There Are No Fiscal Conservatives In The United States

By Simon Johnson

In most industrialized countries, attention now shifts to some form of “fiscal austerity” – meaning the need to bring budget deficits under control.  In the UK, for example, there is an active debate between those on the right of the political spectrum (who want more cuts sooner) and those to the left (who would rather delay cuts as much as possible).  There is a similar discussion across the European continent – although the precise terms of the debate depend on exactly which party was most profligate during the long boom of the 2000s.

The United States stands out as quite different.  No one is yet seriously proposing to address our underlying budget issues.  There are certainly people who claim to be “fiscal conservatives” – some of the right and some on the left – but none can yet be taken seriously.  The implications are very bad for our fiscal future.

The background, of course, is that the US budget was in relatively good shape at the end of the Clinton years (culminating in a 2.5% of GDP surplus in 2000) – but turned sharply into deficit during the George W. Bush era.  The headline 2% deficit in 2006, for example, perhaps did not look too bad – but it was remarkably poor performance given how well the economy was doing. 

The notion that tax cuts would lead to productivity increases, thus boosting growth and in turn fixing the budget, turned out to be completely illusory.  In fact, the tax cuts encouraged consumption, leading to overspending at the national level (and reflected in a current account deficit that reached 6% of GDP – this represents a big increase borrowing from foreigners by both the private sector and the government.)

But what really bust the US budget and pushed up our debt-to-GDP ratio was the way the financial system amplified the housing-based boom and bust through 2008; there were some “feel good” effects through the end of 2007, but then we faced the worst recession since World War II.  Net government debt held by the private sector will increase from about 42 percent of GDP to around 80 percent as a direct result of the economic crisis – and the measures taken to prevent it from turning into another Great Depression. 

(The Congressional Budget Office agrees that the increase in debt-to-GDP from the crisis is about a 40 percentage point increase.  Treasury Secretary Tim Geithner has a very different – and overly narrow – take, framed in terms of an assessment of TARP only: “the direct costs of the government’s overall rescue strategy are likely to be less than 1 percent of GDP.”)

The increase in our budget deficit to 10 percent in 2009 and 2010 was primarily due to our “automatic stabilizers”, meaning that the government takes in less revenue and pays people more unemployment benefit in a recession.  Only 17 percent of the increase in government debt (in the CBO baseline) is due to discretionary spending of any kind.  Think what you like of the fiscal stimulus (either the Bush 2008 version or the Obama 2009 effort), it is simply not the big ticket item.

If you want to fix the US budget – keeping the deficit under control and bringing down the size of our government’s debt – you have to address the risk-seeking behavior of big banks.  No fiscal strategy can be credible without addressing the major problem that brought us to this point.

Of course, you can make proposals that seek to cut spending and raise revenue – see for example the recent effort by Bill Galston and Maya McGuineas from the Committee for a Responsible Federal Budget.  There are some ideas here worth discussing – and they are right to put everything on the table (although I would err on the side of more comprehensive tax reform, personally).  But the simple fact of the matter is that our fiscal position has been ruined by the behavior of big banks – and these banks are now free to make the same (or larger) mistakes as we head into the next credit cycle.

The unfortunate fact is that “fiscal conservatives” largely stayed on the sidelines during the financial reform debate.  And the problem of “too big to fail” was absolutely not addressed adequately either by the Dodd-Frank legislation or by the subsequent Basel III framework (see the FT’s coverage this week).  There is no way to handle the failure of a global megabank – the management of such banks know this and so do their creditors (see Gillian Tett’s recent Financial Times column, which is exactly on target); this is carte blanche for further uncontrolled expansion of risk-taking.

In some sense this is all water under the bridge – like it or not, the reform process for systemic risk is done (and achieved little).  But in that case any true fiscal conservative should recognize the risks posed by megabanks going forward and adjust their budget targets accordingly.

In particular, the commonly discussed target for our government debt-to-GDP ratio of 60 percent seems unreasonably high, given the risks posed by our financial system.  We should probably aim for a target instead of 20 percent or lower, as do the most responsible emerging markets in Asia or the Baltics.

“Fiscal conservatives” (and everyone else) will likely ignore this advice.  In that case, we’ll soon face a major fiscal crisis in the United States – again as a direct result of financial sector irresponsibility.  Then watch your taxes go up while your social security benefits fall sharply and unemployment rises far beyond current levels.

 An edited version of this piece appears this morning on the’s Economix blog; it is used here with permission.  If you would like to reproduce the entire post, please contact the New York Times.

129 thoughts on “There Are No Fiscal Conservatives In The United States

  1. What does fiscal conservatism have to do with addressing the myth of ‘tbtf’? nothing! Nada! absolutely nothing!

    Every time Johnson tries to make a resonable, meaningful argument he botches it up by trying to increase book sales.

  2. There is a couple of ideas here, albeit tangled. While I can agree on both, limit banks’ appetite for risk & reduce deficit, I don’t see the connection, unless you assume that the Fed is to rescue the banks from an imminent crisis and it will be in impossibility to do so.

    Be that as implicit as it may, but you don’t come out with a clear message for debt reduction, though you mention the UK, with its high spending cuts, and the bad effects of the Bush tax cuts.

    It would be clearer to say we need to:
    1) prevent excessive risk taking at the banks by firm regulatory measures;
    2) eliminate the Bush tax cuts;
    3) trim the federal budget (defense and other sacred cows included).

    Unless you don’t want to enter some collision course with the herders of the sacred cows (e.g. the Krugmanites on spending cuts, military-industrial complex, etc.).

  3. I support your ongoing fight against TBTF and how the financial system is setup against public purpose.

    That said I’m wondering how your “fiscal crisis” will exactly play out? Will the treasury and the FED run out of keystrokes to enter digital number (commonly known as US$) in their respective balance sheets?

  4. I thought the long-term structural deficit was almost entirely due to Medicare, Medicaid, and Social Security (in that order).

    And while I am a big fan of smashing the banks into a million little pieces and taxing their employees’ income at 95% or more, I do not see what that has to do with reigning in entitlement spending.

  5. Economists who pretend that the U.S. government can go broke are simply disingenuous–so stop it! We have a sovereign money system in this country, unlike the countries on the Euro, for example. Ninety-nine and nine-tenths percent of everything written about economics is absolute nonsense. Fess up and start telling the truth, already!

    Since my plea will undoubtedly fall on deaf ears, truth-seekers can check out some valid ideas at the following sites:,,,

  6. Well said!

    I must assume this ignorance in regard to modern monetary affairs stems from too many years spent in the ivory tower IMF. These guys preach the blessings of fiscal austerity to every government official who wants to hear it or not. Guess over time it becomes a habit.

  7. Reread the article, that is almost exactly what Prof. Johnson is saying, albeit from a different angle.

  8. This is just ridiculous. Even the more “reasonable” neoliberal robbers like Krugman admit that deficits are meaningless when the economy is this depressed.

    “Austerity”-mongering is just a more thuggish pro-bank talking point, while “austerity” itself is simply another level of crime beyond the Bailout. It’s robbery, plain and simple.

    Nobody who wants liberation from the finance tyranny cares about the deficit or the debt. It’s only big creditors who need to care about “the integrity of the currency”. With anti-deficit talking points they’re only trying to astroturf debtors into taking the creditors’ side, against their own interests.

    What’s their true point of view on deficits? Dick Cheney himself expressed it: “Nobody cares about deficits anymore.”

    By that he meant, the elites will use and abuse such concern or lack of concern as it suits them, since the currency is really a big joke to them. As long as they can get the non-rich to follow their lead in deploring deficits whenever that suits the elites, that’s all that matters.

    And the only time such deficits matter is when they’re being flogged as the pretext for cutting, not any sort of obscene corporate welfare, but what little public interest spending still exists.

    And beyond that the holy grail for all finance criminals: Gutting Social Security.

