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Looking Beyond The Smokescreen

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We bloggers have the mainstream news outlets to thank for our readership.  The inane, single-minded focus on a particular story, simply because it brings a huge audience to one’s competitors, regularly provides the driving force behind programming decisions made by those news producers.  As a result, America’s more discerning, critical thinkers have turned to internet-based news sources (and blogs) to familiarize themselves with the more important stories of these turbulent times.

Robert Oak, at The Economic Populist website, recently expressed his outrage concerning the fact that a certain over-publicized murder trial has eclipsed coverage of more important matters:

For over a week we’ve heard nothing else by the press but Casey Anthony.  Imagine what would happen if Nancy Grace used her never ending tape loop rants of hatred against tot mom to spew and prattle about the U.S. economy? Instead of some bizarre post traumatic public stress disorder, stuck in a rut, obsessive thought mantra, repeating ad nauseum, she’s guilty, we might hear our politicians are selling this nation down the river.

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Folks, don’t you think the economy is just a little more important and actually impacts your lives than one crime and trial?  The reality is any story which really impacts the daily lives of working America is not covered or spun to fiction.

The fact that “our politicians are selling this nation down the river” has not been overlooked by Brett Arends at MarketWatch.  He recently wrote a great essay entitled, “The Next, Worse Financial Crisis”, wherein he discussed ten reasons “why we are doomed to repeat 2008”.  Of the ten reasons, my favorite was number 7, “The ancient regime is in the saddle”:

I have to laugh whenever I hear Republicans ranting that Barack Obama is a “liberal” or a “socialist” or a communist.  Are you kidding me?  Obama is Bush 44.  He’s a bit more like the old man than the younger one.  But look at who’s still running the economy: Bernanke. Geithner. Summers. Goldman Sachs. J.P. Morgan Chase. We’ve had the same establishment in charge since at least 1987, when Paul Volcker stood down as Fed chairman.  Change?  What “change”?  (And even the little we had was too much for Wall Street, which bought itself a new, more compliant Congress in 2010.)

As the 2012 campaign season begins, one need not look too far to find criticism of President Obama. Nevertheless, as Brett Arends explained, most of that criticism is a re-hash of the same, tired talking points we have been hearing since Obama took office.  We are only now beginning to hear a broader chorus of pushback from commentators who see Obama as the President I have often described as the “Dissapointer-In-Chief”.  Marshall Auerback wasn’t so restrained in his recent appraisal of Obama’s maladroit response to our economic crisis, choosing instead to ratify a well-deserved putdown, which most commentators felt obligated to denounce:

It may not have been the most felicitous choice of phrase, but Mark Halperin’s characterization of Barack Obama was not far off the mark, even if he did get suspended for it.  The President is a dick, at least as far as his understanding of basic economics goes.  Obama’s perverse fixation with deficit reduction uber alles takes him to areas where even George W. Bush and Ronald Reagan dared not to venture.  Medicare and Social Security are now on the table.  In fact entitlements of all kinds (excluding the myriad of subsidies still present to Wall Street) are all deemed fair game.

To what end?  Deficit control and deficit reduction, despite the fact that at present, the US has massive excess capacity including millions of unemployed and underemployed, a negative contribution from net exports, and a stagnant private spending growth horizon.  Yet the President marches on, oblivious to the harm his policies would introduce to an already bleeding economy, using the tired analogy between a household and a sovereign government to support his tired arguments.  It may have been impolitic, but “dick” is what immediately sprang to mind as one listened incredulously to the President’s press conference, which went from the sublime to the ridiculous.

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Let’s state it again:  households do not have the power to levy taxes, to issue the currency we use, and to demand that those taxes are paid in the currency it issues.  Rather, households are users of the currency issued by the sovereign government.  Here the same distinction applies to private businesses, which are also users of the currency.  There’s a big difference, as all us on this blog have repeatedly stressed:  Users of a currency do face an external constraint in a way that a sovereign issuer of its currency does not.

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The President has the causation here totally backward.  A growing economy, characterized by rising employment, rising incomes and rising capacity utilization causes the deficit to shrink, not the other way around.  Rising prosperity means rising tax revenues and reduced social welfare payments, whereas there is an overwhelming body of evidence to support the opposite – cutting budget deficits when there is slack private spending growth and external deficits will erode growth and destroy net jobs.

The increasing, widespread awareness of Obama’s mishandling of the economic crisis has resulted in a great cover story for New York Magazine by Frank Rich, entitled, “Obama’s Original Sin”.  While discussing Rich’s article, Yves Smith of Naked Capitalism lamented the fact that Obama is – again – the beneficiary of undeserved restraint:

Even Rich’s solid piece treats Obama more kindly that he should be.  He depicts the President as too easily won over by “the best and the brightest” in the guise of folks like Robert Rubin and his protégé Timothy Geithner.

