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Absence Of Anger

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I’ve been reading quite a number of articles written in anticipation of a revolutionary uprising by outraged citizens in response to the fallout from Wall Street’s giant Ponzi scheme.  The writers of these items are talking about a more significant uprising than anything we have seen from the Tea Party demonstrators.  Some are expecting riots in the streets.  Since widespread civil unrest has recently taken place in Europe, much attention has been focused on the issue of whether anything like that could happen in the United States.  From my own perspective, I just don’t see it happening.  Nevertheless, I can’t understand what keeps the American public from getting really mad at this point.  It could be due to an epidemic of Attention Deficit Disorder or excessive preoccupation with other distractions.  Perhaps some sort of far-flung conspiratorial effort is under way, involving mass hypnosis via television or drugged drinking water.

On the other hand, I do agree with those commentators on the point that the predicted insurgent reactions are entirely foreseeable.  Are they likely?  Consider what these pundits have said and decide for yourself   .  .  .

One of my favorite commentators, Paul Farrell of MarketWatch, discussed an inevitable backlash against the super-rich, who are waging class warfare by victimizing those of us down the food chain.  Nevertheless, he doesn’t really make it clear how this revolution will manifest itself.  Will there be actual physical violence  . . .  or just a “bloodbath” in the stock market?  Here is how he described it:

Yes, it’s called the Doomsday Capitalism revolution.  And I’m betting you’ll be able to track it on Twitter.

*   *   *

This new preemptive war is already in progress, and America’s billionaires are the aggressors:  Buffett’s billionaire buddies on the Forbes lists, his Wall Street banker buddies, his exporter buddies in China, all of Buffett’s buddies in this “rich class” are already engaged in a hostile takeover war against the American middle class, against the working class and the poor, against all Americans not on the Forbes lists of billionaires.

*   *   *

Here’s how I imagine this revolution unfolding as a series of rapid-fire tweets, as citizen-warriors pass along this collection of earlier warnings to reenergize and drive the rest of America to rebel against Buffett’s “rich class,” tweets that will trigger an anti-capitalist revolution.

Warning to all investors:  Prepare now, play defense.  Expect an economic upheaval rivaling the 1929 crash, creating a climate for true reform that will make the 1930s look like a real tea party.

At The Curious Capitalist blog, Stephen Gandel pondered what would result from all the fear and loathing about whether the Federal Reserve would begin another round of quantitative easing.  His essay was entitled, “Will the Federal Reserve Cause a Civil War?”  Mr. Gandel focused on a recent posting at the Zero Hedge website, which quoted this observation by Karl Denninger:

In a very real sense, Bernanke is throwing Granny and Grandpa down the stairs – on purpose.  He is literally threatening those at the lower end of the economic strata, along with all who are retired, with starvation and death, and in a just nation where the rule of law controlled instead of being abused by the kleptocrats he would be facing charges of Seditious Conspiracy, as his policies will inevitably lead to the destruction of our republic.

Stephen Gandel analyzed the potential for civil war as a consequence of more quantitative easing with this logic:

Lower rates do tend to favor borrowers over savers.  And the largest borrowers in the country are banks, speculators and large corporations.  The largest spenders in our country though tend to be individuals.  Consumer spending makes up 70% of the economy.  And the vast majority of consumers are on the low-end of the income scale.  So I think it is a valid question to ask whether the Fed’s desire to drive down interest rates at all costs policy is working.  Companies are already borrowing at low rates. They are just not spending.        .   .   .

That being said, civil war, probably not.  “It is a gross exaggeration,” says Allan Meltzer, who is a top Fed historian at Carnegie Mellon.  “I cannot recall ever learning about riots or civil war even when the Fed made other mistakes.”

Meanwhile, the prognostications of a gentleman named Gerald Celente appear to be gaining a good deal of traction.  Here are some of Celente’s thoughts as they appeared in his own Trend Alert newsletter, back in April of 2009:

“Nothing short of total repudiation of our entrenched systems can rescue America,” said Celente.  “We are under the control of a two-headed, one party political system.  Wall Street controls our financial lives; the media manipulates our minds.  These systems cannot be changed from within. There is no alternative.  Without a revolution, these institutions will bankrupt the country, keep fighting failed wars, start new ones, and hold us in perpetual intellectual subjugation.”

