, “The natives are revolting!” the reply; “Yes aren’t they.”

  71. well, this educated person sees banks in your explanation

    american population excessive borrowing has a flip, american banks excessive lending

    tech bubble needs investment banks to facilitate (its their job to manage that risk)

    i’m not as familiar with international/gov’t finance, so i can’t speak to the others, but your interpretation of the purely us financial crises makes me wonder

  72. Haven’t read through all the above posts, but trying to make the U.S. financial system impervious to further financial crisis through regulation is no answer to the biggest problem now growing, namely the overall foreign indebtedness of the U.S. Comparisons with WWII are not relevant for this issue – owing money to ourselves is an issue of internal distribution, whereas owing money abroad is another matter entirely.

    The solution depends in part on whether the increased indebtedness is caused, because U.S. borrowing draws in foreign loans, or because the foreign loans are being forced down our collective gullet like a goose being fed to make pate de foi gras. (Foreign official currency interventions are akin to someone putting money into your bank account, without asking permission, and then holding you fully account for the loan.) If the former, the solution is greater domestic economy. If the latter, the solution is to force the foreign lenders to give up mercantilist currency policies.

    Given current tendencies (embarking on expanding health care and continuing to deny that China is a currency manipulator), I predict the solution will not come before forced by crisis.

  73. Jul. 19, 2010 – Globe & Mail -David Rosenberg – excerpts

    “The bottom line is that at all levels of society, across most countries in the industrialized world, there is still far too much debt and debt-servicing relative to income-generating capacity. Extinguishing this debt will be deflationary even as central banks are forced into further dramatic actions to cushion the blow.

    History shows that deleveraging cycles typically last as long as seven years, and we have just completed year number two – at a time when most measures of underlying inflation are less than 1 per cent.

    The situation now is one of debt destruction, not debt expansion, and it is only a matter of time before we see prices in aggregate start to deflate.

    We are not talking about 10- or 20-per-cent price declines – more like 2 to 3 per cent. But enough to jeopardize the lofty earnings estimates embedded in equity market valuations, enough to thwart the progress needed to resolve our intractable deficit and debt problems, and enough to take bond yields back to their 2008 microscopic lows.”


  74. In part, the fulfillment of the imperialist ambitions of the ruling class. Only the daft would believe that the construction of a monsterous embassy in Baghdad, one the size of Vatican City and one secured by the imposition of American arms, would have any purpose other than to anchor the ominous threat of American military might throughout the Middle East region. From there, the long reach of American commercial interests and the piggybacked expansionist aims of a fascist Israel can be vouchsafed. I mean who is it that the Congress of the United States works for if not for these criminals, son?

  75. Negative News Flow

    8/14/2010 08:55:00 AM – by CalculatedRisk

    “Although not unexpected, the news flow is about to take a more negative tone starting with the existing home sales report on August 23rd. We’ve been discussing this for some time … and I’d like to highlight just a few pieces of forthcoming data:

    The existing home sales report will show that sales collapsed in July (this is showing up in all the regional reports).

    The existing home months-of-supply will jump to double digits.

    House prices are probably falling again, although this might not show up in the repeat sales indexes until September or October (this data is released with a lag).

    On August 27th, the second estimate of Q2 GDP will be released. This will probably show a significant downward revision from the preliminary estimate of 2.4% annualized growth. The downward revision is due to lower construction spending than the BEA initially estimated, less contribution from inventory adjustments, and the June surge in exports.

    The unemployment rate will probably start ticking up again soon (or the participation rate will fall further).

    Just something to be aware of …”


  76. Good point, But if the ruling class is no safer in America than say Mexico, Will they move to Monaco and tax them? They’ve got casinos and know how to play.

  77. Bayard,

    Fantasies about amending the Constitution after the upcoming electon so as to bring about an end to lobbying have about as much chance of realization as getting a fascist like Netenyahu honestly to seek peace with the Palestininans. Its too late. The existing structures are simply too corrupt to offer any hope of change through parliamentary means. But I do think you are right to see a wholesale collapse of the regime at some point. Such a peoples’ moment will bring with it an opportunity to detain, interrogate, and publically try the bacteria who have been at the source of our misery. It will also bring with it the occasion to start all over again with democratic structures built – this time – from the bottom up, not the top down. The two pillars of the future, then, are justice and the construction of a genuine peoples’ democracy. Like Humpty-Dumpty, the experiment of 1776 is broken and utterly beyond repair.

  78. Simon Johnson and James Kwak above bought the oligarch’s deficit frame and meme:

    Blame the welfare state and ignore the warfare state.

  79. U.S Federal Receipts…”Corporate Income Tax Revenues” – 1960/2009 (fifty years) – subtext: ” Corporate Income Tax Receipts as a percentage of Total Federal Receipts and GDP by decade; average percentage of Corporate Taxes as Share of Total Federal Receipts; Share of GDP”…by Mr. Joel Friedman.(Google @ “The Decline of Corporate Income Tax Revenues” http://www.cbpp.org/experts/index.cfa?fa=view&id=144-www.cbpp.org/files/10-16-03tax.pdf http://www.cbpp.org/10-16-03tax.htm

  80. The referenced “Empirical Documentation/Data CBO’s” above should open all our eyes to the worlds corporate tax rates and the bleeding hearts of “America’s Multinational Poor Corporation’s”? PS. Where do these political pundits get their data,…?

  81. good point, pur kurowski- mounds of evidence to support your posit.

    Two comments: small business has historically been the leader in DOMESTIC job development/growth & innovation. Without affordable and appropriately attainable lending…….

    Your statement that “some bureaucrat” will be the ultimate individual who will thus determine who shall receive the “stimulus” may be too benign. I would suggest the decisions for recipients has already been determined by the insiders and not “some bureaucrat” and, will be funneled to the “right” group for best political gain/payback.

    BTW; FT article about Fannie & Freddie “bailout” motivation is quite interesting.

  82. Thank you very much for posting the links. I’m currently halfway through “From Marx to Goldman Sachs.” It is to say the least, food for thought.

    On a personal note some of my investors thought me beyond nuts when I reinvested profits not just in the physical property but hired my tenants before going “outside.”

    According to MH I am now and always was a Marxist. Who’d a thunk that, LMAO. No wonder I’ve never quite fit in with my fellow “rentiers.”

  83. The real austerity battle should not focus on tax cuts and entitlements, but instead on taxes and defense spending. Yes, we should let the Bush tax cuts expire and raise the income tax rates slightly on the top 5% earners. Nothing drastic, just a slight increase at the top of the scale along with an increase of the maximum amount of taxable social security earnings. Face it, Americans want and need the social security system. So what if it social security loses money. So does the military. Speaking of which, how much could we save if we removed our troops from needless, endless wars that are not improving our national security one bit and are making things worse! Yes, let’s get out of Iraq completely and Afghanistan too…not to mention Germany, Japan and on and on. (Apologies for sounding like Ron Paul here but as they say even a broken clock is right twice a day). I don’t know how much we spend on defense but I wouldn’t be surprised if it is over $2 Trillion a year. Wouldn’t we be better off investing in clean energy and not just getting off “Middle East oil”, but getting off oil completely! Didn’t candidate Obama make some suggestions along these lines? Yes, the current so-called financial reforms will not do enough to stop massive over-leveraging by huge financial institutions who will remain too-big-to-fail and whose over-the-counter derivatives trades will without a doubt cause another financial collapse. But as Dick Durbin said (paraphrasing here) “Wall Street owns the place”, meaning Congress and they have certainly gotten their way on “reform.” Final note, regarding the increased sales of Ayn Rand’s Atlas Shrugged, does anyone think the Tea Party crowd would actually read the book. Frankly, it’s way too long and boring. Here’s a tip for Tea Partiers. Go to the 60 page speech by John Galt and you will get the essence of Rand’s (and Alan Greenspan’s), corrupt, mean, discredited philosophy!

  84. All Ayn Rand books should not only be thrown in the dumpster, but burned en masse with an old army surplus flame-thrower. If you want to read a deceased J.e.w.i.sh woman’s books, go read some Jane Bowles. You’ll learn the same amount of economics from Bowles and the prose is actually well done. Ayn Rand wrote like a 9 year old girl creating dialogue with her new Ken and Barbie dolls.

  85. Roubini: Gordon Gekko Reborn

    Saturday, August 14, 2010 – The Economist’s View – excerpts

    “This post talked about the negative consequences of the erosion of societal norms that regulate market behavior in the health care industry when significant market failures are present, but health care isn’t the only place where norms are eroding or absent altogether.

    Nouriel Roubini says we should give up on the idea that teaching morality and values in business school will regulate behavior appropriately, it’s never worked and it won’t work now. The only choice is a strong government hand:

    Gordon Gekko Reborn, by Nouriel Roubini, Commentary, Project Syndicate: In the 1987 film Wall Street, the character Gordon Gekko famously declared, “Greed is good.” … The “Greed is good” mentality is a regular feature of financial crises. But were the traders and bankers of the sub-prime saga more greedy, arrogant, and immoral than the Gekkos of the 1980’s? Not really, because greed and amorality in financial markets have been common throughout the ages.