    So the takeaway:

    Deficit hysteria-mongering is a pretext for robbery, namely under the auspices of “austerity.”

  9. Uh, I don’t think so.

    He keeps citing debt-to-GDP figures while ignoring that spending growth has stayed constant and mild, while GDP has plummeted. The point is that we should be concentrating on raising GDP, not lowering spending.

    “If you want to fix the US budget – keeping the deficit under control and bringing down the size of our government’s debt – you have to address the risk-seeking behavior of big banks. No fiscal strategy can be credible without addressing the major problem that brought us to this point.”

    The major problem that brought us to this point was a massive decline in GDP, not an increase in spending due to bailouts. Johnson’s whole thesis is wrong.

    Another nice touch is his citing the “Baltics”, aka Lithuania, Latvia and Estonia who follow the IMF austerity gospel. He might want to take a look at how their economies are actually performing.

  10. Your statement is not true. As an example, if foreigners stop buying treasuries, Bernanke must step in to fill the void. When that happens it will soon be ‘Game Over.’ Is there really a difference between default and hyperinflation?

    When the world loses confidence in a currency, sovereign or not, the distressed currency is, or soon will be, worthless.

  11. “IF foreigners stop buying treasuries”

    Where is there any evidence, whatsoever, that this is even a remote risk right now. There is none.

    Now if the government really ramps up monetization of debt to an absurd level, maybe in an alternate universe where we are at supply limits, then you would have inflation and a potential currency collapse, but that is not even a remote possibility right now, and no one advocating monetization sees it as a panacea. The idea is that it is a costless way of boosting demand WHEN THERE IS AN OUTPUT GAP. No one advocates printing excessive amounts of money to finance deficits when there is no longer an output gap. That’s just a strawman.

  12. “Net government debt held by the private sector will increase from about 42 percent of GDP to around 80”

    Who cares? Paul Krugman says we will grow and inflate our way out of it when the economy gets back on track, like we did after WWII.

    It’s all really simple, people: just spend spend spend.

    And who really cares if the deficit goes to 100% or even 1000% of GDP? We can just have the Fed buy the debt and pay the interest back to the Treasury.

    Why is everyone worried? Let’s all make some money here.

  13. Desi Girl,
    I think Jamie Dimon and Lloyd Blankfein have been giving you too many restroom trips outside the cage. Time to go back to the vets for your nail clipping.

  14. This seems to be unavoidable. Discuss fiscal austerity and alternatives for sure someone will popup and play the hyperinflation card. Which begs the question: When exactly was the last hyperinflation in the US? Did US citizens ever push wheel-barrows of $-bills to purchase an egg? Answer: Never. I can only repeat the warning: reading Peter Schiff or Marc Faber can pose a serious risk to your mental health.

    If your personal preference is to worry about hyperinflation so be it. But people in the real economy have right now other worries than to ponder over purely academic problems.The BOJ has about 100% of Japans GDP in Japanese Government Bonds on the books. Are the Japanese using 1 trillion Yen bills? Answer: No.

  15. Toadie,
    Better improve your reading comprehension skills:

    “But what really bust the US budget and pushed up our debt-to-GDP ratio was the way the financial system amplified the housing-based boom and bust through 2008” and later continues….

    “Net government debt held by the private sector will increase from about 42 percent of GDP to around 80 percent as a direct result of the economic crisis – and the measures taken to prevent it from turning into another Great Depression.”

    I don’t see any effort or red herring there trying to divert the blame from the true protagonist of our current national debt surge—“W” Bush, to the guy who got stuck with the crap left on the toilet seat (President Obama). None of these things started (or were instigated) on President Obama’s watch, and Professor Johnson in the post never implies that they did.

  16. This is not a comment in support of ‘austerity’. But, the Keynesians and the MMTers are forgetting to consider the historical differences between WW2 and Now. Coming out of WW2 savings rates were high, now they are low. After WW2, demand for everything, especially houses, was very high. Now, no such demand, not even close. Instead, saturated markets and deleveraging with demand for loans on a downward trend for about 25 quarters strait and tens of millions of potential borrowers have had their credit worthiness downgraded.

    What is happening as a result of these conditions is that stimulus in its many forms is making money so cheap that foreign markets are being flooded with unwanted capital. Brazil has already levied a 4% tax on foreign purchases of its bonds and India and Thailand have announced similar intentions. This may be what is needed to keep speculators at bay but this is an essential break-down of the global economy. And it it suggests that counter-cyclical stimulus in an economy as large as what ours is, has timing implications that extend well beyond anything that was previously understood.

    Instead of ranting further, I offer instead what is a must read for those who want to understand our circumstances better:

  17. SJ is amortizing in an ongoing (and growing) budget item for keeping the financial system running, as well as an ongoing 1-2% drag on GDP growth, also due to Big Finance. Although the actual expenditures and GDP hits will be episodic, the effect will be the same.

  18. Good points! Although no one mentioned WW2? But how about one demand very high in the moment: jobs? Put everybody who wants a job on the federal payroll for a socially decent minimum wage and you’re done. Offer a minimum wage job in the public sector to anyone who wanted one. That is, implement a Job Guarantee tomorrow. The actual implementation might take some more time. Who cares?

  19. Stephan,

    By saying “coming out of WW2” I am using a historical reference as a comparative to coming out of the current downturn. I could have had just as easily said ‘coming out of the Great Depression’ although the war reference implies a more specific time-frame and hints at war bonds being an integral part of the savings in question.

  20. The background, of course, is that the US budget was in relatively good shape at the end of the Clinton years (culminating in a 2.5% of GDP surplus in 2000) – but turned sharply into deficit during the George W. Bush era.

    Really? The national debt grew by $1,400,000,000 while Bill Clinton was in office. Are you referring to the Social Security “surplus,” which, by law, the trustees are required to plow right back into buying U.S. treasuries (i.e., buying the national debt)?

    Seriously, it isn’t hard to look this stuff up, it’s right there on the U.S. Treasury website. I’m getting real sick of left wing idiots pointing to a supposed Golden Era of Enlightened Democratic Budget Restraint that only ever existed in the fevered dreams of James Carville and the idiots stupid enough to repeat the big lie.

  21. Let’s rephrase this: “if foreigners stop buying treasuries (rephrased as “decide they would prefer to earn zero interest on their US dollar holdings rather than any positive return”, Bernanke must step in to fill the void.”

    To convince me of your doomsday scenario you would first have to convince me that rational actors would prefer to earn zero over a positive rate of return and secondly, you would have to show me that treasury sales actually fund government expenditures (they don’t) rather than serve as a reserve drain and help maintain the overnight rate (they do).

  22. Simon Johnson wrote:

    “In most industrialized countries, attention now shifts to some form of “fiscal austerity” – meaning the need to bring budget deficits under control.”

    Is The U.S. ‘debasing’ its dollar, Hurting Other Nations?

    Oct. 14, 2010 11:57AM – Globe and Mail – Canada

    “Currency markets continue to gyrate today, largely on anticipation that the Federal Reserve is poised for a big move to juice the stagnant U.S. economy. The new round of quantitative easing, dubbed QE2 by economists, is expected to be unveiled at the next meeting of the U.S. central bank in November.

    The ramifications of a weak U.S. dollar are huge – hence the concern.”

  23. “Some Guy”,
    Would you like to expound on that a little??? Let’s say for the sake of argument you are right, and that “surplus” (your quotation marks not mine) was a false one. Under “W” Bush things had worsened to the point where we couldn’t even get the math to work to grasp at that floating branch for life.

    You would prefer the situation under the Republican Congress and “W” Bush, where things had worsened to the point we couldn’t even grasp at that false hope???

  24. QE2 another major misunderstanding. QE is not about printing money. No new financial assets are created! The FED credits private banks reserve accounts and transfers treasuries on its balance sheet. Thus all that happens in the private sector is a portfolio transformation. Instead of having treasuries as an asset the private banks have excess reserves as an asset. The FED hopes this will translate into credit. Which is a mental error because some of the FOMC members don’t understand the system themselves. They don’t read the research papers produced by their own guys.