We think this characterization is far too charitable.  Obama had a window in time in which he could have acted, decisively, to rein the financial services in, and he and his aides chose to let it pass and throw their lot in with the banksters.  That fatal decision has severely constrained their freedom of action, as we explain .  .  .

Miscreants such as Casey Anthony serve as convenient decoys for public anger.  Hopefully, by Election Day, the voters will realize that Casey Anthony isn’t to blame for the pathetic state of America’s economy and they will vote accordingly.


 

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The Home Stretch

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October 27, 2008

We are entering the final week of the longest Presidential campaign in our nation’s history.  At the same time, the world economy continues to flirt with chaos and our nation’s equities market indices are diving at a faster pace than Superman’s swooping down from the sky to save Lois Lane from a potential rapist.  Some stockbrokers believe that an abrupt and decisive nosedive in the markets might have a cathartic effect and finally bring us to the long-awaited “bottom”, from which there would be only one place to go:  up.  Rock musician Tom Petty wrote a song about the death of his mother, called: Free Fallin’.  That song has recently become the theme for America’s stock markets.  The situation has become so bad that many fear it may be necessary for the feds to suspend equities trading until all of the nervous investors and frenzied hedge fund managers have a chance to gather their wits.  Would the government really intervene and close the stock markets for a day or more?

There is one authority who earned quite a bit of “street cred” when our current economic crisis hit the fan.  He is Nouriel Roubini, an economist at the Stern School of Business at New York University.  He earned the nickname “Doctor Doom” when he spoke before the International Monetary Fund (IMF) on September 7, 2006 and described, in precise detail, exactly what would bring the financial world to its knees, two years later.  As reported by Ben Sills and Emma Ross-Thomas in the October 24 edition of Bloomberg:

Roubini said yesterday that policy makers may need to shut down financial markets for a week or two as investors dump assets. Trading in futures on the Standard & Poor’s 500 Index and the Dow Jones Industrial Average was limited today after declines of more than 6 percent.

This week brings us more earnings reports and new housing starts that could send already skittish investors (as well as terrified hedge fund managers) on a “panic selling” binge.  Could this trigger a market shutdown by the government as predicted by Dr. Roubini?  If so, we may find the markets closed for the final days before the Presidential election.  The Republicans and their media trumpet, Fox News, would likely seize upon such a development, characterizing it as validation of their claim that the investing public fears a “socialist” Obama Presidency.  In reality, there would be no way to measure the impact of the election results on the equities markets under such circumstances.  If the markets were kept closed until after the election, there would be quite a number of investors, chomping at the bit to dump their portfolios during the hiatus, ready to do so as soon as the markets re-opened.  On the other hand, Stuart Schweitzer, global market strategist at JP Morgan Private Bank appeared on the October 24 broadcast of the PBS program, Nightly Business Report, and explained what to really expect about the impact of the Presidential election on the securities markets.  Schweitzer believes that regardless of who is elected, once we get past Election Day, there will be a sense of certainty established as to who will be making economic policy going forward into the new Presidential term.  This fact in itself, regardless of what that economic policy might become, will eliminate the element of uncertainty that breeds some degree of the fear in the hearts of investors.

If the stock markets really end up being closed during the final days before the election, we would likely see more havoc than calming.  The timing would prove too irresistible for conspiracy theorists to ignore.  Some would see it as a plot by the Republicans to conceal how bad the economy really is.  Others might see it as a ploy by “Washington elites” (a term used by some in reference to Obama supporters) to conceal widespread fear of putting a “communist” in charge of our nation.  The smartest course from here would be for the Federal Reserve Board’s FOMC (Federal Open Market Committee) to undertake a responsible, public relations role when it meets on Tuesday.  They should be ready to explain to the public what has really been happening in the markets:  an unregulated species of investments called “hedge funds” has been causing mayhem on the trading floors.  Many (if not most) of these hedge funds are going broke and they are attempting to secure a place in the line for Federal bailout money.  They have caused equities trading to function more like eBay:  the only market movement that matters over the course of any given day is what takes place during the final three minutes before the closing bell, when the hedge fund managers dump stocks.  On eBay, the winning bid for an item is usually made during the minute before an auction ends.  Unlike eBay, the stock market numbers can go up or down.  These days, the index movement prior to the closing bell is usually seismic (in one direction or the other).   It was never like this before.  These trading patterns often trigger pre-established “stop loss orders” to sell stocks, usually established by individual investors upon purchase of those stocks.  The result is an avalanche of “sell” orders at the end of the day.  The FOMC needs to explain this disease to the public and let us know the Fed is working on a cure.  Closing the markets in the final days before a Presidential election will not be a cure.  Such a move will just create a scab that will quickly be picked away by an investing public that needs to ease up on the caffeine and go out for a walk.