    Teaching morality and values in business schools will not tame such behavior, but changing the incentives that reward short-term profits and lead bankers and traders to take excessive risks will. The bankers and traders of the latest crisis responded rationally to compensation and bonus schemes that allowed them to assume a lot of leverage and ensured large bonuses, but that were almost guaranteed to bankrupt a large number of financial institutions in the end. …

    [A]ny reform of regulation and supervision will fail to control bubbles and excesses unless several … fundamental aspects of the financial system are changed.

    First, compensation schemes must be radically altered through regulation… In particular, bonuses based on medium-term results of risky trades and investments must supplant bonuses based on short-term outcomes.

    Second, repeal of the Glass-Steagall Act, which separated commercial and investment banking, was a mistake. … Similarly, the move from a lending model of “originate and hold” to one of “originate and distribute” based on securitization led to a massive transfer of risk. No player but the last in the securitization chain was exposed to the ultimate credit risk; the rest simply raked in high fees and commissions.

    Third, financial markets and financial firms have become a nexus of conflicts of interest that must be unwound…

    Fourth, greed cannot be controlled by any appeal to morality and values….

    Unless we make these radical reforms, new Gordon Gekkos – and Charles Ponzis – will emerge.”


  86. “For God’s sake, sit down. You look like a Calvinist rector telling his flock about Hell.”

    Jane Bowles

  87. acai

    You do not indicate whether your reference to Sen Dick Durbin is positive vs negative. I will comment, as one of his constituents, that I am consistently underwhelmed by the vacuous, innane responses I routinely receive in response to my letters to his office. So much so, it leads me to believe we exist on separate planets.

    Sen Durbin’s staff responses have systematically confirmed my belief that the US Senate reflects the Peter Principle on steroids. The majority of the responses do not even relate to the topic!

    If this represents the “best and the brightest”-well, God help us.

  88. “All Ayn Rand books should not only be thrown in the dumpster, but burned en masse with an old army surplus flame-thrower.”

    Ted K. Chm. Emeritus, American Taliban, or; meet the new boss, same as the old boss.

  89. “I am consistently underwhelmed by the vacuous, innane responses I routinely receive in response to my letters to his office”.

    One is simply paralysed in the presence of such mind-numbing naivete, such rubery. You actually write your senator? And with an expectation of being taken seriously? How old are you anyway?

    You mean nothing to slime like Durbin. You are an utter irrelevance to the march of his career and to his money-making. Like the rest of us ordinary, non-governing folks, you will eventally come to realize that your vote is meaningless and your hopes of plying the system in some way are vain. You are an object that is simply tolerated and when you become overly vocal you are perceived as an enemy and crushed. I mean when was the last time you were in charge of corporate campaign contributioms? Time to catch on, I’d say, cedar.

  90. http://michael-hudson.com/2010/07/from-marx-to-goldman-sachs-the-fictions-of-fictitious-capital1/

    “If Darwinian models of self-betterment are to explain the past century’s development, they must show how creditors have translated their financial power into political power in the face of democratic Parliamentary and Congressional reform.

    How has planning become centralized in the hands of Wall Street and its global counterparts, not in the hands of government and industry as imagined almost universally a century ago? And why has Social Democratic, Labour and academic criticism become so silent in the face of this economic Counter-Enlightenment?

    The answer is, by deception and covert ideological manipulation via “junk economics.” Financial lobbyists know what smart parasites know: The strategy is to take over the host’s brain, to make it believe that the free luncher is part of its own body. The FIRE sector is treated as part of the economy, not as draining the host’s nourishment. The host even goes so far as to protect the free rider, as in the 2008-09 bailouts of Wall Street and British banks at “taxpayer expense.”

  91. http://attempter.wordpress.com/2010/08/13/permanent-and-very-unnatural-rate-of-unemployment/

    “Corporatism was already based on artificial scarcity while the economy was well-oiled. To maintain it post-Peak means to sustain a rising level of real scarcity, to which must be added the artificial scarcity in order to maintain the social control aspect of the reserve army. This “real” scarcity is of course real only under corporatist conditions. If we systemically overthrew all the premises of growth and surplus value and consumerism and replaced them with a steady-state producer-controlled equitable-distribution economy, there would be no real scarcity, nor any artificial scarcity.

    But what the kleptocracy seeks today is artificial scarcity on top of artificial scarcity, or a new kind of meta-scarcity.”

  92. RE: @ Brad Thrasher___”an open mind is a wormhole into existentialism voiding any folly of myrmidon…conversely a closed mind is but a malignant inertia – a self induced psychotic asteroidial-tumor manifested by ignorance given a uniquely innate myopic and immured nihilistic system capable of involuntary manslaughter” PS. The old boss is neither the new boss nor the same boss…it is easily perceived by reading the panthesis bibles?

  93. The premise of my eco.101 text(Paul Samuelson?) was that scarcity determined value. So this sounds about right and does anyone contest your post above? (8;08)

  94. Bette seems like a classy person. She has always kept her age well. J.e.w.i.sh , born and raised in Hawaii. Not sure if she’s been repeatedly asked for her birth certificate though.

  95. Michael Hudson’s essay gives me pause to rethink and perhaps restudy and reread some of Marx.

    rene, you wouldn’t believe how much grief I took from some of my investors when I hired tenants at Davis-Bacon wage rates. And they still complained about “those people” making so much money after property income doubled about 14 months later!!!

    What I learned from that experience, is that for far too many people, it’s not about making a profit. It’s about perceiving oneself to be better than the other guy.

    I no longer have investors or partners other than my bride of 25 consecutive years. And we do just fine thanks.

  96. It’s nice that you are thoughtful of the cost to taxpayers of your mother’s end-of-life care. (And, I offer my condolences for your loss, too.) But a lot of families can’t bring themselves to accept that their parent is dying. That was the case when my father died – my brother would not accept, nor let anyone else acknowledge, that my dad was dying, until the final weeks of his illness.

    It’s going to be difficult to have rational discussions of this topic.

  97. Ah,Lavrenti, I do so hope your paralysis does not significantly compromise your lifestyle.

    Not to worry about naivete, my friend. One’s motives to correspond with elected officials may not necessarily be to effect a specific change.

    No, grasshopper, there are many reasons, some not so obvious or assumed, for one’s actions.

    As for age, mmm, grandchildren too big for my knee.

  98. Congratulations on the grandchildren, cedar, a worthy achievement without question!

    But one can only guess at these undisclosed reasons for communicating with the filth that govern us. Clearly, no reasonable person would be offering praise. So if not to urge change, one flounders about in search of a possible motive for you. God hope you haven’t fallen into the making of personal threats. :-)

  99. Morning Post

    Aug 13, 2010 – SHANKY’S…

    ” Hindenburg Omen! Triscadecaphobia! P3! Fires in Russia.Earthquakes! Volcanoes! Icebergs the size of a small country! Obama is President! What the hell, I’m not sure why the futures are not up over 100 at this point. the way CNBS puts it the future is so bright we all need to wear shades. So, Sheeple herd up and buy, buy, buy. there has never been a better time to invest in equities and prices are better than at Blue Light Specials at K-Mart. Long term investing is the key. Who gives a shxt where your entry point is, bottom line is prices will eventually go to the moon and all is well.

    Bottom line, I’m cautious about a minor corrective here but looking for much more weakness. Look for the government to throw out some lies and rumors to move the markets.

    They are out of bullets, so that will be all the ammo they have left. Life sucks, so get used to it.

    There will be no recovery and the depression is coming. Cash is the best place to be (in the mattress type cash).

    Its Friday than goodness.”


  100. Double Dip? A Tipping Point May Be Near

    August 14, 2010 – N.Y. Times – excerpt

    “LIKE a car spinning its wheels, the American economy hasn’t been getting much traction. Many financial indicators are issuing worrisome signals, millions of people are still out of work, and growth is slowing.

    Will the economy pick up momentum or slip back into recession? Unfortunately, the answer is very much in doubt.

    “We are at a very critical moment in the business cycle,” said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute, a private forecasting group with an excellent track record. After the economy began to recover last summer, in his estimation, “growth has definitely slowed.”

    But he said he wouldn’t have enough data until at least the fall to know “whether we’re dipping back into recession.”

    Even the Federal Reserve chairman, Ben S. Bernanke, calls the current economic outlook “unusually uncertain.” And the financial markets have certainly noticed…”

  101. Cute earle, florida but irrelevant.

    When the only difference between the bosses is who’s books are burned, who’s ox is gored, which company is bailed out and which is allowed to fail, it matters not if you address him President Bush or President Obama, Republican or Democrat.

    The books are still burned, banned or haven’t you been to Texas lately.