  25. It seems that although there are true fiscal conservatives in the US, they have a very hard time getting elected (or have the good sense not to run in the first place). After all, who can compete with salesmen who promise to deliver roses and chocolate to your door, free of charge?

    And so the electorate blunders on, blithely ignorant of the true danger, but boiling mad at anyone who attempts to improve the situation (for daring to take away some goodies), and of course tuning out anyone bringing news of the real world.

  26. Stephan,

    This is like deja vu:


    A central bank implements QE by first crediting its own account with money it creates ex nihilo (“out of nothing”).[1] It then purchases financial assets, including government bonds, agency debt, mortgage-backed securities and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus hopefully induce a stimulation of the economy, by the process of deposit multiplication from increased lending in the fractional reserve banking system.

  27. @rayllove
    The WIKI description is OK ;-)

    The NY Fed has a paper asking whether the money multiplier is dead? My answer: NO. It was never alive. This whole QE show is ridiculous. Another banking welfare program because the FED pays interest on excess reserves.

  28. And Pete has a billion dollar foundation to advocate on the deficit/debt. Of course, he’d be better off just giving the money to the treasury to plug holes if he really believes that it is such a big problem.

  29. “Carte blanche for further uncontrolled expansion of risk-taking” will require a captive audience with confidence in the efficacy and viability of risks being taken. Confidence in this sort of thing is vanquished, sir, and the risk of collapse in the MBS marketplace ain’t helping matters.

  30. Most excellent post. I agree with everything except possibly the following: “‘Fiscal conservatives’ (and everyone else) will likely ignore this advice. In that case, we’ll soon face a major fiscal crisis in the United States – again as a direct result of financial sector irresponsibility.”

    China is forcing savings onto the rest of the world through its currency policies. The currency purchases cannot be returned owing to China’s strict capital controls, so they must stay outside China. For example, China’s dollar purchases send savings to the U.S., where they can be intermediated and sent on to foreign borrowers (as was done with the petro dollars in the 70’s, as you pointed out) or to U.S. borrowers, but not returned to China. I would say China’s currency policies (and those of other Asian countries) share at least equally in blame for the housing bubble. In fact, if our banking system had been better regulated, the result may merely have been to postpone catastrophe until things were much worse.

    Krugman and Wells argue that foreign savings glut was more to blame than weak banking regulation or Greenspan’s monetary policy for the housing bubble, and I agree with them.

  31. Memo: China now has a GDP of $5tn.+/+ and growing exponentially with internal growth becoming a proportional, and contributing factor not seen in the past. They could in all likelihood be at parity (GDP) with the United States in 5 years or less (note: U.S.Pension Funds financing their growth – a double-edge sword for the american citizen to swollow) with the wealthy emerging asian markets bolstering their balance sheet – this will surely come to pass! Ref:'s_Republic_of_China

    Thanks Simon and James :-)

  32. A challenge seems to be that the words “fiscal austerity” trigger a Pavlovian response to clamp down on commitments to social safety nets but not to rein in the predation of the financial sector. So if “fiscal austerity” is a tool for managing the impact of a financial crisis, then “fiscal excess” must be the cause of the crisis…but blame is attributed not to the excesses from “risk-seeking behavior of big banks” but to excessive personal behaviors. So the need for accountability gets to fall along the lines of long-standing grudges against…Americans’ inability to perform arithmetic in household budgeting, or usage of Social Security, or even the costs of local libraries. And the sponsors of the crisis get to remain unscathed, this time round.

    So for example, in Timothy Geithner’s recent interview with Charlie Rose he offered a series of explanations for the crisis that described “mistakes” on the part of consumers (“a lot of people were too optimistic of what they could afford in terms of a house”) and on the part of banks (“You saw the nation’s largest banks that ran these servicing businesses not invest anything like what they needed to to run that business effectively in a downturn like that.”). But mistakes of individuals (“innocent victims”) were mentioned first. I really think people stop listening after that and don’t even hear the counts against the financial system—it was “mistakes” not systemic failure.

    I was confused by his reasoning for opposing a national moratorium on foreclosures. In talking about the plight of heavily foreclosed neighborhoods he said, “we want to make sure we’re holding these services accountable, that they’re not causing any injustice to people who can afford to stay in their home.”

    So, who are “the people who can afford to stay in their homes”? The clause seems to be “who can afford”, which brings it back to “mistakes” on the part of individuals. Was he saying that it’s better to have evictions, that evictions will be helpful to “exactly the kind of people we’re trying to protect”? My understanding is that it’s better to not depopulate neighborhoods, that a national moratorium would stem the damage from vacancies. Is he making a distinction between foreclosing and evicting?

    CHARLIE ROSE: You’re encouraging banks to declare a moratorium on

    TIMOTHY GEITHNER: No, I wouldn’t say it that way. I think that what
    you’re seeing in housing still now is a national tragedy, still very, very

    Again, this was a crisis caused by — a lot of people were taken
    advantage of, a lot of people were too optimistic of what they could afford
    in terms of a house, a lot of people were speculating in real estate, and a
    lot of innocent victims got caught up in the consequences of those basic

    You saw the nation’s largest banks that ran these servicing businesses
    not invest anything like what they needed to to run that business
    effectively in a downturn like that. And you’re seeing the consequences of
    all those mistakes play out still across the American economy.

    Now, you’ve seen some banks suspend temporarily the foreclosure
    process so they can just make sure they’re not causing any adjustment to
    borrowers, and that’s very important to happen.

    CHARLIE ROSE: Are you pleased to see that happen?

    TIMOTHY GEITHNER: I think where there’s happening, again, the
    suspension to make sure they’re not causing any injustice is very

    But I think it’s important to recognize, Charlie, that a national
    moratorium would be very damaging to exactly the kind of people we’re
    trying to protect, because the consequence of that would be in
    neighborhoods that have been most affected by the foreclosure prices, where
    you see lots of houses on the block empty, unoccupied, what it means is
    those communities will be living long we are houses unoccupied, with more
    pressure on their house prices, people still in their houses. That would
    be very damaging.

    And so, again, we want to make sure we’re holding these services
    accountable, that they’re not causing any injustice to people who can
    afford to stay in their home. And we’re going to make sure we’re careful
    doing that. But we also want to make sure that we’re not going to make the
    problem worse.

  33. Rickk,

    Nice addition to the conversation.

    I read the comments too by what I assume to be mostly Canadians, and it is interesting how different their views of the US are as opposed to that of gringos. The MSM in the US is very effective by simply being ignorant.

  34. I think it’s Mary Matalin operating incognito and she’s still steamed Carville told her her Turkey Tetrazzini was just God awful.

  35. Mr. Geithner wrote:

    “what you’re seeing in housing still now is a national tragedy”

  36. The usual suspects: wealth & power concentration, leading to crises which are “solved” by rewarding those responsible (thus increasing the concentration); profligate and wasteful lifestyles enabled by concentration of wealth; ultimately less stable national and world social structures.

    Not very exciting. Not something you can get a crowd worked up over. Doesn’t make for juicy sound bites.

