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Why Au-scare-ity Still Has Traction

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Many economists have been watching Britain’s experiment with austerity for quite a while.  Britain has been following a course of using cuts in government programs along with mass layoffs of public sector workers in attempt to stimulate economic growth.  Back in February, economist Dean Baker made this observation:

Three months ago, I noted that the United States might benefit from the pain being suffered by the citizens of the United Kingdom.  The reason was the new coalition government’s commitment to prosperity through austerity.  As predicted, this looks very much like a path to pain and stagnation, not healthy growth.

That’s bad news for the citizens of the United Kingdom.  They will be forced to suffer through years of unnecessarily high unemployment.  They will also have to endure cutbacks in support for important public services like healthcare and education.

But the pain for the people in England could provide a useful example for the United States.

*   *   *

Prior to this episode, there was already a solid economic case that large public deficits were necessary to support the economy in the period following the collapse of an asset bubble. The point is simply that the private sector is not prepared to make up the demand gap, at least in the short term.  Both short-term and long-term interest rates are pretty much as low as they can be.

*   *   *

From this side of the pond, though, the goal is simply to encourage people to pay attention.  The UK might be home to 60 million people, but from the standpoint of US economic policy, it is simply exhibit A:  it is the country that did what our deficit hawks want to do in the US.

The takeaway lesson should be “austerity does not work; don’t go there.”  Unfortunately, in the land of faith-based economics, evidence does not count for much.  The UK may pursue a disastrous austerity path and those of us in the United States may still have to follow the same road anyhow.

After discussing the above-quoted commentary by Dean Baker, economist Mark Thoma added this:

Yes — it’s not about evidence, it’s about finding an excuse to implement an ideology.  The recession got in the way of those efforts until the idea that austerity is stimulative came along. Thus, “austerity is stimulative” is being used very much like “tax cuts increase revenues.”  It’s a means of claiming that ideological goals are good for the economy so that supporters in Congress and elsewhere have a means of rationalizing the policies they want to put in place.  It’s the idea that matters, and contrary evidence is brushed aside.

There seems to be an effort in many quarters to deny that the financial crisis ever happened.  Although it will eventually become absolutely imperative to get deficits under control, most sober economists emphasize that attempting to do so before the economy begins to recover and before the unemployment crisis is even addressed – would destroy any chance of economic recovery.  Barack Obama’s opponents know that the easiest route toward subverting the success of his re-election campaign involves undermining any efforts toward improving the economy to any degree by November of 2012.  Beyond that, the fast-track implementation of a British-style austerity program could guarantee a double-dip recession, which could prove disastrous to Obama’s re-election hopes.  As a result, the pressure is on to initiate some significant austerity measures as quickly as possible.  The propaganda employed to expedite this effort involves scaring the sheeple into believing that the horrifying budget deficit is about to bite them in the ass right now.  There is a rapidly increasing drumbeat to crank-up the scare factor.

Of course, the existence of this situation is the result of Obama’s own blunder.  Although he did manage to defeat Osama bin Laden, President Obama’s February, 2009 decision to “punt” on the economic stimulus program – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – was a mistake, similar in magnitude to that of allowing Bin Laden to escape at Tora Bora.  In his own “Tora Bora moment”, President Obama decided to rely on the advice of the very people who helped cause the financial crisis, by doing more for the zombie banks of Wall Street and less for Main Street – by sparing the banks from temporary receivership (also referred to as “temporary nationalization”) while spending less on financial stimulus.  Obama ignored the 50 economists surveyed by Bloomberg News, who warned that an $800 billion stimulus package would be inadequate.  In April of 2009, Obama chose to parrot the discredited “money multiplier” myth, fed to him by Larry Summers and “Turbo” Tim Geithner, in order to justify continuous corporate welfare for the megabanks.  If Obama had followed the right course, by pushing a stronger, more infrastructure-based stimulus program through the Democrat-controlled Senate and House, we would be enjoying a more healthy economy right now.  A significant number of the nearly fifteen million people currently unemployed could have found jobs from which they would now be paying income taxes, which reduce the deficit.  But that didn’t happen.  President Obama has no one else to blame for that error.  His opponents are now attempting to “snowball” that mistake into a disaster that could make him a one-term President.

Former Labor Secretary Robert Reich saw this coming back in March:

House Majority Leader Eric Cantor recently stated the Republican view succinctly:  “Less government spending equals more private sector jobs.”