  102. Geithner Takes Aim … A New Way To Underwrite The American Dream.

    U.S. Treasury Secretary calls on experts for advice on what to do with key players in mortgage market – Fannie Mae and Freddie

    Sun, Aug. 15, 2010 7:48PM EDT – Washington — Globe and Mail

    “With the legislative overhaul of Wall Street finished, the Obama administration is preparing to take on an even greater challenge that it can no longer avoid: finding a new way to underwrite the American dream.

    Treasury Secretary Timothy Geithner will assemble a dozen specialists this week for a major conference to help determine the future of the government-backed housing enterprises commonly known as Fannie Mae and Freddie Mac, which so far have cost the government some $150-billion (U.S.) to keep solvent.”


  103. “The stunning decline of Barack Obama: 10 key reasons why the Obama presidency is in meltdown” Nile Gardiner



    “The Congressional Budget Office Long-Term Budget Outlook offers a frightening picture of the scale of America’s national debt. Under its alternative fiscal scenario, the CBO projects that US debt could rise to 87 percent of GDP by 2020, 109 percent by 2025, and 185 percent in 2035. While much of Europe, led by Britain and Germany, are aggressively cutting their deficits, the Obama administration is actively growing America’s debt, and has no plan in place to avert a looming Greek-style financial crisis.”

  104. “Will the economy pick up momentum or slip back into recession? Unfortunately, the answer is very much in doubt.”

    LOL……really? Excerpt from:

    John Williams: Times That Try Our Souls


    “TER: What will plunge us into this abyss? And when?

    JW: I think the odds are extremely high that we’ll see it break within the next year. I would put it six months to a year, outside. We’re getting extraordinary protestations from other central banks about the U.S. finances, its solvency, risk of the dollar. Before the current crisis you never would have heard any central banker making such comments. As this breaks, it’s going to be obvious that the U.S. is moving to debase its dollar. It’ll have no option to do otherwise. I would fully expect some foreign holders looking to dump the Treasuries. With the dollar plunging, the Treasury won’t be able to get the funding that it needs from a practical standpoint in the open markets.

    The Fed will come in to salvage that situation, becoming the lender of last resort to the Treasury—literally monetizing the Treasury debt. The Fed might have a couple different ways to address the dollar situation, from raising interest rates to direct intervention, slapping on currency controls. I can’t tell you exactly how it’s going to go. But you’ll have an environment that’s effectively creating a perfect storm for the U.S. dollar. I hate to use the term but it’s a good one.

    Heavy dollar selling will be exceptionally inflationary. Oil prices will spike in response to the weakness in the dollar. Oil is a primary commodity that drives consumer inflation; that’s how you can have inflation in a recession. The traditional wisdom is that strong demand against limited supply causes inflation, but you can also have inflation due to commodity price distortions, which is what we had back in ’73 and what we’ve seen over the last year or so.

    Most of the recent volatility in the CPI has been due to swings in oil prices, which have been directly tied to swings in the value of the U.S. dollar. About $7 trillion in liquid dollar assets that overhang the market outside the U.S. could be dumped overnight. We’re going to be seeing a lot of pressure to accept that back in our system, and it will be very inflationary. The Fed’s options will be limited, but again I’d expect them to try and maintain systemic solvency.

    So what we end up with is a circumstance where the dollar is under heavy selling pressure. People will feel the squeeze on their inflation-adjusted income with much higher prices for gasoline and fuel oil. The route to the monetary inflation will take hold from the Fed’s direct monetization of Treasury debt. As we discussed earlier, the mortgage-backed securities taken off the bank balance sheets have generally gone to excess reserves and are sitting with the Fed. That hasn’t been inflationary so far because it hasn’t gone into the money supply.

    TER: How do we get through this, John?

    JW: If there’s no solution for the system—and I don’t see one; I think it just has to run its course—there still is good news. We as individuals have ways of protecting ourselves, our families, our friends, our businesses—whatever is important to us. To do that we have to preserve the value of our wealth and assets in order to ride out the storm. As terrible as it will be, it will end. A time will come when things become self-righting and the people who have been able to survive will be able to do some extraordinary things.

    TER: And what do you advocate in terms of individuals preserving wealth and assets?

    JW: Hold some gold, silver, precious metals. I’m talking physical possession. Preferably coins because coins, sovereign coins, are recognized as such. They don’t have liquidity issues. Having some assets outside the U.S., and certainly some assets outside the U.S. dollar, is a good thing. I like the Australian dollar, the Canadian dollar, the Swiss franc in particular. They won’t suffer the same hyperinflation in Australia, Canada and Switzerland as we do in the U.S., so those currencies will tend to act as ways of preserving wealth. Over time real estate is a traditional store of wealth, but it’s not portable and sometimes it’s not liquid.

    If I’m right about what’s going to unfold, a significant shift in government is possible; suppose the government moved so far to the left where maybe private ownership of property was not allowed. Having a lot of assets in real estate under those circumstances might not be so good. I think generally real estate is a good bet but you also have to consider the risks. Use common sense. Think through different things that could happen.

    Most importantly, build up a store of supplies, more than you would normally consume over a couple of months, particularly food and water, canned goods. Having those goods can save your life in a number of ways. You’d have food to eat, and if you have extra you can use it to barter. I met a guy who’d been through hyperinflation and found for purposes of the barter system those airline-size bottles of high-quality scotch proved quite valuable. Buy things that you would otherwise consume and rotate your inventory. Don’t go out buying all sorts of things you’ll never use. Keep what makes sense to you and your circumstances. Make sure you have things that are stable. Not too perishable.

    I had a professor at Dartmouth who’d lived for a while in a hyperinflationary environment that devolved into a barter system. He told a story about how his father had traded his shirt for a can of sardines. He decided to eat the sardines, which was a mistake because they had gone bad. But nonetheless that can of sardines had taken on monetary value. So when you look to trade things you want to be careful what you’re doing.

    TER: How long does a hyperinflation environment typically last?

    JW: I guess it depends on how comfortable people can be in the environment. It went on for a couple of years in Zimbabwe, but they were able to function. Here, in a system that can’t function well with it, it’s not going to last too long. You won’t have a usable currency. It’s likely a barter system would evolve, and if it became stable and functioned well, it could last for a while. People don’t want to starve. If that’s a real risk, they will take action to protect themselves. We may have rioting in the streets. The government might declare martial law. If people can live comfortably with hyperinflation it would tend to linger. The more difficult things are, the faster people will move to remedy it.

    TER: Well on that note is there anything that we can do as voting citizens to turn this around? Or minimize the impact?

    JW: If things break slowly enough that people can see what’s coming and respond, tremendous change may result from what comes out of elections. Incumbents are going to have a rough time. The circumstance is open for the development of a major third party that could knock out either the Republicans or the Democrats as a second party. Over time, pocketbook issues tend to dominate elections. If things are going well, if people are prosperous, they ignore the corruption in political circles as being just part of the system. But when they’re hurting, they turn out the bastards and look to put in some change. We sure need change. I can tell you that. It’s not just one party. Both major parties have an equal share of guilt in what’s unfolding. Whichever one is in power keeps making it worse.

    TER: Not very happy thoughts, John, but we appreciate your insights and look forward to talking with you again as we move through these trying times.”


  105. Mr. Johnson, Mr. Kwak,

    But you’re both deficit hawks, or am I mistaken? You began talking about the dangers of the deficit back in January and how it had to be dealt with right away.
    Have you changed your position on this?


  106. That’s just a bunch a wacko hooey. Glad to know overt anti-semites are welcome to post on this blog. Is your real surname Bush?

  107. Please go spew your Talibanist/al-Qaeda hate mongering up you ass.

    Why the he11 is this sh1t allowed to be posted on this site?

    Apparently Mr. Johnson and friends are anti-Semite-philes.

  108. How Will Politicians Curb Deficits? With The Printing Press

    Aug. 16, 2010 6:45AM EDT – Globe & Mail

    “Cash is heading for the sidelines or pouring into the perceived safety of bonds. Most benchmark stock indexes continue heading south, and investors still deeply committed to equities are no longer jumping for joy at any fitful signs of recovery. Indeed, some may be breaking out in hives at the thought of what awaits them when fall crash season rolls around. It could make the selloff of late spring seem like a romp on the beach by comparison.

    Less than two years after the largely unpredicted near-collapse of the global financial system, we have entered a new Age of Certainty. Economists, market watchers and policy makers make confident pronouncements about everything from the future trajectory of stocks and interest rates to whether we face a deflationary or inflationary future, even when they take diametrically opposed positions. Yet if recent history tells us anything, it’s that a remarkable number of them will turn out to be wrong.

    That’s why it’s so refreshing to talk to Dylan Grice, the perceptive and often provocative global strategist who plies his craft as half of a two-person “alternative view team” with Société Générale in London.

    “I find it very puzzling that so many economists have rabid views on both sides.” His own view? Politicians talk a good game of fiscal prudence, but most have no plan to commit career suicide by trying to force it down voters’ throats in the midst of hard economic times.