  37. There are now 45 responses ahead of me, and I have only read a few, so there is some risk of repetition here. Simon (and Paul) both cite the facts. They are irrefutable. But solutions, on the other hand (as any good economist always says), are hard coming and difficult to swallow. First, Simon doesn’t talk about the looming foreclosure catastrophe, which could, in the near term, make all discussions of solutions nearly meaningless. Ignoring that 6000 ton gorilla in the room, we can proceed. There are only two realistic solutions which loom out of reach. The first is to drastically reform taxation. Almost no one remembers how the US economy recovered from its massive war debt and revived the economy (peacafied it) after WWII. One prime factor was to do some drastic tax measures, like taxing the wealthiest Americans at 93% and then 91% top rates (OMG would the R’s have a time with that), and we can do something like that, even returning to Reagan’s high rates of 50% (Ron is such an R icon, maybe this could be sold), and do some other rate adjustments on capital gains, get rid of some fairly officious credits (pharma, agriculture and others), and generally cut the tax code from thousands of pages to hundreds. Of course, when it comes to taxation, I favor a flat tax solution (no mortgage deduction, and a personal $75,000 exemption) with a 25% tax on all income above $75,000, including corporate and capital gains). The other “drastic” measure would be to cut military spending by 60% (close 90% of the 780 overseas bases, and bring the troops home from Afghanistan and Iraq).

    Problem: The MIC and the tax lobbies are so incredibly powerful, and they give so much money to campaigns (including the Citizens United spending), that we won’t have a President or Congress that would consider such steps. Sane as they are, we have a vibrant plutocracy that balks at the very thought of biting the hands of their masters.

    So, all things considered, the likelihood of America finding a productive way forward and keeping our dreams alive is almost nill, or maybe absolutely nill.

  38. Obvious troll is obvious. And contributes nothing useful to the discussion. Move along, please. Move along.

  39. Absolutely. We’ll never run out of energy via oil or natural resources for input in to the economy. They’re unlimited! We can grow right out of this powered by pixie dust, unicorn farts, and baby giggles!

  40. Excuse me. I know Simon Johnson wrote a book, and was employed by the IMF and all that.

    But exactly why is he a good guy?

    Warren Mosler’s book is interesting, BTW.

  41. @Mike: re: “If foreigners stop buying treasuries…” What the hell else are they going to buy?

    I seriously want an answer to that question.

  42. @MB: “A challenge seems to be that the words “fiscal austerity” trigger a Pavlovian response to clamp down on commitments to social safety nets but not to rein in the predation of the financial sector.”

    Thank you for one of the more astute observations in response to SJ’s post.

    Of course, when the Finance, Insurance, Real Estate (FIRE)sector has run completely amuck and its fraudulent activities have been exposed, it’s time to blame the real villains: all those greedy Social Security recipients who are wrecking the economy. Every. Single. Time.

  43. Yeah and the sun will not stop burning for the foreseeable future, constantly supplying our planet with energy.

    oh wait

  44. Dear Simon,

    I have been away for a while-just wanted to warn you about something i am seeing…

    today on CNBC (yuck, but i stil listen sometimes) bob pisanti started his laundry list and on the list he said something to the effect:

    “I have been hearing from the big banks about the foreclosure scandal and they are most concerned about a 12thcentury system for land conveyance being used in this day and time”

    We have been robbed blind, and now we are supposed to take away the laws about property conveyance to make sure the system can be gamed by this cartel!!!!

    Thank you for everything Simon–love ya!!!!!

  45. But what does any of that have to do with deficits and “austerity”? Your comment, at least in this context, implies you think the non-rich haven’t sacrificed enough.

    My own absolute demand (one of them) is this:

    Total austerity for the rich, and not a cent more from the people until the first is complete.

    On the contrary, every cent stolen (i.e., every cent) and all power must be restituted to the people.

    Deficit spending in itself is no threat to the non-rich whatsoever. (What it’s spent on, on the other hand – the Bailout, Big Ag, the war, the Pentagon, the police state, corporate welfare in general – is a clear and present danger.)

  46. It’s not a pavlovian response, as if that were something unintended.

    Robbery via privatization and gutting social spendings is the whole point of “austerity”. The program is premeditated and systematic, and the term is Orwellian.

    The fact is:

    “Austerity” is Robbery.

  47. From today’s Naked Capitalism, “In the case of China, it has accumulated the biggest foreign exchange reserves in relationship to GDP of any country in the last 100 years, possibly ever. Its nearest competitors? The US on the eve of the Great Depression, and Japan at the peak of its bubble.” See

    But as much as these words scare me, the one thing I am unable to understand is this. If the US dollar is the world’s reserve currency (surely ‘yes’) then what would a ‘major fiscal crisis’ mean in real, tangible ways for the citizens of the US? (As someone on the verge of becoming a US resident immigrant, this question is not entirely academic!)

    Regards to all.

  48. I agree. A true fiscal conservative would understand that austerity for austerity’s sake is not a solution, but that those who benefit most from a well-structured society, rule of law, and property right protection should pay the most to maintain it. Such a person has zero probability of entry to a position of power and influence in the US. Such was the intent of my statement.

    Unfortunately, wealth distribution being the power law function that it is, all but the poorest Americans have significantly more wealth, control of more resources, and more political power and influence than 3-4 billion less fortunate residents of Earth. Perhaps they would like to apply the same standard to us. (Once again, not a statement that is going to win any elections.)

  49. “Once a conveyance is declared void because of fraud, the court can do full justice by ordering a sale of property under its direction. Every kind of property that can be used for the payment of debts can be reclaimed by creditors in a proper case. By statute many states exempt personal items—such as clothing, kitchen appliances, and household furniture—from being reached by creditors to satisfy debts.

    The proceeds are used to pay off the costs of the lawsuit and to provide restitution to the creditors who brought the claims before the court. A debtor who has fraudulently transferred property to cheat his or her creditors might also be subject to statutory penalties and criminal prosecution, depending upon the law in the debtor’s home state.”

  50. Depositions Shed More Light On Foreclosure Controversy

    Updated 10h ago – USA TODAY – excerpt

    “Workers who processed tens of thousands of mortgage foreclosure papers portrayed their jobs as assembly-line work that required them to sign off on documents without reviewing them.

    The depositions — which are sworn statements given in lawsuits against servicers — were released this week by a Florida lawyer defending 3,000 homeowners in foreclosure cases. They are the latest evidence in a controversy over foreclosure practices that has led state officials and federal regulators to investigate whether foreclosure papers filed with courts were false or fraudulent.

    A Wells Fargo employee in South Carolina said in a March deposition that she typically signed 300 to 500 foreclosure documents in a single day and that her only other responsibility was to make sure her name and title were written correctly.

    Shown a foreclosure affidavit that she had signed in 2009, she said she did not know if the information was accurate.

    “My knowledge of this affidavit is very minimal,” she said in the deposition.

    Wells Fargo did not return phone calls seeking comment.

    A third witness was a Bosnian refugee who came to the U.S. in 1999 and spent nine years working as a housekeeper, teacher’s aide, Walmart clerk and in the shipping and receiving office of Washington Mutual in Jacksonville. She was made a “document execution specialist” in 2008 for WaMu, which is now part of JPMorgan Chase. The woman, who speaks halting English, testified that she signs 30 to 40 affidavits a day.”

  51. Simon, great post, but this is a secondary consideration right now. The biggest thing going on right now is the fraud in the mortgage market, which has destroyed the policy transmission mechanisms in the U.S. and the rest of the developed world.

    This fraud threatens to destroy all the markets. And all the Fed can do right now is QE2? And the SEC, FDIC, FCIC, and Treasury remain silent? And the White House sides with the banks? What is going on here?