In the past I’ve often wondered whether they’re knaves or fools.  Now I’m sure.  Republicans wouldn’t mind a double-dip recession between now and Election Day 2012.

They figure it’s the one sure way to unseat Obama.  They know that when the economy is heading downward, voters always fire the boss.  Call them knaves.

What about the Democrats?  Most know how fragile the economy is but they’re afraid to say it because the White House wants to paint a more positive picture.

And most of them are afraid of calling for what must be done because it runs so counter to the dominant deficit-cutting theme in our nation’s capital that they fear being marginalized.  So they’re reduced to mumbling “don’t cut so much.”  Call them fools.

Professor Simon Johnson, former Chief Economist of the International Monetary Fund, recently brought the focus of the current economic debate back to where it belongs:

In the nation’s latest fiscal mood swing, the mainstream consensus has swung from “we must extend the Bush tax cuts” (in December 2010) towards “we must immediately cut the budget deficit.”  The prevailing assumption, increasingly heard from both left and right, is that we already have far too much government debt – and any further significant increase will likely ruin us all.

This way of framing the debate is misleading – and very much at odds with US fiscal history.  It masks the deeper and important issues here, which are much more about distribution, in particular how much are relatively wealthy Americans willing to transfer to relatively poor Americans?

*   *   *

The real budget debate is not about a few billion here or there – for example in the context of when the government’s “debt ceiling” will be raised.  And it is not particularly about the last decade’s jump in government debt level – although this has grabbed the headlines, this is something that we can grow out of (unless the political elite decides to keep cutting taxes).

The real issue is how much relatively rich people are willing to pay and on what basis in the form of transfers to relatively poor people – and how rising healthcare costs should affect those transfers.

As the Tea Partiers flock to movie theaters to watch Atlas Shrugged, perhaps it’s time for a porno send-up, based on a steamy encounter between Ayn Rand and Gordon Gekko called, Greed Feels Good.


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How States Can Save Billions

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We’ve been reading a lot about fallout lately.  The Fukushima power plant disaster is now providing a lasting legacy all over the world.  This animation from the French national meteorological service, Météo-France, illustrates how the spread of the Fukushima fallout is migrating.

For the past three years, we have been living with the fallout from a financial “meltdown”, which resulted from deregulation, greed and the culture of “pervasive permissiveness” at the Federal Reserve, as discussed in the Financial Crisis Inquiry Report.  The fallout from the financial meltdown has also spread across the entire world.  Different countries have employed different approaches for coping with the situation.  In Ireland, the banks were bailed out at taxpayer expense, crippling that nation’s economy for generations to come.  As a result, the Irish citizens fought back, went to the polls and ousted the perfidious politicians who helped the banks avoid responsibility for their transgressions.   On the other hand, in Portugal, the government refused to impose austerity measures on the citizens, who should not be expected to pay the price for the financial mischief that gave rise to the current economic predicament.  Given the additional fact that Portugal, as a nation, was not a “player” in the risky games that nearly brought down the world economy, the recent decision by the Portuguese parliament is easy to understand.

In our own country, the various states have found it quite difficult to balance their budgets.  High unemployment, which refuses to abate, and depressed real estate valuation have devastated each state’s revenue base.  Because the states cannot print money, as the Federal Reserve does in order to pay the federal government’s bills, it has become necessary for the states to rely on creative gimmicks to reverse their misfortunes.  Most states had previously deployed numerous “economic development projects” over the years.  Such projects are taxpayer-funded subsidies to attract corporations and entice them to establish local operations.  Rex Nutting of MarketWatch recently took a critical look at those programs:

And yet, study after study show that these subsidies create few, if any, net jobs.  For instance, California’s Enterprise Zone program – which is supposed to boost business in 42 economically distressed communities – has cost the taxpayers $3.6 billion over 27 years, but to no avail.  A legislative analyst report in 2005 found that “EZs have little if any impact on the creation of new economic activity or employment.” Read more from the legislative analyst report.

California Gov. Jerry Brown has proposed to kill the EZ program and the even-more expensive redevelopment agency program, but he faces an uphill fight in the Legislature.  Such subsidies are popular with the legislators who receive boatloads of campaign contributions from businesses lucky enough to find a government teat to latch on to.