*   *   *

“I am calling for an ‘Intellectual Revolution’.  I ask American citizens to free their minds from the tyranny of ‘Dumb Think.’  This is a revolution about thinking – not manning the barricades.  It’s about brain power – not brute force.”

It would seem that some degree of anger would be required to incite an “Intellectual Revolution” —  even one without any acts of insurrection.  At this point, it just doesn’t appear as though the American taxpayers are really there yet – Tea Party or not.  People who “want their country back” aren’t the people who will lead this charge.  Watch out for the people who want their jobs, homes and money back.  They will be the ones with the requisite anger to seek real change – as opposed to the “change you can believe in”.


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Summers Solstice

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November 27, 2008

We are now approaching the winter solstice (December 21 – the time at which the sun is at its most southern distance from the equator during the year – a/k/a:  “the shortest day of the year” for those of us in the northern hemisphere).  President-elect Obama’s appointment of Larry Summers as Director of the National Economic Council reminds me of another definition of the word “solstice”:  a turning point.  For all his faults (most notably, his infamous remarks as President of Harvard University, about the involvement of women in the study of science) he is no longer considered so much of a “supply sider” as a centrist in the world of economics.  Summers has apparently passed a turning point in his economic philosophy.

For those unfamiliar with Larry Summers, David Leonhardt’s article, “The Return of Larry Summers” in the November 25 New York Times is worth reading. I’ve been hearing reverberations of Leonhardt’s commentary throughout the mainstream media lately.  Here is an important observation from Mr. Leonhardt’s piece:

He (Summers) is also the centrist who has made it safe for other centrist Democrats to move to the left.  Both times I’ve interviewed Mr. Obama this year, he has brought up Mr. Summers, unbidden, and pointed out that Mr. Summers was now writing a lot more about the plight of the middle class than about budget deficits.  At Monday’s news conference, Mr. Obama called him “a thought leader.”

The “thought leader” remark came up in the following context when Barack Obama announced his appointment of Summers to the National Economic Council post on November 24.

As a thought leader, Larry has urged us to confront the problems of income inequality and the middle class squeeze, consistently arguing that the key to a strong economy is a strong, vibrant, growing middle class.

This idea is at the core of my own economic philosophy and will be the foundation of all of my economic policies. And as one of the great economic minds of our time, Larry has earned a global reputation for being able to cut to the heart of the most complex and novel policy challenges.

Looking back to June 10, 2007, we find another article in the New York Times written by David Leonhardt, entitled:  “Larry Summers’s Evolution”.  As we revisit this commentary in light of our current economic crisis, the pronouncements made by Summers seem almost prophetic:

The model that most appeals to Summers is, in fact, the United States — in the decades after World War II.  At the time, this country was opening itself to more global competition, by rebuilding Europe and signing financial agreements like Bretton Woods.  But it was also taking concrete steps to build the modern middle class.  In addition to the G.I. Bill, there were the Federal Housing Administration, the Interstate Highway System and a very different tax code.  The history of progressivism “has been one of the market being protected from its own excesses,” Summers says.  “And I think now the challenge is, again, to protect a basic market system based on open trade and globalization, to make it one that works for everyone or for almost everyone, at a time when market forces are often producing outcomes that seem increasingly problematic to middle-class families.”

That essay inspired The Economist to post a piece on its Free Exchange blog on the following day, entitled “Has Larry Summers Gone Soft?”

Nevertheless, conservative writers such as Kevin Hassett of Forbes still think of Summers as an opponent to increased capital gains taxation and hence, an advocate of “supply side” economics.   Conservative writer, David Harsanyi of the Denver Post exhibited similar enthusiasm about the appointment of Summers.  However, in the November 24 National Review, Larry Kudlow saw Obama’s appointment of Summers as a move to the center:

As for Summers, while he has been mau-maued by Democratic feminists and some of the unions, he is a tough, clear-headed thinker who has for years tried to merge Keynesian and supply-side policies.  No mean feat.