  52. In a nutshell…we (America) have lost our ways! In the late 50’s Japan had copied our (USA) capitalist “Free Market System” to the “T” and prospered…subsequently in the late 70’s China (in a strange twist of fate,or better said pragmatism, the Chinese realized a funky kind of american democratic capitalism does work) too began following our (USA) capitalist “Free Market System” to the “T” abandoning the USSR ill-gotten advise, and now is prospering. The bottom line. America’s lifetime politicians, supreme courts straying from the letter of the law,…and the capturing of “All” executive branches by “Wall Street/ Federal Reserve System Marriage since 1913” has doomed our once vibrant capitalist free market system to a 3rd world order, nice? There our fixes: 1st) Term Limits; 2nd) Transparency at the Fed; 3rd) Video of Supreme court hearing televised live (C-Span); 4th) Revision to our Income Tax Laws (total overhaul would suit me best,period); 5th) Total independence from foreign energy – implememting our own american ingenuity (Wind/Solar/Bio/Water-Ocean?) starting with a new 21st century power transmission grid with state-of-the-art hightech superconductivity product-line resources (currently in abundance now); 6th) Lastly…there is no reason that every automobile manufatured in the United States isn’t retrofitted with a “Propane (Ref: Natural Gas* “NO Fracking Way”) Carburetor” (No Flex-Fuel BS!) which by the way would greatly reduce our carbon footprint, and this mumble-jumbo of trading pollutant options! Thankyou again Simon, and James for your endless digging for “America’s Sake” , Yours truly :-)

  53. Re: Bayard Waterbury___”an optimist dies with a smile on his face – whereas a pessimist wears a frown – sadly the cynic’s scream must be sewn open…where all bare witness to time past so predictably”

  54. “The judge hearing Ms. Bradbury’s foreclosure case was persuaded. He rejected GMAC’s request for a foreclosure without trial.

    Even when given the chance to file amended documents, the judge noted, GMAC still didn’t even include the actual street address of the Maine house.”

  55. Bernanke Makes The Case For QE2

    Friday, Oct. 15, 2010 12:03PM – Globe & Mail – Canada

    “Federal Reserve Chairman Ben Bernanke is laying the groundwork for a fresh round of intervention to boost the faltering U.S. recovery.

    “… Our feeling is still that, given the strong resistance to further QE from some hawkish Fed officials, the program that eventually emerges, most probably at the next FOMC meeting in early November, will be too timid to have any real impact.

    At this stage, $500-billion or even $1-trillion is just not going to do it.

    Yes, it might lower long rates a little and juice stock markets a bit more. With mortage rates and corporate bond yields already close to record lows, however, we doubt that would have any meaningful impact on the wider economy.”

  56. Realize that QE2 goes mostly to large banks, foreclosures F*CK the little guy and all the sudden it becomes very clear why Geithner and Bernanke don’t even get enough acid in their stomach on this to work up a belch at their next catered lunch at the office.

  57. The Mortgage Morass

    October 14, 2010 – NY Times – Paul Krugman

    “One thing is for sure: What we’re doing now isn’t working. And pretending that things are O.K. won’t convince anyone.”

  58. “The optimist thinks that this is the best of all possible worlds, and the pessimist knows it.”

    J. Robert Oppenheimer

  59. As is so aptly pointed out by Michael Hudson, banks will take the money injected into the economy and put it where they can make the most money, which is surely not investing in real estate mortgages or improving domestic infrastructure. This new money will be running around snapping up commodities wherever they can be purchased, and so we will have a new bubble that will burst with a new cascade of TBTF interdependency. Get into commodities for a short and sweet run, but cash out before it gets ugly.

  60. Markets.aurelius,

    when the news about all of the state’s attorney generals taking action broke, it sounded proper and very hopeful that maybe we might see a way to restore integrity to our country…but what i feared is that someone would take these AG’s into a smokey room and INSTRUCT them about what they had to do.

    Sure enough, a night or so ago, i watched Larry Kudlow interview one of the AG’s and he spoke about the situation being one way if this was done by an individual, and another if they find widespread fraud as Kudlow pressed him–it was jail and criminal terms for every day situations, but eh guy said we would jsut have to figure out how to handle it, if we are faced with widespread fraud but he anticipated there would be a quick resolutions, just like jamie dimon promised and that the whole thing would be resolved soon—SURELY YOU CAN SEE THIS MAN MUST HAVE BEEN THE SPOKESMAN FOR THE SMOKEY ROOM INSTRUCTIONS THAT MUST HAVE BEEN DICTATED…

    it looks like we have an unending string of massively treasonous events that have been basically enabled and legislated by our government that is run by the privately held federal reserve.

  61. Who cares about “Fiscal Conservatives?” The critical question is; are their any law abiding citizens in government? If there are law abiding citizens in the government, (and I contest there are NONE, as in ZERO) then the TBTF oligarchs and the predatorclass den of vipers and thieves must be held accountable for systemic criminal activity and wanton abuse of the poor and middleclass.

    No sane person can argue that there are any goodfaith operators in the financial systems, and the ghouls and sharks feeding frenzy in September pricing in, and profiting from QE2 proves. There are no green shoots. The TBTF oligarchs are insolvent cloaking trillions of dollars of toxic and now significant amounts of fraudulent debt. The predatorclass den of vipers and thieves commandeering these oligarchs and the submissive spaniels in the socalled government they own and control, – are ruthless, insatiable, criminals, perpetuating systemic criminal activity, wanton abuse, and operating through crime syndicates and cartels.

    This entire perfidious cancerous monster that is the global financial system must be torn down, – the individuals responsible for these systemic crimes must be punished, – and a new more equitable, more sound, and more lawful economic system must be erected in it’s place.

    If not – get stocked, locked, cocked, and ready to rock, because the people are doomed to a real horrorshow depression, while the predatorclass slinks off to the oppulent luxury of castles, villa’s, palaces, mansions, yachts, and islands with trillions of our stolen tax dollars.

  62. And we TOTALLY have solar generation down, with high enough efficiency in affordable solar panels to completely replace oil in homes and power plants. Don’t sweat powering the trucks that deliver everything either! Or the cars people drive to buy the stuff we make! We’ve totally got battery tech that’s light enough with high energy density and cheap enough for EVERYONE! :-D

    I totally see a drop in replacement for oil there! How could I miss it?

  63. @earle,

    Ok let’s follow your line of reasoning. Instead of buying treasuries, China starts selling the dollar. This pushes the value of the dollar lower which does what to US exports? (answer: Increases) Now, the buyer of China’s US dollars does what with those dollars? (answer: buys US dollar denominated goods and services, lets the cash sit earning a zero percent rate of interest, buys US treasuries, or sells the US dollars to another for a different currency) If they sell for another currency it drives the value of the dollar lower making exported US goods more attractive (trade deficit improves) and now the buyer of the US currency has the same options as the previous seller. Eventually, the buyer of the dollar is either going to buy US goods and services or determine that a positive rate of return on the US dollar holdings is better than a zero rate of return and in turn buy treasuries.

  64. Re: @ The Banker___I left the door open a wee-bit…stating – “is (n’t) the only game in town”? Absolutely the Chinese will buy our debt for the very reasons you have ellaborated upon – but to what extent? They currently are buying their trading partners “Debt” in Asia (Japan,Maylasia,Korea),all of SE Asia, Autralia, Mongolia, Russia and yes, Taiwan,EU,India,Pakistan(?), South America (Brazil,Venezuela,Argintina -Mexico?*),Africa, etc., etc.,and the list keeps growing. Lets face it…they anticipated the unwinding years ago with excellent foresight/planning. They actually don’t depend on the United States as some in power would suggest. Who cares if their exports go up, and our imports get cheaper – what do we have to offshore (from our exports?), when everything is already offshored (and in foreign accounts?) – the american consumer is tapped-out, without a job, and held hostage by our neo-facsist state of current affairs. The Chinese are using our greatness of capitalism to beat us at our own game. Yes, this should never have come about, but with america’s electoral/election process, our (too death do we part -replaced by family members?) lifetime leaders (U.S. carreer politicians) in control, it’s hard to differentiate todays America from our pre-colonialism days…which the world just shakes its head at in utter amazement? PS. Realistically you really must use your noodle when China’s population is ~5X ours with their human resources in abundance. It is the MNC’s that created our misery…not China, period!