    In the end, Mr. Grice says, most governments will undoubtedly opt for the time-honoured method of dealing with debt woes: cranking up the printing presses and inflating their way out.

    He’s constantly surprised that so many experts are so confident of the impact of particular policy responses. For instance, renowned economist Richard Koo has argued that the historic stimulus spending by the Japanese government after 1990 was hugely successful because it prevented the country from falling into a 1930s-style depression.

    “How on earth does he know that this is true?” Mr. Grice asks. And when Nobel laureate Paul Krugman, the world’s most ardent advocate of heavier stimulus spending, warns that the Austerity Now crowd risks triggering another depression, how does he know?

    Then there’s Jean-Claude Trichet, the stimulus-hating European Central Bank chief, telling euro zone governments that fixing their debt-choked balance sheets will stimulate economic growth. Really? Based on what evidence?

    Just because the bond market has so far given no sign that it’s unhappy about financing the soaring deficits of the U.S. and a handful of other governments at historically low rates, it doesn’t mean it won’t one day turn on them violently. Just ask the Greeks. They had no advance warnings either.”


  109. Aug. 16, 2010

    “Consider the facts: U.S. household debt-income ratio peaked in the first quarter of 2008 at 136 per cent. The ratio currently sits at 126 per cent, but the pre-2001 norm was 70 per cent. To get down to this normalized ratio again, debt would have to be reduced by about $6-trillion. So far, nearly $600-billion of bad household debt has been destroyed.

    We have much further to go in this deleveraging phase. Folks, we are in this for the long haul. It’s not too late to enter the acceptance stage.”



    August 16th, 2010 – Matterhorn Asset Management

    “No, there will be no double dip. It will be a lot worse.

    The world economy will soon go into an accelerated and precipitous decline which will make the 2007 to early 2009 downturn seem like a walk in the park. The world financial system has temporarily been on life support by trillions of printed dollars that governments call money.

    But the effect of this massive money printing is ephemeral since it is not possible to save a world economy built on worthless paper by creating more of the same. Nevertheless, governments will continue to print since this is the only remedy they know. Therefore, we are soon likely to enter a phase of money printing of a magnitude that the world has never experienced. But this will not save the Western World which is likely to go in to a decline lasting at least 20 years but most probably a lot longer.

    Let us just reiterate that hyperinflation arises as a result of money printing leading to a currency collapse and not from demand pull. The slight deflation that we are experiencing currently is a prerequisite for hyperinflation.

    The fear of a deflationary implosion forces governments to print money, leading to a collapsing currency which historically has always been the cause of hyperinflation.

    The “conventional wisdom experts” also say that it will be years before we can see inflation or hyperinflation. In our view it can happen a lot faster.

    The world economy is resting on a foundation of matchsticks. All that is needed is a change in confidence or psychology for this fragile foundation to crumble. Falling currencies, rising bond yields and falling stock markets could very quickly result in a vicious and fast spinning hyperinflationary circle. The frailties of the financial system could make this happen like a flash fire.

    There has probably never been a period in world history which has caused the amount of wealth destruction that we are likely to see in the next few years. If we are correct in our assumption that the West will see a correction of the excesses of the last circa 40 years but more probably of the last 200 years, since the start of the industrial revolution, we could see a total annihilation of the assets…. The spike in asset values in the last 100 years, which is unprecedented in history, is likely to be corrected by a waterfall which could start at any time.

    We will issue a separate report in the next 10 days covering our market predictions…”


  111. I was hoping someone would comment on this and why there’s been nothing in our media. 2-6 killed and hundreds injured protesting Panama’s Act 30,2010.

  112. Pimco’s El-Erian: ‘New Normal’ Argues For Investor Caution

    Updated 6h 37m ago – USA Today

    “His firm manages more than $1.1 trillion of other people’s money. Eight million people in the USA alone have entrusted their cash to him.

    He works closely with bond king and co-chief investment officer Bill Gross. He is the author of a best-selling book, When Markets Collide. He helped coin the concept and phrase, “the New Normal,” which predicts a post-financial-crisis world of lower investment returns, slower economic growth and higher odds of another out-of-the-blue financial shock. In short, a world in which the range of financial outcomes — and risk — is much wider than normal.

    His cerebral, analytical and insightful views on the increasingly complex financial markets are closely followed on Wall Street. He is Mohamed El-Erian, CEO and co-chief investment officer of Pimco, the giant investment firm best known for bond investing.

    Q: So investors should be more defensive in the New Normal? Are the days of having 80% of one’s money parked in stocks for the long haul over?

    A: Having an 80% stock allocation signifies a level of confidence that is not warranted by the unusually uncertain outcomes.

    Q: Recently you said investors should strike a better balance between fixed income and equities. Why?

    A: Because in the New Normal you are more worried about the return of your capital, not return on your capital.

    Q: So what’s the bottom line? How should folks divvy up their money?

    A: Simply put, investors should own less equities, more bonds, more global investments, more cash and more dry ammunition. There is lots we don’t know.”


  113. “As John Williams (shadowstats.com) has made clear on many occasions, an appearance of recovery was created by over-counting employment and undercounting inflation….By the end of this year it will be obvious that the collapsing economy means a larger than $1.4 trillion budget deficit to finance. Will it be $2 trillion? Higher?

    Whatever the size, the rest of the world will see that the dollar is being printed in such quantities that it cannot serve as reserve currency. At that point wholesale dumping of dollars will result as foreign central banks try to unload a worthless currency.

    The collapse of the dollar will drive up the prices of imports and offshored goods on which Americans are dependent. Wal-Mart shoppers will think they have mistakenly gone into Neiman Marcus.

    Domestic prices will also explode as a growing money supply chases the supply of goods and services still made in America by Americans.

    The dollar as reserve currency cannot survive the conflagration. When the dollar goes the US cannot finance its trade deficit. Therefore, imports will fall sharply, thus adding to domestic inflation and, as the US is energy import-dependent, there will be transportation disruptions that will disrupt work and grocery store deliveries.

    Panic will be the order of the day.

    Will farms will be raided? Will those trapped in cities resort to riots and looting?

    Is this the likely future that “our” government and “our patriotic” corporations have created for us?….

    Without a revolution, Americans are history.”

    “Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously the editor of the Wall Street Journal.”


  114. I have been following this blog for some time and never have the warnings been louder and more resolute than this month. It no longer seems as though many here think the worst could happen. They are convinced that it will happen, and soon.

  115. The American MSM?? I don’t think that joke matters. Nobody knows exactly what upheavals the U.S. will face, but a military dictatorship wouldn’t surprise me.

  116. Geithner: Housing Finance System ‘Not Tenable’

    Tuesday, August 17th, 2010, 8:00 am – HousingWire

    “In opening remarks today at the US Treasury building in Washington DC, Secretary Tim Geithner said that the United States government is on the side of “fundamental change,” when it comes to reforming the government sponsored entities, Fannie Mae and Freddie Mac.

    “It is not tenable to leave in place the system we have today,” he told the crowd of journalists and mortgage finance players gathered in the Cash Room for today’s Conference on the Future of Housing Finance.

    Geithner said that the government will assist in the planned write down of GSE portfolios.

    “We need to make it absolutely clear the GSEs have the resources to meet their financial commitments,” he said.


  117. Deflation will continue untill all available property has been appropriated, then inflation begins. If the future value of the property were available to homeowners now, this ripoff game would end and/but will when you can buy a house for a barrel of oil.

  118. So who, exactly, is “bankrupt” with FIAT $$$ and game-over software which sucked out all numbers from all boxes and put all those STOLEN numbers in the SECRET boxes of just a few “players”…?

    The United States of America is a country on Planet Earth – Third Rock from the Sun :-)

    “Bankrupt” does NOT apply to a sovereign country.

    The Patriot Act and Homeland Security “secret” agencies/agents ARE conducting OPEN ECONOMIC WARFARE against USA citizens. No question about it anymore…

  119. It’s never really just the “system” that contributes to the problems. It’s also the personalities :-)

    The middle man/unearned income shareholders/slum lords

    have DESTROYED the infrastructure of the United States of America.

    Still talking about such “economics” at this stage of the game is just another indication that the “elite” are a criminally-psychotic, genetically-inbred syndicate.

    Maybe the first “voices” were those who simply focused on Obambi and do NOT consider him a “real” President…

    But now there are MORE and MORE – millions more – who are openly vocal about the ENTIRE GOVERNMENT of


    (important to specify)

    needing to be thrown out.

    And THAT “feeling” is because of who the ELECTED OFFICIALS “appoint” to positions like Treasury and Federal Reserve Board.

    These conversations cannot keep going on anymore….it’s too sick to keep rehashing the details of THIS ECONOMIC WAR


    against it’s own citizens.

    GO look it up in your psycobabble “books” – there is a group of GENETICS

    that NEVER falls into a Stockholm Syndrome.