Nationwide, such giveaways from state and municipal governments amounted to more than $70 billion in 2010, according to Kenneth Thomas, a political scientist at the University of Missouri at St. Louis, who has specialized in studying these subsidies.  That’s more than the states collect in corporate income taxes in a good year.  Read about Thomas’s book: “Investment Incentives and the Global Competition for Capital”

And that $70 billion is twice as much money as would be required to fully fund the pensions owed to state and local government workers, the very same pensions that budget-cutting politicians across the country claim are responsible for the fiscal hole we’re in.

What Rex Nutting has suggested amounts to the elimination of a significant number of corporate welfare programs.  He has also dared to challenge the corporatist mantra that corporate welfare “creates jobs”.  We are supposed to believe that the only way states can balance their budgets is through the imposition of draconian austerity programs, designed to force the “little people” to – once again – pay the tab for Wall Street’s binge.  Because the voters have no lobbyists to protect their own interests, venal state and local politicians have set about slashing public safety expenditures (through mass layoffs of police and firefighters), closing parks and libraries, as well as under-funding public school systems.

Never mind that state and local governments could save $70 billion by cutting just one form of corporate welfare.  They would rather let you watch your house burn down.  You can’t afford that house anyway.


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No Justice For The Wicked

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Although the drumbeat continues, I remain skeptical as to whether any of the criminals responsible for causing the financial crisis will ever be brought to justice.  In the weeks before President Obama’s Inauguration, the foremost question on my mind was whether the new administration would take the necessary steps to change the culture of corruption on Wall Street:

As we approach the eve of the Obama Administration’s first day, across America the new President’s supporters have visions of “change we can believe in” dancing in their heads.  For some, this change means the long overdue realization of health care reform.  For those active in the Democratic campaigns of 2006, “change” means an end to the Iraq war.  Many Americans are hoping that the new administration will crack down on the unregulated activities on Wall Street that helped bring about the current economic crisis.

On December 15, Stephen Labaton wrote an article for the New York Times, examining the recent failures of the Securities and Exchange Commission as well as the environment at the SEC that facilitates such breakdowns.

At that time, I also focused on the point made in a commentary by Michael Lewis and David Einhorn, which appeared in the January 3 New York Times:

It’s not hard to see why the S.E.C. behaves as it does.  If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.

I concluded that piece with a rhetorical question:

Let’s hope our new President, the Congress and others pay serious attention to what Lewis and Einhorn have said.  Cleaning up Wall Street is going to be a dirty job.  Will those responsible for accomplishing this task be up to doing it?

By March 23, 2009, it had become obvious that our new President was more concerned about the “welfare” (pun intended) of the Wall Street banks than the well-being of the American economy.  I began my posting of that date with this statement:

We the people, who voted for Barack Obama, are about to get ripped off by our favorite Hope dealer.

On August 27 of that year, I wrote another piece expressing my disappointment with how things had (not) progressed.  My October 1, 2009 posting focused on the fact that H. David Kotz, Inspector General of the Securities and Exchange Commission, issued two reports, recommending 58 changes to improve the way the agency investigates and enforces violations of securities laws, as a result of the SEC’s failure to investigate the Bernie Madoff Ponzi scheme.  The reports exposed a shocking degree of ineptitude at the SEC.

After the release of the report by bankruptcy examiner Anton Valukas, pinpointing the causes of the collapse of Lehman Brothers, I lamented the fact that the mainstream media hadn’t shown much concern about the matter, despite the terrible fraud exposed in the report.  Nevertheless, by the next day, I was able to highlight some great commentaries on the Valukas Report and I felt optimistic enough to conclude the piece with this thought:

We can only hope that a continued investigation into the Lehman scandal will result in a very bright light directed on those privileged plutocrats who consider themselves above the law.

If only  . . .

By the eve of the mid-term elections, I had an answer to the question I had posed on January 5, 2009 as to whether our new President and Congress would be up to the task of cleaning up Wall Street:

One common theme voiced by many critics of the Obama administration has been its lack of interest in prosecuting those responsible for causing the financial crisis.  Don’t hold your breath waiting for Attorney General Eric Hold-harmless to initiate any criminal proceedings against such noteworthy individuals as Countrywide’s Angelo Mozilo or Dick Fuld of Lehman Brothers.  On October 23, Frank Rich of The New York Times mentioned both of those individuals while lamenting the administration’s failure to prosecute the “financial crimes that devastated the nation”:

The Obama administration seems not to have a prosecutorial gene.   It’s shy about calling a fraud a fraud when it occurs in high finance.
*   *   *
Since Obama has neither aggressively pursued the crash’s con men nor compellingly explained how they gamed the system, he sometimes looks as if he’s fronting for the industry even if he’s not.