  65. A disappointing article. Talk about deficits, but silence re the military budget. Talk about “fiscal crisis,” with no specifics–the Peterson Institute’s austerity program being a notable omission. Nothing about inflation, nothing about the possible downside to quantitative easing, nothing about the obvious cluelessness of both the Fed and academe regarding the limits of debt in relation to what everybody presumes is an eternal reserve-currency status for the US dollar. Obvious axe-grinding by the author regarding his pet banking reforms, now (as ever) moot. –The whole bit reminds me of my invalid neighbor’s greatest moments when watching basketball on the tube: When one of the million-dollar players misses a free throw, he congratulates himself for being able to do that. Adam Smith was right: Capitalism runs mindlessly, automatically, with absolutely no need for the players to comprehend what they are doing. And Marx was right: The players like to pretend that they know what they are doing, and are in control. Pass me the dramamine.

  66. TonyForesta

    I am sure there are some faithful sevants in the financial services business, but, what has been proven is that the privately held federal reserve with their interests (the tbtf and their affiliated mammoth size hedge funds) were the recipient of funds conveyed at a moment in time when we needed to be protected by a fiduciary of our coffers instead we got propaganda that by GIVING money to AIG, and then the long string of TRILLIONS of dollars transferred to the scoundrels was to save the world–

    Someone sent me this link and i will tell you, it is only a drop in the ocean of crimes that have been legislated as OK by our legislators and their puppetmaster, the private federal reserve corporation:

    As I said before, our main stream media may try to encourage the myth that our system is OK, but the world can’t be fooled and the world is preparing to move away from the US$ as world reserve currency:

    I grieve for all of us, but pray for justice to be served and a corrective audit on all of the TBTF banks with a new facility created by an uncorrupted treasury to do the job for our country instead of a private party that has engineered the payment of taxpayer money to their pockets forevermore.

  67. By the way, here is a link to the page where the Fed discloses what they are paying on excess reserves–remember, the US treasury is obligated to pay this to the fed for member banks–what I can’t find is my reference to the details of the law which allows the fed to charge the treasury 6% on 15 of all excess reserves–it is easy to find the fed’s disclosures that it returns all profits to the treasure, but what is not mentioned is that all currency in circulation that is not backed by gold or silver, can be charged interest to manage, and currently, the fed considers 6 percent on 1 percent of all “excess “reserves a fair expense (not a profit)–funny how reserves have exploded over the last few years and everyone gets that little extra bonus of 1/4 of a percent on the new bonanza:


    yours in grief for the US taxpayer (we the swindled people), but truly non-the less.

  68. Paul, Americans are experiencing a ‘major financial crisis’ right now. We can’t get jobs, real unemployment is close to 17 percent, our homes are being taken from us, and more and more of us can’t get healthcare. (We may or may not be able to purchase so-called health “insurance,” but that’s not at all the same thing.

    It is only the ruling class in D.C., the titans of Wall Street, and the Oil Barons who are not experiencing a major financial crisis. And they plan to keep it that way by gutting Social Security and Medicare.

    This deficit scare-mongering is nuts. Until we start valuing the productive labor that will allow us to rebuild our communities, we’re all just blowing smoke.

    Money is just an IDEA, people. Wake up!

    And start getting behind some better ideas.

    P.S. Welcome to the U.S.A., Paul. I’m confident you can help us build a better one.

  69. @TonyForesta: “and a new more equitable, more sound, and more lawful economic system must be erected in it’s place.”

    I agree. Perhaps you will consult the position statement of the Center for the Advancement of a Steady State Economy (CASSE) and see if you wish to sign it. You can find it at

  70. Don’t get me wrong: I’m all about alternative energy tech. But NONE of what’s out there is a drop in replacement for oil yet, and we’re WAY too close to the deadline for anything that requires transition time. We should go for them regardless, but without a drop in replacement for oil we WILL NOT have a sustained economic recovery complete with continued unlimited growth.

    The first oil price shock to hit us will knock the economy to its knees. It’s anybody’s guess if the transition to oil alternatives will come soon enough after that to avoid a major disruption of first world lifestyles and societies. My bet is no, sense we (as a collective first world society) won’t make a truly earnest effort to replace oil until its depletion has slapped us in the face. At that point, it’s too late.

  71. There’s quite a few differences between WW2 and now, but to go to the simplest, our economic officials at the time weren’t morons. No one worried about “running out of money” or the risk of “national bankruptcy”. We keep hearing today that WH officials are deeplyconcerned about the size of the budget deficit, (10% of the GDP this year). Howeer with nearly 10% unemployment, to worry about the deficit or debt is just D-U-M dumb. What a bunch of wimps, in 1943, Uncle Sam’s deficit spending hit 30% of GDP, the equivalent todayof a $4+ trillion deficit (followed by equivalent of $3 trillion deficits in 1944 and 1945). And yet somehow FDR and Truman, didn’t run out of money needed to win the war. if only Pete Peterson would spend his fortune to build a time machine to send David Walker back to warn them!

    Anywho, shortly after Pearl Harbor, Tsy and Fed established a tap system; short term rates were capped at .0375%, long term rates at 2.5%, any Treasuries that weren’t sold at auction, the Fed bought itself. Since the Fed didn’t start refunding net profits until the 60’s, the National Debt would have been a rather smaller if the current policy were in place during WWII (Hey! I found another difference).

    The Government was overclocking the war economy to keep Jean Monnet’s fantastically optimistic (though, of course accurate) economic Victory Program on track. This required economy-wide price controls and rationing for food, gasoline and clothing by Ken Galbraith, young Richard Nixon and the rest of the crew at the Office of Price Administration. Since there were few consumer goods available to spend the high wartime wages on (if nothing else, shipping a large fraction of the work force overseas does wonders for the wage scale), putting this new wealth into bonds was the only logical thing for Americans to do. And since savings are a demand leakage, these war bonds were a functional equivalent of taxes in reducing aggregate demand by draining reserves and far more popular since the bonds came back with interest after the war while levying taxes was just like burning money, in fact that’s kind of the point.

    Our non-moronic (albeit not non-Mormon, the Fed Chairman Marriner Eccles was a member of LDS) economic officials understand perfectly the actual role taxes play in the economy. Indeed, only months after the war, New York Fed Chairman Beardsley Ruml wrote his famous piece, “Taxes for Revenue Are Obsolete”.

    Let’s face it, if President Obama and his team had been in charge during World War II, America’s main export would soon be Japanese Army comfort women.

  72. FDR’s Reconstruction Finance Corporation chairman Jesse Jones had a simple rule for bailouts. As the condition for any financial assistance to a private company, he would demand resignation letters from the company’s the top three officials. That’s a handy rule of thumb, a pity Congress didn’t insist on that before they got into the bank bailout/career suicide business.

  73. True that Sophie and Carla, and a thousand thanks to both of you for the links. I would like to believe there are peaceful ways out of this horrorshow, that the rule of law, and active citizenship hold some sway or maintain some influence in the conduct of the government, and that through organized peaceful methods we, the people, or someone will begin the arduous process of righting these horrible wrongs – but I cannot ignore the harsh reality that NONE, NOT ONE of our socalled leaders work in the peoples best interests, and every single one of them is beholden to, and owned and controlled by one or another oligarch or predatorclass cabal. Worse, those oligarchs and predatorclass cabals operate above and beyond the rule of law, and are apparently immune from any culpability for systemic abuses and criminal activity. A purchased government, craven spaniels posing as leadership cloaks, shields, advances, aids and abets the oligarchs and the predatorclass exclusively, and abuses, abandons, or neglects the peoples best interests. The political system IS the financial system, they intertwining interpenetrating tentacles of the same monstrous beast. Tear it all down, and start over, by any means possible. If these changes can arise peaceably – wonderful. I fear that forcing these changes – which is necessary for our survival and what little remains of our once more perfect union – will not be pretty or bloodless. I pray I am wrong.

  74. It is a well-known fact that USA citizens have allowed themselves to be dumbed down when it comes to civics.

    Constitutional Convention and have a burning of a copy of the Patriot Act to start the Convention.