    The SURVIVAL game is dealing with the reality of SEVEN BILLION PEOPLE on the planet.

    As a very young child, I watched the first human touch down on the Moon. I’m not going down without a FIGHT for MY CULTURE. Taking on The Wrecking Crew full on – who’s with me? :-)

    Like duh to the Huffington (who IS that woman, anyway?) blog “series” about Third World USA – ya think there’s a connection between 45% “other” taking over the Moon Walkers in “population” numbers in USA “soon” and a CULTURE of “third world” living?

    The “elite” killed the goose who was laying the golden eggs. Chosen ones “genius”?

  120. 08/17/2010 – Zerohedge.com – excerpt

    “The one must watch interview of the week (if not of the year) features Hayman Capital’s Kyle Bass. Bass, who correctly called the subprime implosion (and profited handsomely from it) as a iconoclast contrarian to conventional wisdom, tells David Faber that “given my outlook on the world, I don’t know how I can be long stocks.”

    Frequent readers of Zero Hedge will notice many comparable themes touched upon in Bass’ interview with issues covered on Zero Hedge: the inevitable restructuring of untenable sovereign debt, the nearly $5 trillion in new global debt that needs to be issued just to plug near-term deficits, the joke that was the European stress test and the ongoing insolvency of the European banking system which is times bigger than its US equivalent, the imminent downward revision of Q2 GDP to sub 1%, the Fed’s conflicted position as a political authority whose sole purpose now is not to keep inflation and unemployment low, but merely to keep interest rates as low as possible, as even the slightest shift to higher short-end rates will be seen as a black swan, indicative the Fed is losing control over the economy, and ultimately the futility of Keynesian theory band-aiding of a world caught in a toxic debt death spiral. (Pant…pant!)

    In short, Bass sees no way the world can get out of its current state absent a huge reset. We agree completely, and needless to say, we are confident Bass will be proven 100% correct, to the chagrin of all the permabullish lemmings who day after day refuse to accept the unpleasant reality.

    The only caveat: when Bass is eventually proven right, all bets on profiting from this realistic worldview will be off, as the existing financial system will no longer exist.”


  121. The entire system is so perfidious, that any measure, analysis, or prognostication is futile. The only certainty in this world of quantumeconomics, is that NOTHING HAS CHANGED! The structure, mechanics, systems, and managements of the predatorclass Finance oligarchs and their PONZI schemes remains, fundamentally unchanged and virtually intact, slithering along in it’s predatory reptilian universe fed by the fed pouring untold amounts of cash into predatorclass offshore accounts. The horrible and crushing costs of the catastrophic failures and criminal activities of the predatorclass and the finance oligarchs is ruthlessly heaped upon the shoulders of America’s children. NOTHING has changed, so obviously another real horrorshow crash or correction is inevitable. The only question is when?

    America has passed through Rubicon.

    (“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.”)

    Put your trays in the upright and fixed position, – we’re about to enter some turbulence.

  122. “Fasten your seatbelts, it’s going to be a bumpy night.”

    “Bette” Davis – enjoying a state of Grace.

    “…a state of sanctification by God; the state of one who is under such divine influence; “the conception of grace developed alongside the conception of sin. “


    “…all the elements necessary for a catastrophic dollar devaluation have moved into place, especially in the past month. That is to say, there is now nothing preventing a steady and precipitous fall in the Greenback over the next six months or more. Below are many signals which indicate such an event is near: >>>”

    Excerpt from:

    “U.S. Dollar Now Ripe For Catastrophic Devaluation” By Giordano Bruno


    (thanks Jessescafe

  124. Are you sure your gold is well-hidden? Sleeping with so much money under my mattress makes me nervous, but not as much as having it in the banks. Get your ducks in a row everybody, while you still can.

    “I hate to be the bearer of bad news but friends, we got problems! Phillips argues that we will face gold confiscation when a new currency is created to replace the US Dollar as the world’s reserve currency and it will be backed, partially, by gold. ”


  125. AUGUST 17, 2010, 1:06 PM

    Moody’s says clock is ticking on fiscal reform

    “The crisis has effectively ‘fast-forwarded’ history by 15 to 20 years, eroding all the time that was previously available for governments to adjust,” Moody’s wrote.

    “…. addressing those dynamics, Moody’s reminds, won’t be painless. No nation will be able to handle its surging debt loads and unhappy demographics without explicitly addressing who will bear the costs, and how, via reduced benefits, higher taxes, etc.”


  126. China is helping to destroy the dollar?? Not that we need any help on that front.

    “Is China Executing a Cunning Sun Tzu Strategy to Destroy the Dollar and Cause an Upward Price Explosion in Gold?” By Elizabeth Brinsden

    “Could China be coveting the role of the next economic superpower, thereby supplanting the USA? If so, is China planning to do this by design or is it simply awaiting this result by default as a result of the total collapse of the American economic system?”


  127. Cindi wrote:

    “Are you sure your gold is well-hidden? Sleeping with so much money under my mattress makes me nervous, but not as much as having it in the banks. Get your ducks in a row everybody, while you still can.”

    A family friend approached me recently for a financial consultation/second opinion recently, about switching to a new financial advisor. Our friend, a single-mother, is unable to work because of medical issues, has a young adult daughter living with her – who also has medical issues. She needs to make her savings last.

    I was asked by her to review the advice from a bank investment counsellor who she was considering moving to before leaving her current advisor. I had earlier suggeseted she might want to ask for a second opinion about her current finances.

    Our friend has a university education, but financial naive. I asked her how her current finacial advisor allocated her retirement funds. She replied, in Gold. I responded how much? She said 100%, (she signed over trading authority to the current advisor.)

    I pretended to rub my eyes, waiting for the room to stop spinning while I composed a response, and replied, in light of her age and circumstances, she might want to consider a more conservative asset mix and to lock in her profits and not have all her eggs in one basket.

    She said funny, that was what the new advisor she was considering also suggested.

  128. “What Would Life Be Like Under Martial Law?

    You will want to have a few drinks while reading this excellent and vivid piece on coming attractions for all but the oligarchy.

    “The economic health of this country is blatantly unstable, and even some mainstream analysts who called us “fear mongers” six months ago are now reluctantly admitting that some form of collapse is probable:”


  129. You Know We’re Headed For A Double-Dip When:

    “Your parents start referring to 2009 as “the good old days.”

    What you thought was your cable bill, turns out to be your 401k statement.

    Instead of giving away toasters your bank starts selling them.

    Your mortgage shows up on eBay.

    Your accountant starts making finger-quotes when he refers to your “net worth.”

    You buy $50 of GM stock, and are named to the board.

    The family dog asks for a severance package.

    Your spouse starts making finger-quotes when referring to “our vacation.”

    Your recently graduated son moves back into your house…with his roommate.

    Your parents move to Greece.”

  130. “The Fed surprised many people this week when it announced it would respond to the deteriorating economy with more efforts to stimulate.

    It was a splash of cold water on the face of the world, a wake-up call that hammered home the reality of the economic climate: The recession wasn’t normal, the recovery wasn’t real, and we’re only half way through what will likely be described as a global depression.”


  131. Gold will be a temporal claim, if there are no guns and ammo, – because creatures lurking in the shadows will come and take your gold, and slaughter your family and parade your head around on a pike through the city streets.

    We are about to enter into a biological experiment of Darwinian proportion. The only way to even out the horrid math, is a great culling. Who will survive? Who will not? Obviously – the lower classes have no accounting value, and are easily disposable, and of course the predatorclass is special and deserving of the governments most extreme largess and protection.

    The lowerclasses and the under.

    The economic system is certain to collapse. Only an idiot, or a predatorclass PONZI salesman would brute the opposite.

    When the economic system does collapse, all hell will break loose, and society as we know it, will for a time, cease to exist. Competition will rise to quantumDarwinian levels, and only the strong will survive. The only question is, if those stronger ones advance and protect the best interests of the people, or the predatorclass?

    If the former, we have hope, – if the latter, – get stocked, locked, cocked, and ready to rock America!!!

  132. “The Line Has Been Crossed”
    “Economic Meltdown: The Final Phase”

    I have never seen so many indicators of total meltdown, when compared to past economic collapses throughout history, as I see today. Not to sound melodramatic, but I’m really not certain if I will be writing these financial analysis articles for much longer. I suspect that before the year is out there will be no more need, being that every facet I have laid out over the years will become glaringly obvious to everyone.”


  133. When anyone uses the word “entitlements” please include in the definition “defense department spending” and “homeland security.”

  134. DOOMER wrote:

    “I have never seen so many indicators of total meltdown…”

    As your nome de plume suggests, :-)

  135. “More world governments are “just saying no” to the ponzi. Last week, the Malaysian government of Kelantan “said it was introducing a new monetary system featuring standardised gold and silver coins based on the traditional dinar and dirham coins once used by the Ottoman Empire.”