The special treatment afforded to the perpetrators of the frauds that helped create the financial crisis wasn’t the only gift to Wall Street from the Democratically-controlled White House, Senate and Congress.  The financial “reform” bill was so badly compromised (by the Administration and Senate Democrats, themselves) as it worked its way through the legislative process, that it is now commonly regarded as nothing more than a hoax.

By the close of 2010, I noted that an expanding number of commentators shared my outrage over the likelihood that we would never see any prosecutions result from the crimes that brought about the financial crisis:

A recent article written by former New York Mayor Ed Koch began with the grim observation that no criminal charges have been brought against any of the malefactors responsible for causing the financial crisis:

Looking back on 2010 and the Great Recession, I continue to be enraged by the lack of accountability for those who wrecked our economy and brought the U.S. to its knees.  The shocking truth is that those who did the damage are still in charge.  Many who ran Wall Street before and during the debacle are either still there making millions, if not billions, of dollars, or are in charge of our country’s economic policies which led to the debacle.

Most recently, Matt Taibbi has written another great article for Rolling Stone entitled, “Why Isn’t Wall Street in Jail?”.  It’s nice to know that the drumbeat for justice continues.  Taibbi’s essay provided a great history of the crisis, with a particular emphasis on how whistleblowers were ignored, just as Harry Markopolos was ignored when (in May of 2000) he tried to alert the SEC to the fact that Bernie Madoff’s hedge fund was a multi-billion-dollar Ponzi scheme.  Here is a great passage from Matt Taibbi’s essay:

In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type.  Last year, the government deported 393,000 people, at a cost of $5 billion.  Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent.  In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would “demean the seriousness” of the offenses.

So there you have it.  Illegal immigrants:  393,000.  Lying moms:  one.  Bankers:  zero.  The math makes sense only because the politics are so obvious.  You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players.  But for stealing a billion dollars?  For fraud that puts a million people into foreclosure?  Pass.  It’s not a crime.  Prison is too harsh.  Get them to say they’re sorry, and move on.  Oh, wait — let’s not even make them say they’re sorry.  That’s too mean; let’s just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead.  But don’t make them pay it out of their own pockets, and don’t ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year.  What’s next?  Taxpayer-funded massages for every Wall Street executive guilty of fraud?

Wouldn’t it be nice if public opinion meant more to the Obama administration than campaign contributions from Wall Street banksters?




Turning Point

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As we approach Election Day, many commentators are confirming an observation used as the theme of my posting from September 6:

The steps taken by the Obama administration during its first few months have released massive, long-lasting fallout, destroying the re-election hopes of Democrats in the Senate and House.

Too many people whom the President thought he could count among his supporters have become his biggest critics.  One might expect that after eight years of outrage over the antics of the Bush administration, Maureen Dowd would be thrilled about the work done by the Obama White House.  Nevertheless, her most recent discussion of Obama’s performance was less than flattering:

In 2008, the message was him.  The promise was him.  And that’s why 2010 is a referendum on him.

With his coalition and governing majority shattering around him, President Obama will have to summon political skills — starting Wednesday — that he has not yet shown he has.

*   *   *

With the exception of Obama, most Americans seemed to agree that the “right” thing to do until the economy recovered was to focus on jobs instead of getting the Congress mired for months in making over health insurance and energy policy.  And the “right” thing to do was to come down harder on the big banks for spending on bonuses instead of lending to small businesses that don’t get bailouts.

Contrary to the President’s expectations, the voting public has not overlooked the administration’s refusal to heed the advice of Bill Black, Robert Reich, and the roster of economists that included Adam Posen and Matthew Richardson advocating the use of the so-called “Swedish solution” of putting the zombie banks through temporary receivership.  To the dismay of everyone in the world (outside of Obama’s inner circle) the new President chose to follow the advice of Larry Summers and put the welfare (as in corporate welfare) of those insolvent, too-big-to-fail banks ahead of the nation’s economic health.  When President Obama appeared on The Daily Show with Jon Stewart on October 27, Stewart began the discussion by asking Obama to explain the rationale underlying his appointment of Larry Summers (a retread from the Clinton administration) as director of the National Economic Council.  President Obama fell back on his two-year-old claim that to follow any course other than that recommended by Summers, would have resulted in the failure of at least 100 banks.  Obama’s claim that the cost of the financial crisis was less than 1% of GDP did not slip past Yves Smith of the Naked Capitalism website.  Ms. Smith (who voted for Obama in 2008) didn’t pull any punches in refuting that claim:

I’m so offended by the latest Obama canard, that the financial crisis of 2007-2008 cost less than 1% of GDP, that I barely know where to begin.  Not only does this Administration lie on a routine basis, it doesn’t even bother to tell credible lies.  And this one came directly from the top, not via minions.  It’s not that this misrepresentation is earth-shaking, but that it epitomizes why the Obama Administration is well on its way to being an abject failure.

*   *   *

The reason Obama makes such baldfacedly phony statements is twofold:  first, his pattern of seeing PR as the preferred solution to all problems, and second, his resulting slavish devotion to smoke and mirrors over sound policy.

*   *   *

But Team Obama is no doubt rationalizing this chicanery:  if they can keep from recognizing losses until the recovery takes place, then the ultimate damage will be lower.  But Japan’s post bubble record shows that doesn’t work.  You simply don’t get a recovery with a diseased financial system.  You need to purge the bad assets, only then will meaningful growth resume.

Financial risk management guru, Chris Whalen, recently expressed his anguish over the administration’s unwillingness to restructure the zombie banks:

The reluctance comes partly from what truths restructuring will reveal.  As a result, these same large zombie banks and the U.S. economy will continue to shrink under the weight of bad debt, public and private.  Remember that the Dodd-Frank legislation was not so much about financial reform as protecting the housing GSEs.

Because President Barack Obama and the leaders of both political parties are unwilling to address the housing crisis and the wasting effects on the largest banks, there will be no growth and no net job creation in the U.S. for the next several years.  And because the Obama White House is content to ignore the crisis facing millions of American homeowners, who are deep underwater and will eventually default on their loans, the efforts by the Fed to reflate the U.S. economy and particularly consumer spending will be futile.

The idea that Obama sees “PR as the preferred solution to all problems” surfaced again in a great piece by Peter Baker of The New York Times, which included this observation:

Rather than entertaining the possibility that the program they have pursued is genuinely and even legitimately unpopular, the White House and its allies have concluded that their political troubles amount to mainly a message and image problem.

Baker’s article focused on the most recent gripe made by Obama at another one of his highbrow fundraisers.  Remember the blowback from the President’s recent diatribe at a fundraiser hosted by the appropriately-named Rich Richman?  Well, something similar happened again.  The setting this time was a $15,200-per-ticket affair for doctors at the home of a wealthy hospital executive in Boston.  While addressing this audience, the President explained that the reason why the voters have not embraced the Democrats during this election cycle is because the voters are having trouble thinking clearly, as they are “scared”.  Not surprisingly, this re-ignited the controversy focused on Obama’s elitism.

The Tea Party spokespeople aren’t the only ones who are accusing President Obama of elitism.  The Progressive-oriented TruthDig website, recently published an interesting essay by Chris Hedges, author of  Death of the Liberal Class.  Hedges points out that elitism is exactly the problem afflicting not only Obama, but the entire group, referred to as “the liberal class”.  Consider his argument:

The liberal class, which once made piecemeal and incremental reform possible, functioned traditionally as a safety valve.  During the Great Depression, with the collapse of capitalism, it made possible the New Deal.  During the turmoil of the 1960s, it provided legitimate channels within the system to express the discontent of African-Americans and the anti-war movement.  But the liberal class, in our age of neo-feudalism, is now powerless.  It offers nothing but empty rhetoric.  It refuses to concede that power has been wrested so efficiently from the hands of citizens by corporations that the Constitution and its guarantees of personal liberty are irrelevant.  It does not act to mitigate the suffering of tens of millions of Americans who now make up a growing and desperate permanent underclass.  And the disparity between the rhetoric of liberal values and the rapacious system of inverted totalitarianism the liberal class serves makes liberal elites, including Barack Obama, a legitimate source of public ridicule.  The liberal class, whether in universities, the press or the Democratic Party, insists on clinging to its privileges and comforts even if this forces it to serve as an apologist for the expanding cruelty and exploitation carried out by the corporate state.