    You keep focusing on the top rung of predatorclass without taking into account the BOTTOM rung of the predatorclass. It’s the BOTTOM rung of the predatorclass that is in our faces everyday…watch some footage from Germany taken inside their own country in the lead up to WWII and the ongoing rallies during the war campaign to establish 1,000 years of German rule over Earth (their humble plan).

    MSM is an absolute JOKE – the yapping Schnausers :-)

    People have to start taking at least 3 different FACTS from the enormous grab bag of tricks and treats provided by sadistic psychotics, sociopaths and narcissists and exercise some COURAGE.

    CIVICS 101 – there is only ONE made-up, “war time” rationalization that WILL step up and say that a Constitutional Convention is “illegal”

    and that is The Patriot Act’s “secret” cabal of globalists WHO ARE NOT EVEN AMERICANS (duel citizenship is a new phenomena – how can you be a citizen of TWO countries?).

    The FACT that MSM is acting like a Constitutional Convention is NOT a REAL option

    is an act of WAR against the American PEOPLE, pure and simple.

    That’s where we are really at – our government HAS absolutely declared WAR against it’s own citizens!

    Here are my 3 “facts” – go back and read the series of articles about the growth of SECRET “homeland security” organizations HOUSED in D.C. modern architecture office building reading along with us on this blog – I KNOW with absolute certainty that none of those “secret” agents DESERVE to have access to my financial records because look at the MORTGAGE mess – that’s the only thing that their SECRET plan was about – Savings and Loan and Enron combined!

    Second – perpetual war. There IS no greater insanity than using “religion” as an excuse for WAR. Especially when on one hand, Zionists insist on the rest of the world acknowledging that theey are god’s “chosen ones” while on the other hand they are out in the open as agnostics or atheists. Nuts right there – how can you be a chosen one of a god that you don’t believe exists? Answer, you must believe YOU are god…

    and #3 – the garbage dump that is Spaceship Earth from over-breeding and PRIMITIVE “fire” worship as an eternal “energy” source – who’s “culture” is that? USA’s? Really?

    Stop acknowledging the psychos as winners of the game of life. Seriously, STOP acting like you BELIEVE that they are the “smartest people on the planet”.

    They simply ARE NOT.


    More misery for others = More money for ME ME ME.

    That’s IT. There’s nothing else turning the hamster cage that is their brain.

    No one has any obligation, whatsoever, to allow themselves to be RULED by anyone completely delusional and devoid of any common sense.

    Will it get “violent”? I guess it depends on your definition of “violence” – does being called STUPID day in and day out by MSM qualify as “violence”?

    LOOK at the slate of people up for “election” in a few weeks – it’s INSULTING – such a serious time and $$$ puts up the MOST un-serious candidates to freekin play a fiddle while Rome burns – it’s disgusting.

  75. Dr. Krugman’s spot on here. There has been a complete and total undermining of contracts and legal remedy orchestrated by the true power behind our federal government and its institutions.

    This was initiated by a the Clinton administration, fully articulated during the Bush (II) administration after years of skillful dismantling of the regulatory structure of the financial markets, and seen through to completion without any loss in continuity, by the current Democratic administration. What makes it all the more extraordinary, and world-historical, is a reformer-candidate, himself a world-historical figure, was the executor of this take-over and the one to see it through to completion.

    These very people — regardless of professed political affiliation — have developed a ready-for-prime-time script, with all the talking points necessary to explain that what they did was absolutely necessary to prevent the Great Depression 2. They all hold fast to the script — worked out (literally down to the digressions from the major talking points) in parallel with the mechanics of tunneling all that money to the TBTF banks. Anyone who’s paying attention will have noticed this script does not vary, regardless of venue (IMF meetings, World Bank meetings, Fed meetings, etc., etc., etc.). The principals to this take-over — at the banks, in academia, in government — have no choice. They are all compromised.

    These people now control what constitutes enforceable contracts, legal due process and property rights. If they do not agree with what you think is a legally enforceable contract, you lose. You have no remedy.

    And they have appropriated the taxing and money-creation powers of the U.S. government. Nothing they do can fail — they can borrow from the Fed at 0% — that’s zero — and buy or sell anything that strikes their fancy with certain knowledge they can not fail. They will not be allowed to fail. So, with the full faith and credit of the United States behind them, they can pick up anything. Anything at all. WIth no risk of failure.

    So, pretend you’re on the other side of a deal with these guys. What do you think happens when the deal goes your way — i.e., when it goes against them? As Dr. Krugman points out, they can dispossess you of your property. You’re on the street. They’re left whole, at the very least.

    If dispossessing you without due process doesn’t work, they can put their contracts (or whatever paper they hold indicating they may have some sort of claim — which, btw, need not be perfected — to some sort of payment) to the U.S. Federal Reserve System. The guys running the Fed — and its member banks — can be counted on to ensure nothing will prevent the exercise of that put. Whatever these banks put to the Fed will stay on the Fed’s balance sheet. That means the U.S. government absorbs the loss. Oh, wait, that’s us …

    Speaking of world-historical events, seems like we’ve been down this path once before …

  76. Nice propaganda there.

    It’s quite obvious now the “Clinton Surplus” was nothing but smoke and mirrors. The only substantial cuts to government spending made by Clinton were in the Defense Department. He reduced our military forces every year for eight years, and we cashed in the “peace dividend” on 9/11 and in two subsequent wars. All the savings on defense were spent on cleaning up his mess.

    Tax revenues during the 90s were inflated by asset price bubbles which, when popped, plunged the nation into a recession – the Clinton Recession. You certainly can’t blame Bush’s policies for a recession which began just two months after he took office (and problems that were evident even before then).

    Clinton backloaded spending programs so that his successor (whoever that would be) would have to pay for them.

    With the perfect hindsight of the 2000-2001 recession, how can you say we were in “relatively good shape” at the end of the Clinton presidency? That’s absurd!

    The housing policies begun in 1996 by Clinton and continued by Bush were what caused the housing boom and subsequent crisis. Clinton’s HUD permitted the “affordable” mortgages. Clinton’s HUD gave Fannie and Freddie affordable housing credits for purchasing subprime loans they would previously not accept. It was from 1996 to 2000 that home “ownership” grew at a rapid rate and house prices became unhinged from general inflation. The housing crisis was more than 10 years in the making, and primarily a consequence of numerous government subsidies and interventions which distorted the buy vs. rent decision for millions of people.

    Some favor we did them.

    Despite (no, because of) Social Security and Medicare, our seniors enter retirement with almost no retirement or health care savings. We’ve created a beggar society which causes people to think they are going to be taken care of when they get old or fall on hard times. That’s why we have such a low savings rate. Empty government promises have taken the place of precautionary or planned savings. Look at how states have woefully mismanaged their unemployment and pension funds! The “promise to pay” from government revenues has entirely crowded out private savings from fully-funded, personally owned, savings accounts.

    Big Banks took on big risks because they were given those incentives by GOVERNMENT. It was government that reduced interest rates, creating a search for yield. It was government that provided guarantees, subsidies, incentives and quotas for residential lending. It was government that pushed the first securitizations, proving the profitability of the business model.

  77. Re: @ markets.aurelius____Dr. Krugman’s article is plagarizing “13 Bankers” to the “T” ! Mr. Johnson and Mr. Kwak have explicitly stated this in several of the seven (7) chapters more than once, stating the initative first carried out by “Ronnie”, “the government is the problem”, Reagan! PS.___with respect…concerning Anonymous comment above, “The Mortgage Morass”

  78. at first the attorney generals were speaking in the proper legal language about the potential crimes here…a few days later i heard one say, ‘ I spoke with jamie dimon and he assures us that this will all be corrected in very short order’ then when the questioner said something about fraud and criminal prosecutions, the spokesperson said,’ we’ll have to see what to do because we want to make sure the process can move forward’—sadly, the the “toosacredtofail” banks are above the law all over again unless they get shut down for this….this is the smoking gun moment adn people DO UNDERSTAND LAND CONVEYANCE AND THE VERY SERIOUS PROCEDURES NECESSARY TO PREVENT FRAUD!!!! This one is just too easily understood by the everyday man for our main street media to enable our legislators to brush under the rug–

    if this is properly prosecuted, maybe we can get an audit of the fed (the privately owned corporation that runs our country), their main owner and operator.