    And as everyone who has taken game theory 101 knows, the first defector wins the most, while the last one is left with nothing. A small province in Malaysia just made the critical first defection. The question now is who will be next… and next…and next.”

  136. Why Senator Kaufman Is Getting Very Angry With A Corrupt SEC

    08/18/2010 – ZeroHedge – excerpts

    “…the latest piece by Nanex (recently famous for their dramatic quote-stuffing “crop circles” which day after day exposes the thieving douchebaggery of the HFT community for all to see, not to mention the criminal complicity of the SEC), that puts the very validity and credibility of the most fundamental concept of the stock market into question. In brief – Nanex concludes, and we certainly agree with them based on the presented evidence, that ” the NBBO system cannot be relied upon and is meaningless…

    What has set off Nanex so much? An ultra-detailed analysis of the May 6 crash has revealed that in the seconds and minutes immediately following the initial slam in the market, the dissemination of the NBBO by the Consolidated Quote System (CQS) would at times lag real time changes in stock crosses (as disseminated by such premium products as NYSE’s OpenBook) by as much as 24 seconds!

    This is a criminal abuse of the most basic tenet of the stock market, and indicates that in times of stress only those who pay millions for their trading infrastructure (collocation services, frontrunning everyone else via DirectEdge, OpenBook accounts, etc) have a realistic view of what is really happening with the market!

    The ramifications of this phenomenon for real time pricing, and therefore, for market intergrity as a whole are humongous.

    Luckily, there is at least one person who still believes in market integrity. Below we present Senator Ted Kaufman’s latest letter to the SEC in which the Delaware senator writes “once again out of concern for the credibility of our equity markets.” The 11 pages that follow are precisely the reforms that need to be initiated for the vast majority of the investing public to regain some faith in what has become a criminal free-for-all, far worse than any casino that may have graced the LV strip any time over the past century.”


  137. Excerpt from “Time for a New New Deal?”

    ” How can we even begin to entertain the idea of cutting government and cutting government spending when the sum total contribution of Big Business America represents a rounding error in our national budget?

    That is why destroying Social Security is so high up on the “Conservative” (and what exactly are they conservative about?) agenda as those corporations have had their arms twisted to MATCH the 6.2% wage contributions paid in by their workers. Forget about saving them their $138Bn in taxes they pay on the profits they couldn’t manage to hide in offshore shells – this is about them no longer having to match $445.5Bn in retirement savings their workers have been foolish enough to count on getting back and have been faithfully contributing to for the last 75 years.

    There’s a VERY simple way to fix Social Security TOMORROW if we want to. 3/4 of the income in this nation is earned by people making more than $160,000 a year. All we have to do is simply eliminate the cap on Social Security contributions and we will take in an additional $668Bn a year. Viola – a surplus of $919Bn!”


  138. Excerpt from:
    “Portrait of a Sagging Empire” Chalmers Johnson


    “If, however, we were to dismantle our empire of military bases and redirect our economy toward productive, instead of destructive, industries; if we maintained our volunteer armed forces primarily to defend our own shores (and perhaps to be used at the behest of the United Nations); if we began to invest in our infrastructure, education, health care, and savings, then we might have a chance to reinvent ourselves as a productive, normal nation. Unfortunately, I don’t see that happening. Peering into that foggy future, I simply can’t imagine the U.S. dismantling its empire voluntarily, which doesn’t mean that, like all sets of imperial garrisons, our bases won’t go someday.

    Instead, I foresee the U.S. drifting along, much as the Obama administration seems to be drifting along in the war in Afghanistan. The common talk among economists today is that high unemployment may linger for another decade. Add in low investment and depressed spending (except perhaps by the government) and I fear T.S. Eliot had it right when he wrote: “This is the way the world ends, not with a bang but a whimper.”


  139. Ghost Money

    08/18/2010 – Daniel Cloud – Princeton University – excerpts

    “Some people in Asia burn joss paper, also called ghost money, on the Lunar New Year, to give their deceased ancestors something to spend in the afterlife. Because ghost money doesn’t represent a claim on any actual goods or services in this world, there is no reason for its issuers to exercise any particular restraint, and in Singapore it is possible to find notes issued by the First Bank of Hell, with the mythical Jade Emperor’s picture on the front, in denominations ranging into the millions and billions of dollars. Perhaps we’re counting on this charming tradition to make Asian investors comfortable with the prospect of continuing to add to their holdings of European and American sovereign debt, despite the obvious fact that the money they’ve already lent us is money they’ll never get a chance to spend in this life.

    The apparent plan, in both Europe and the US, has been to recapitalize the banking system through the ‘carry’ trade, by encouraging banks to borrow short (partly from government) and lend long (largely to government.) Thus, the banks were to be recapitalized by the difference between the rate at which the government lent and the rate at which government borrowed. The government, however, was somehow supposed to not go broke in the process, though it certainly sounds like a bad deal to a naïve ear. (Of course, they are going broke…)

    Analyzing the transaction a bit further, we can see that the money the governments lent to the banks, being fungible, was in fact the same money lent to the governments by the banks, so the banks were essentially lending themselves money via the government….the only new money available to the government comes from financial markets themselves, so using it to try to rescue financial markets on more than a short-term basis is probably futile. ”



  140. Excerpt from:

    “Unenlightened Self-Interest: Deficit Hawk Down On Tax Cuts and Financial Reform”


    “Will a return to the status quo through Fed intervention ‘work?’ Is austerity directed at the middle class the answer, as in the suffering endured by the many in the Great Depression?

    What would happen if the economy ‘recovered’ with the same fundamentals in place? Fundamentals such as an overly large financial sector, increasing wealth disparity, and a stagnant median wage?

    Can ‘the many’ continue to borrow to maintain a constant standard of living? Can a democracy be maintained in condition that start to resemble a third world country? How long before a ‘strong man’ would rise to take control of the political situation on behalf of the national society of workers? And how long would it be before the industrialists and oligarchs lose control of this man, again?

    Can the US continue to afford to maintain 800 overseas military bases while the domestic tax base continues to erode through a parasitical transferal of wealth from the many to the few based on leverage, speculation, monopoly, asset bubbles and fraud?”


  141. Excerpt: “What Does Nietzsche Say About Credit Scores?” By Russ (This Russ guy is an awesome blogger, as a matter-of-fact.).


    “We’re seeing the new outlines of the old medieval jurisprudence – outlawry, debtors’ prison, and the festival of cruelty. Sublimated judicial combat, in the form of the adversarial legal system becoming a monetized arms race, who can afford to hire the fanciest lawyers, has long been entrenched. (I doubt that the right to an attorney at all if you can’t afford one would ever be enshrined today if it weren’t a superprecedent already; and we can expect to see that under increasing nominal attack, just as it’s long been under surreptitious attack via budget cuts.) Most of all, just as the preverted religious premise that wealth equals merit and virtue has long been the establishment ideology, so more and more all of society is becoming a large scale trial by ordeal, wherein being able to find and hold a living wage job is just as inscrutable a religious Mystery as remaining in perfect health if you can’t afford health insurance, and in either case your success or failure is simply the judgement of god, of mysterious forces of nature. Were you one of the Elect or not?

    Can you hold your hand in the flame without flinching? This judges your innocence or guilt, and in our times your human worth. There is no “society”, and certainly calculated top-down neoliberal policy has nothing to do with what’s happening, oh no.

    These are all familiar signposts on our journey back to feudalism.”

    Excerpt: “What Does Nietzsche Say About Credit Scores?” By Russ


  142. CBO Says Its Own Budget Estimate May “Significantly Underestimate” Short-Term Deficit Outlook

    08/19/2010 – excerpt

    “Those who were disappointed by the earlier CBO budget reestimate which increased total deficit by about $44 billion over the next two years, will have to weep more tears based on the just released statement by Congressional Budget Office director Doug Elmendorf who said that in reality the budget deficit could come much higher than the just disclosed estimates, and the recent economic data releases have been “more negative” than data factored into the projection. Which, in government talk, means that the real deficit will likely come at least 20-30% higher, and since debt issuance tends to track around 40% higher than nominal deficits, the bottom line is that the US will have to issue a gross $3 trillion+ over the next two years. But who cares: one could add 10 zeroes to this number, and rates would likely drop to zero overnight.”

    In other words the government is now sailing blind, without a rudder, and using untested navigation theories, through the biggest metaphorical hurricane this side of the pre-WWII years. This level of confidence will surely inspire Americans to reverse the trend of 15 sequential weekly outflows from domestic stock funds.”



    by PhotonJohn
    on Thu, 08/19/2010 – 12:33

    “Let me get this straight. We just released some numbers and BTW we used bad assumptions. We never saw this uncertainty coming!”

    Thu, 08/19/2010 – by pigpen

    “…..get me off this crazy thing. I have been out of the rigged casino since Aug. 2008.

    No prosecutions and no changes and no investigations. When govt. spent more to prosecute blago than they spent on investigations into market meltdown even the sheep could figure out why.