At this point, many pundits are attempting to “read the tea leaves” for hints as to whether President Obama will act to reverse the Bush tax cuts or let them expire in 2011.  The consensus suggests that he may simply let them expire.  This has drawn some anxious criticism from the left.  On the November 25 broadcast of the program, Democracy Now, author Naomi Klein made the following remark about Obama’s appointment of Summers:  “I think this is really troubling.”  However, on that same program, economics professor Robert Kuttner (the chief economics adviser to Rep. Dennis Kucinich) explained that he was “less pessimistic” than Ms. Klein about the Summers appointment:

I think even Larry Summers, because he is such an opportunist, has lately been calling for very large stimulus package, has been calling for tighter regulation of banks.

The influence of Larry Summers on the Obama Administration’s economic policy will be a continuing saga for the next few years.  At this point, the “change you can believe in” seems to absorb more than a little input from the center.

Money Falling From The Sky

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November 17, 2008

The debate concerning a possible bailout of the “big three” automakers (General Motors, Ford and Daimler Chrysler) has now reached the House of Representatives.  House Minority Leader, John Boehner (Republican from Ohio) has voiced his opposition to this latest bailout, indicating that it will not receive much support from Congressional Republicans.

In the words of Yogi Berra, we are experiencing “déjà vu all over again”.  This process started with the plan of Treasury Secretary Henry Paulson, to bail out banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers in excess of $700 billion.  Back on September 22, when that bailout bill (now known as TARP) was being considered, Jackie Kucinich and Alexander Bolton wrote an article for TheHill.com, discussing Republican opposition to this measure.  Their article included a prophetic remark by Republican Congressman Cliff Stearns of Florida:

“Bailout after bailout is not a strategy,” said Stearns, who said that taxpayers could be left with a huge bill.

Yet, “bailout after bailout” is exactly where we are now.  On November 15, T-Bone Pickings appeared on NBC’s Meet the Press.  Tom Brokaw asked T-Bone Pickings for his opinion on the proposed “Big Three Bailout”.  The response was:

I wonder what you’re going to do about the next industry.  Is it going to be the airlines or what if Toyota and Honda want some help, too?  I don’t know.  I don’t know where it stops.

Once again, we are presented with the need to bail out yet another American industry considered “too big to fail”.  However, this time, we are not being asked to save an entire industry, just a few players who fought like hell, resisting every change from rear-view mirrors, to fuel injection, seat belts, catalytic converters, air bags and most recently, hybrid technology.  Later on Meet the Press, we heard the BBC’s Katty Kay quote a rhetorical question from unidentified “smart economists” that included the magic word:

Can it withstand the shock to the economy if GM were to go?

Later on the CBS program, Face The Nation, Massachusetts Congressman Barney Frank, Chairman of the House Financial Services Committee, used similar logic to that expressed by Katty Kay, when he stated:

When you talk about the negative shock that would result from bankruptcies of these companies, right now  …

The magic word “shock” is once again playing an important role for the advocates of this newest rescue package. I was immediately compelled to re-read my posting from September 22, concerning the introduction of the Paulson bailout plan, entitled:  “Here We Go Again”.  At that time, I discussed Naomi Klein’s 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism.  Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals.  She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis.  She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”.  Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”.  She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history.  Remember that this book was released a year before the crises we are going through now.

Ms. Klein’s article, “In Praise of a Rocky Transition” appeared in the December 1, 2008 issue of The Nation.  She discussed Washington’s handling of the Wall Street bailout, characterizing it as “borderline criminal”.  Would the financial rescue legislation (TARP) have passed if Congress and the public had been advised that the Federal Reserve had already fed a number of unnamed financial institutions two trillion dollars in emergency loans?  Naomi Klein expressed the need for the Obama Administration to stick with its mantra of “Change You Can Believe In” as opposed to any perceived need to soothe the financial markets:

There is no way to reconcile the public’s vote for change with the market’s foot-stomping for more of the same.  Any and all moves to change course will be met with short-term market shocks.  The good news is that once it is clear that the new rules will be applied across the board and with fairness, the market will stabilize and adjust.  Furthermore, the timing for this turbulence has never been better.  Over the past three months, we’ve been shocked so frequently that market stability would come as more of a surprise.  That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first.  Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate.  The longer he waits, however, the more memories fade.

When transferring power from a functional, trustworthy regime, everyone favors a smooth transition.  When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.

The Obama Administration would be wise to heed Ms. Klein’s suggestions.  It would also help to seriously consider the concerns of Republicans such as John Boehner, who is apparently not anxious to feed America another “crap sandwich”.