  79. Re: @ POWinCA___Let me ask you to analyze this simple equation. Does “Pearl Harbor” equal “911”, and if not, are 19 crazy Arabs equivalent in force/match to the largest military complex in the entire world. PS. We’ve already given up our civil rights of habeas corpus, not to forget eminent domain, given the right to live where we choose – what’s next…is the “right to bear arms” – as they say up north a “Hat Trick”! Yea, its all Clinton’s fault eg., past 42 years we’ve had republican presidents 28 years to only 14 years democratic – 2:1 ratio – pathetic!

  80. Simon Johnson: “In particular, the commonly discussed target for our government debt-to-GDP ratio of 60 percent seems unreasonably high, given the risks posed by our financial system. We should probably aim for a target instead of 20 percent or lower, as do the most responsible emerging markets in Asia or the Baltics.”

    Having a goal for the debt/GDP ratio seems a strange thing to me because usually the idea is to reduce the debt instead of increasing the GDP. But the debt, which, in the case of the U. S., has accumulated over 174 years, is the slower moving target. OC, if you can reduce debt while increasing GDP, that would be ideal for changing the ratio, but current economic conditions do not seem very conducive. When we have a recovery, it would be different. So shouldn’t our focus be on recovery? Instead, it seems to be on reducing the deficit, which may well make the ratio worse. No?

    Simon Johnson: “Fiscal conservatives” (and everyone else) will likely ignore this advice. In that case, we’ll soon face a major fiscal crisis in the United States – again as a direct result of financial sector irresponsibility.”

    You seem to be saying that there is a link between high deficits and financial sector irresponsibility? Is that so, and if so, why? Thanks. :)

  81. rayllove: “What is happening as a result of these conditions is that stimulus in its many forms is making money so cheap that foreign markets are being flooded with unwanted capital.”

    But it is not making money cheap enough to spur domestic inflation. Nor is the stimulus putting money into hands that would spend it, and spend it locally.

  82. Wikipedia: “The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus hopefully induce a stimulation of the economy.”

    The “hopefully” is misplaced. This is more accurate, and perhaps better grammar:

    “The purchases, by way of account deposits, give banks excess reserves in the hope that they will create new money by making loans to businesses and consumers, thus stimulating the economy.”

  83. “As the condition for any financial assistance to a private company, he would demand resignation letters from the company’s the top three officials”

    Yes. Heads must roll. But corporations are larger these days. How about the top ten? And the whole board?

  84. Re: @ Anonymous____Your correct, indeed…the “Devil” was surely in the details? On a lighter note – why are all muslims painted illiterate, arrogant hate mongers…lumped into a bucket of chum?

  85. 3-D: “The first oil price shock to hit us will knock the economy to its knees.”

    You are referring, OC, to the spike in 2008. :)

  86. Anonymous: “All the suspected hijackers were from Saudi Arabia (fifteen hijackers), United Arab Emirates (two hijackers), Lebanon (one hijacker) and Egypt (one hijacker).”

    Right. Which is why we attacked Iraq.

  87. earle_florida: “On a lighter note – why are all muslims painted illiterate, arrogant hate mongers…lumped into a bucket of chum?”

    You are reading or listening to the wrong people, earle.

  88. …and when the so-called fiscal conservatives discuss spending cuts isn’t it about time we discuss cutting the larget corporate welfare program of all, our ridiculous military budget. For some strange reason they are against needed public works projects like replacing deteriorating bridges and tunnels, but fine giving trillions to the military industrial complex.

  89. You might want to look into a little basic math, POWinCA. It’s incontrovertible. A much larger, much more diverse segment of the total population benefited under Clinton. Now we all accept and must recognize that many of the deregulation horrors that plague us now, were perpetuated by the Rubian economic people under Clinton, – and I do not defend those policies, – but what I will state with certainty is that gop lead government ruthlessly oppress the poor and middleclass and gleefully cloak, shield, and advance the predatorclass, the richest 1%, and this terrible truth tracks back to the roots of fascist Amerika born in the Nixon regime.

    Defense, and private defense, and intelligence and private intelligence industrial complex budgets were justifiably and rightfully reduced under Clinton. bushtheidiot, radically increased these industrial complexes budgets and wanton profiteering. I won’t go into the PearlHarborlikeevent of 9/11, that majikally “justified” two neverendingwars, and a massive increase in defense, private defense, intelligence, and private intelligence industrial complex funding.

    The point is, that the Obama government notwithstanding, – democratic leadership (as cowardly and flawed as they are), benefits and advances a much larger segment of the population, – while republican leadership since nixon – benefits and advances the best interests of the predatorclass, and predatorclass oligarchs singularly and exclusively.

  90. Ok, but consider this – for the Fiscal Year 2011 budget (which languishes on Capitol Hill since Congress can not seem to do its one Constitutionally mandated job) the estimate by the White House Office of Management and Budget puts the deficit at approximately (i.e. within a few tens of billions of dollars) what the Administration proposes to spend on discretionary programs (i.e. everything BUT Social Security, Medicare, Medicaid and a portion of Defense). That means that, absent SERIOUS tax measures that raise revenue, you can not cut your way to fiscal sanity. And while I happen to favor letting the Bush tax cuts expire, they will not generate enough revenue to offset the massive cuts necessary to bring federal spending “under control.”

    And, FWIW, “under control” is usually a mask for someones opinion that the federal government is spending money on things it should not be doing, instead of spending money badly.

  91. “It’s all really simple, people: just spend spend spend.

    And who really cares if the deficit goes to 100% or even 1000% of GDP? We can just have the Fed buy the debt and pay the interest back to the Treasury. ”

    You’ve clearly haven’t read much about MMT. The government should strive for price stability, but that’s done by managing purchase power in the economy with taxes. Taxes do not fund government purchases for sovereign governments that issue fiat currency.

    Why don;t you actually read the Mosler link? And there’s plenty more to learn here:

    Or do you prefer to take pot shots at ideas that you haven’t explored? But, hey, it’s easier than thinking.

  92. “Coming out of WW2 savings rates were high, now they are low. ”

    Well of course savings rates were high because the government was consuming so much of GDP fighting the war! Government deficits fund savings.

  93. “Paul, Americans are experiencing a ‘major financial crisis’ right now. We can’t get jobs, real unemployment is close to 17 percent, our homes are being taken from us, and more and more of us can’t get healthcare.”

    Most main-stream economists believe that we’ve simply had a shift in our preference for leisure. It must be so because their models always tend towards full employment! (yes, they really are that stupid. I’m a U Chicago MBA, so I saw it first hand).

  94. I presume he means that failure to address TBTF will lead to further bailouts and debt, and that if one is serious about being a financial conservative they will work to ensure this problem is resolved. Failure to take serious steps is evidence, to Johnson, the fiscal conservatives did not engage in Dodd-Frank.

    You may or may not agree, but the reasoning is sound.

  95. true that – but they don’t do it PERSONALLY

    they have a large gene pool of sadists, psychos, sociopaths, narcissists, shamans with “holy books”, faux miss manners censorship “moderators”

    who they carefully “burrowed” into every single institution of civilization.

    It’s now ILLEGAL to be moral and ethical in “business” deals.

    Constitutional Convention and BURN THE PATRIOT ACT.

    What part don’t you (collective “you”) understand.

    We the People got screwed and

    we’re laying around smoking the cigarette in bed, so to speak, for how many years…?!!

    Get up and out into LIFE.

    Look at this trashed Spaceship Earth – gawd al-mightie – let’s just roll in crap and call it a day if we’re not going to “change”

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