    Confidence is shattered in almost all institutions. Ben needs to hire Tony Robbins to do daily national confidence building exercises.”

  143. pigpen wrote:

    “…..get me off this crazy thing. I have been out of the rigged casino since Aug. 2008.”

    I got out at exactly the same time – Black Swan-like strategy (90% medium-term Canadian government bonds, 10% short equities. I hope I’m on the sidelines.

  144. Could 62 Million Homes Be Foreclosure-Proof?

    August 19, 2010 – Huff Post – Ellen Brown – excerpt

    “Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles–and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.

    Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

    MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”–an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.

    That means hordes of victims of predatory lending could end up owning their homes free and clear — while the financial industry could end up skewered on its own sword.”


  145. Second Hindenburg Omen Confirmation In As Many Days, Third H.O. Event In One Week

    08/20/2010 – ZeroHedge

    “Longs may be forgiven if they are sweating their long positions over the weekend: not only did we just have a second, and far more solid Hindenburg Omen confirmation today, with 82 new highs, and 94 new lows, but the Saturday is the day when Iran launches its nuclear reactor, and everyone will be very jumpy regarding any piece of news out of the middle east.

    As for the H.O., the more validations we receive, the greater the confusion in the market, and the greater the possibility for a melt down (or up, as the case may be now that the market is unlike what it has ever been in the past). Furthermore, with implied correlation at record levels (JCJ at around 78), any potential crash will be like never before, as virtually all stocks now go up or down as one, more so than ever before.

    And should the HFT (High Frequency Trading) STOP command take place, the future should be very interesting indeed (at least for the primary dealers, and the Atari consoles which are unable to VWAP dump their holdings in the nano second before stuff goes bidless).”


  146. http://www.oftwominds.com/blogaug10/nothing-has-changed08-10.html


    “18. The rot at the center of the Empire–the culture of lies, marketing, prevarication, misrepresentation, embezzlement, parasitic looting, cheating, gaming the system and ceaseless distractions, the culture based on presenting facsimiles as “the real thing,” remains firmly in place, strengthened every day by the political classes’ prevarications and PR and the notion that lying, cheating, stealing and hiding the truth are all “the name of the game” and justified to nail down your share of the swag. That is the national politics of experience which remains safely unexamined.

    Nothing of any importance has changed. The engine of Empire is lugging a bit as the load increases, but the Empire’s army of high-caste technocrats are hard at work, securing their perquisites and fat paychecks by keeping the sprawling global machine running.

    Just as in the late stages of the Roman Empire, magical thinking abounds. This is America, the capital of can-do! We are audaciously hopeful because we always arise, newly envigorated by the unquenchable spring of American innovation, blah blah blah.

    Thus is truth silenced because it might be painful, and require actual change rather than highly glossed facsimiles. “

  147. “The Purpose Behind Engineered Economic Collapse” Giordano Bruno



    “Below, we will examine some of the most common narrow minded responses to the issue of engineered economic collapse, as well as why people think the way they do when the “semi-sacred” subject of money is involved…”

  148. I thought the following might related to the same issues…. and offer a concise perspective.

    Minutes Of The Federal Open Market Committee – 5-6 More Years of The Same

    June 22-23, 2010

    “Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives;

    most expected the convergence process to take no more than five to six years.

    About one-half of the participants now judged the risks to the growth outlook to be tilted to the downside, while most continued to see balanced risks surrounding their inflation projections. Participants generally continued to judge the uncertainty surrounding their projections for both economic activity and inflation to be unusually high relative to historical norms.”


    Comment by zhandax

    “Good luck with that. The fed doesn’t even realize the bottom of the economy exists. They only think in terms of the TBTFs.

    And the TBTFs are taking all that free cash and dumping it into the shadow economy to pump the T-bond rocket ride we currently see. If it keeps the treasury borrowing cost less than 5%, the fed thinks they are performing a public service.

    Here is the way bureaucrats think: One of my salesmen dealt with an S&L around 1989 who had been seized by FDIC. The on-site conservator was dollar rolling a big lot of FHLMC pass throughs at lower than current coupons. These were fairly obscure bonds to borrow and had a lot of severely paid-down balances. She did not like the accounting aggravation of 3 pool/mm delivery and asked specifically for 3 pools/trade. We accommodated her request at a cost that resulted in the bank being liquidated within 9 months. I wish I could remember her name, but I don’t think it was Sheila.

    The Fed wants to think they are ‘helping’ by directing their attention to the TBTFs. Its really a matter of convenience. Who wants to address a problem with 2000 banks?

    Especially when its now so much more profitable to kill them and pay your friends to take the remains?”

  149. Mapping the Tipping Points

    “The economic news has turned decidedly negative globally and a sense of ‘quiet before the storm’ permeates the financial headlines. Arcane subjects such as a Hindenburg Omen now make mainline news. The retail investor continues to flee the equity markets and in concert with the institutional players relentlessly pile into the perceived safety of yield instruments, though they are outrageously expensive by any proven measure. Like trying to buy a pump during a storm flood, people are apparently willing to pay any price. As a sailor, it feels like the ominous period where the crew is fastening down the hatches and preparing for the squall that is clearly on the horizon. Few crew mates are talking as everyone is checking preparations for any eventuality. Are you prepared?

    What if this is not a squall but a tropical storm, or even a hurricane? Unlike sailors, the financial markets do not have the forecasting technology for protection against such a possibility. Good sailors before today’s technology advancements avoided this possibility through the use of almanacs, shrewd observation of the climate and common sense. It appears to this old salt that all three are missing in today’s financial community.

    We can now overlay the Tipping Points onto this map. We arrive at the following.


    · Commercial Real Estate – Finally forced to account properly for mark-to market valuations.

    · Housing Real Estate – Option ARMS come due and FHA / FNM / FDE / FDIC are seen as insolvent. (2010)

    · Corporate Bankruptcies – Unfunded Pension impacts and debt loads (gearing) on reduced revenues.

    · State, City & Local Government Financial Implosion – Non Accrued Pension Obligations, falling tax revenue and years of accounting gimmicks come home to roost.

    · Central & Eastern Europe – The ‘sub-prime’ of Europe will soon erupt on the EU banking network as evidenced recently by Hungary and the Baltic States.



    Significantly Increasing Interest Rates – A Major Global News Focus

    A $5T Quantitative Easing (QE II) Emergency Action
    It will likely be triggered by a geo-political event or false flag operation.


    · Entitlement Crisis – The unfunded and underfunded

    Pension charade ends

    · Credit Contraction II – Credit Shrinks Violently

    · Banking Crisis II – Banking Insolvency no longer able to be hidden through Extend & Pretend.

    · Reduced Rating Levels – Falling Asset Values and Collateral Calls on $430T Interest Rate Swaps

    · Government Back-Stopped Programs – FHA, Fannie Mae, Freddie MA, FDIC go bust


    · Lending ‘Roll-Over’ – Game Ends


    A recent Zero Hedge contributing author summarized the current environment nicely:

    “There is an entrenched insolvency problem in the United States, and a picture is worth a thousand words. Insolvency is not illiquidity; insolvency is about income that can’t service debt burden. Notice where things fall off the cliff: I believe we are getting close to this point. Just need a catalyst. Sequential bond auction failures here, a sovereign default there, massive liquidity drain all around, worse… whatever. The fumes running the engine (QE, or credit easing) are dwindling.”

    Every morning the next batch of economic numbers is released and the indications are consistently red. Of course the market initially drops, and then miraculously rises on no volume. Since 2007 we have potentially constructed the largest head and shoulders topping formation we have ever seen.

    This doesn’t mean the markets are imminently headed down. What it does mean is you should be meticulously battening down your financial hatches and checking your options for every eventuality.

    “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain

    “Mr. Long is a former senior group executive with two Fortune 500 international corporations, a principal in a high tech public start-up and founder of a private venture capital fund. He is presently involved in private equity placements internationally along with proprietary trading involving the development & application of Chaos Theory and Mandelbrot Generator algorithms.”


  150. CEO: No Need To Invest Right Now …what am I going to do with it ($2-Billion Investment?)

    8/21/2010 12:49:00 PM – by CalculatedRisk on

    “I could borrow $2 billion tomorrow for 3 1/2 percent. But what am I going to do with it?”

    David Speer, CEO of Illinois Tool Works which has 60,000 employees worldwide in more than 800 business units and $14 billion in sales.”


  151. Doing the Math on Early Social Security Benefits

    August 20, 2010 – Huff Post

    “The column was excerpted from my book, The Hard Times Guide to Retirement Security. It delivered this message: most — but not all — Americans will do better over the long haul by waiting until full retirement age to file for Social Security benefits.

    This message is tough for some to accept. Why wait until age 66 to get something that you can take at age 62?

    Here’s the core of my argument: For most people, filing early at 62 is a costly mistake that will mean forgoing thousands of dollars in lifetime benefits — in some cases, hundreds of thousands. Although you can file for benefits at 62, most of us will receive larger lifetime payouts by waiting, if at all possible, until we reach age 66, or even 70. However, there are several caveats to this, and it’s a bit of a gamble, because the math all depends on how long you live.

    Under the Social Security rules, your lifetime benefits will be reduced based on an actuarial projection of your longevity, if you file before the current full retirement age of 66. Starting at 62 means you retired four years early, the net effect: Your annual benefits will be reduced permanently by a total of 25 percent.

    OK, readers — fire up your spreadsheets!”

    – excerpt


  152. “Are Your Ready for the Big One?”by Rick Ackerman on August 20, 2010 12:41


    “…Dow falling 3000-4000 points in a matter of two or three weeks, will be with us more less constantly. It could begin tomorrow, or next week, or at any time in September or October. But make no mistake, it is surely coming.
    Investors who want to avoid disaster should be at least 80% in Treasurys right now, since the preservation of capital is paramount. This next phase of the bear market is going to make the deep economic trough of the early 1970s look like a picnic. Back then, the economy was in a secular credit expansion that resumed following the 1973-4 bear market. This time, credit is collapsing and consumers will be unable to reverse the trend. Economic growth is going to swing negative in 2011, and it’s possible it will remain negative by as much as 2% to 3% for a couple of years. That the stock markets have yet to discount an economic implosion of this degree implies that the collapse in share values just ahead will be devastating. If you’ve been hanging onto stocks, lulled by this summer’s hoax into believing there’s no need to rush for the exit, think again. It’s time to get ready for the most destructive and precipitous phase of this Great-Recession-or-Worse.”


  153. Deficits have taken center stage for a simple reason; never in the history of this nation during peace have the federal deficit surpassed 9% of GDP. The European Union established in its charter that member nations were not to exceed 3.5% national deficits over GDP.
    It does not help either that the policy of this administration is putting the cart before the horse and trying to solve the recession problem by purely monetary means and fiscal deficits (spending). It is concentrating in reviving demand and consumption which happens not to be the causes of the recession. The cause of the recession is to be found in the asset side of the balance sheet. We experience the bursting of an asset bubble. Demand, unemployment and financial panic just followed naturally.

    Read more at “The Failure of Obama’s Economic Team” found at http://www.robbingamerica.com

    And by the way, Ayn Rand’s Atlas Shrugged is selling fast because in spite of being written in 1956 it has never been more true than what America is living today. Ayn was writing a philosophical book, not an economic treatise, and the subject was not deficits in the minimum, but individualism and Objectivism.

  154. Excerpts: “25 Signs of Expectations for an Economic Collapse in 2010”


    “There is no excuse for not getting yourself prepared. The signs that we are headed towards an economic nightmare are all around us.”


    “Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him.”

  155. http://theeconomiccollapseblog.com/archives/this-economy-is-ripping-the-dignity-of-millions-of-unemployed-americans-to-shreds

    “If you can still put a roof over your head and food on the table for your family, you should consider yourself to be very fortunate. There are millions of Americans out there right now that are really, really suffering. The cold, hard reality of it is that there aren’t even close to enough jobs out there for everyone right now. It is almost as if we are all caught in a really bizarre game of musical chairs where the losers get stripped of their tickets to the middle class. What this horrible economy is doing to the dignity of millions of middle class Americans is incredibly saddening. There are a lot of very highly educated and very hard working Americans who cannot seem to get jobs no matter what they do and now find themselves doing whatever they can just to survive. It can be really hard to keep your dignity when you played by all the rules and you worked as hard as you could all your life and now you find yourself a half step away from being homeless. Those of us who are still doing okay should never look down on those who are struggling in this economy, because the truth is that any of us could be next.

    If you really want to read some horror stories about what long-term unemployment is doing to some people in America, you should go spend an hour or two over at Unemployed-Friends some time. It is a great forum with a lot of great resources for the unemployed, but it also contains dozens and dozens and dozens of heartbreaking stories from middle class Americans who have had their lives shattered by this economic downturn.”


  156. by Cognitive Dissonance

    on Mon, 08/23/2010 – 15:10

    “IMHO the existence of the HFT model is being supported by national security directives as the only way to prod the market in the direction they wish. It solves the greatest number of problems as seen through the end of a political Coca Cola bottle. It feeds the TBTF banksters and various hanger-ons and co-dependents while allowing the PPT to manipulate and elevate when so desired.

    Of course, nothing is bigger than the market and this too will fail. And in a spectacularly big way.”


  157. WSJ: The FOMC Debate on Monetary Policy

    8/23/2010 08:55:00 PM – by CalculatedRisk

    “According to Hilsenrath, Bernanke “is determined to avoid mistakes of past central bankers that created devastating bouts of deflation”. And that probably means QE2 – it is probably just a matter of when and how long the FOMC waits.”


    Remarks by Governor Ben S. Bernanke

    Before the National Economists Club, Washington, D.C.
    November 21, 2002

    Deflation: Making Sure “It” Doesn’t Happen Here

    “But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed’s policy instrument–the federal funds rate–were to fall to zero. What then?”

    The conclusion that deflation is always reversible under a fiat money system follows from…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

    We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”


  158. “How Hyperinflation Will Happen”


    “This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.”

    “The Global Depression we are in is being exacerbated by the very measures being used to fix it—stimulus is putting pressure on Treasuries, which are being shored up by the Fed. This obviously cannot have a happy ending.”


  159. “Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar”John P. Hussman

    “A week ago, the Federal Reserve initiated a new program of “quantitative easing” (QE), with the Fed purchasing U.S. Treasury securities and paying for those securities by creating billions of dollars in new monetary base. Treasury bond prices surged on the action. With the U.S. economy predictably weakening, this second round of quantitative easing appears likely to continue. Unfortunately, the unintended side effect of this policy shift is likely to be an abrupt collapse in the foreign exchange value of the U.S. dollar.’


  160. “WWIII ahead: Warfare defining human life by 2020”

    “World War III: The Pentagon warns of “the mother of all national security issues … By 2020 there is little doubt something drastic is happening,” military officials told Fortune. “As the planet’s carrying capacity shrinks, an ancient pattern of desperate, all-out wars over food, water, and energy supplies would emerge … warfare is defining human life.” This is a real game-changer, a paradigm shift, a turning point in human history, altering civilization.”


  161. Way back in the halcyon days of 2007-08, I read on the CIA website, that drinkable waterrights issues will be the primary cause and concern for global crisis. Not evildoers, or terrorists, or insurgents, – but access to drinkable water. Themany will be deprived by thefew of drinkable water and that dynamic will cause conflict.

    The predatorclass is an arch enemy and dire threat the future of the other “lesser” 99% of humanity. We are disposable, worthless, only an integer in the predatorclass calculus, and easily erased. We either standup and right these horrible wrongs, or we don’t. If we do, there will be blood, and a reckoning and a balancing, and the predatorclass will be defeated and put back in the keep. If we do not, – then we are doomed. We will all be sent to the ovens, or turned into slaves.

    “When they come knockin at your door, – how you goin to come? With your hands on your heads, or on the trigger of a gun?” The Clash.

  162. Thank you Stephan for the alternative economic analysis at Billy’s Blog. After reading many of the articles, I support the conclusion that the US does not face a solvency issue. And I concur with the writer that the true criminals in the latest financial crisis are the economist who use grossly immature analysis to explain the cause and the solution. I would be interested in what are the proposed solutions to this disconnect between mature and immature economic analysis and how the mature analysis is brought to bear in the media and in legitimate economic/fiscal policy debate.

  163. @Tony: yikes!

    “Enron Accounting” Has Bankrupted America: U.S. Deficit Really $202 Trillion, Kotlikoff Says”

    “Forget the official debt,” he tells Aaron in this clip. The “real” deficit – including non-budgetary items like unfunded liabilities of Medicare, Medicaid, Social Security and the defense budget – is actually $202 trillion, the professor and author calculates; or 15 times the “official” numbers.”

    “We need (to perform) heart surgery on this economy, not putting on more band-aids which is what we’ve been doing. Barring that, your hard-earned dollars will soon be worthless, he declares.”


  164. “Stock Market Tremors, Fed Pessimism, US Payments Deficit Presage Dollar Disintegration After Failure of US-UK Blitzkrieg Against Euro; Wall Street In Flight Forward Towards Iran War, Oil Price Spike To Prop Up Greenback”


  165. Ask Not Whether Governments Will Default, but How

    August 25, 2010 – Morgan Stanley Research

    “The sovereign debt crisis is not European: it is global. And it is not over…”

    It is not whether to default, but how, and vis-à-vis whom. What this means is that – as indicated above – governments will impose a loss on some of their stakeholders and have in fact started to do so (across Europe at least). The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.”


  166. I’m glad I chose “abridged version” for the Atlas Shrugged audiobook. Ideology notwithstanding, it was one of the worst-written pieces of literature I’ve ever come across. Juvenile and poorly written.

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