*   *   *
As long as the liberal class had even limited influence, whether through the press or the legislative process, liberals were tolerated and even respected.  But once the liberal class lost all influence it became a class of parasites.  The liberal class, like the déclassé French aristocracy, has no real function within the power elite.  And the rising right-wing populists, correctly, ask why liberals should be tolerated when their rhetoric bears no relation to reality and their presence has no influence on power.

As Maureen Dowd pointed out, Wednesday is going to be a big day.  If President Obama thought he had his hands full going into this election   .  .  .  wait until the aftermath.



The End

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July 29, 2010

The long-awaited economic recovery seems to be coming to a premature end.  For over a year, many pundits have been anticipating a “jobless recovery”.  In other words:  don’t be concerned about the fact that so many people can’t find jobs – the economy will recover anyway.  These hopes have been buoyed by the widespread corporate tactic of cost-cutting (usually by mass layoffs) to gin-up the bottom line in time for earnings reports.  This helps inflate stock prices and produce the illusion that the broader economy is experiencing a sustained recovery.  The “jobless recovery” advocates ignore the extent to which the American economy is consumer-driven.  If those consumers don’t have jobs, they aren’t going to be spending money.

Although many observers seem to take comfort in the assumption that the jobless rate is below ten percent, many are beginning to question the validity of the statistics to that effect provided by the Department of Labor.  AOL’s Daily Finance website provided this commentary on the June, 2010 unemployment survey conducted by Raghavan Mayur, president of TechnoMetrica Market Intelligence:

The June poll turned up 27.8% of households with at least one member who’s unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation.  That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department’s jobless numbers.

*   *   *

In fact, Austan Goolsbee, who is now part of the White House Council of Economic Advisers, wrote in a 2003 New York Times piece titled “The Unemployment Myth,” that the government had “cooked the books” by not correctly counting all the people it should, thereby keeping the unemployment rate artificially low.  At the time, Goolsbee was a professor at the University of Chicago.  When asked whether Goolsbee still believes the government undercounts unemployment, a White House spokeswoman said Goolsbee wasn’t available to comment.

Such undercounting of unemployment can be an enormously dangerous exercise today.  It could lead  some lawmakers to underestimate the gravity of the labor market’s problems and base their policymaking on a far-less-grim picture than actually exists.  Economically, and socially, that would make a bad situation much worse for America.

“The implications of such undercounting is that policymakers aren’t going to be thinking as big as they should be,” says Ginsburg, also a professor emeritus of economics at Brooklyn College.  “It also means that [consumer] demand is not going to be there, because the income from people who are employed isn’t going to be there.”

Frank Aquila of Sullivan & Cromwell recently wrote an article for Bloomberg BusinessWeek, discussing the possibility that we could be headed into the second leg of a “double-dip” recession:

The sputtering economy and talk of a possible second recession have certainly rattled an already fragile American consumer.  Consumer confidence is now at its lowest level in a year, and consumer spending tumbled in May and June.  Since consumer spending accounts for more than two-thirds of  U.S. economic growth, a nervous consumer is not a good omen for a robust recovery.

Job creation is a key factor in increasing consumer confidence.  While economists estimate that we need economic growth of 4 percent or more to stimulate significant job creation, the economy has grown at only about 2 percent to 3 percent, with a slowdown expected in the second half.

*   *   *

With governments struggling under the weight of ballooning budget deficits and businesses waiting for the return of sustained growth, it is the American consumer who will have to lift the global economy out of the mire.  Given the recent news and current consumer sentiment, that appears to be an unlikely prospect in the near term.

The same government that found it necessary to provide corporate welfare to those “too big to fail” financial institutions has now become infested with creatures described by Barry Ritholtz as “deficit chicken hawks”.  The deficit chicken hawks are now preaching the gospel of “austerity” as an excuse for roadblocking any further efforts to use any form of stimulus to end the economic crisis.  One of the gurus of the deficit chicken hawks is economic historian Niall Ferguson.  Because Ferguson is just an economic historian, a real economist – Brad DeLong — had no trouble exposing the hypocrisy exhibited by the Iraq war cheerleader, while revisiting an article Ferguson had written for The New York Times, back in 2003.  Matthew Yglesias had even more fun compiling and publishing a Ferguson (2003) vs. Ferguson (2010) debate.

At The Daily Beast, Sir Harry Evans emphasized how the sudden emphasis on “austerity” is worse than hypocrisy:

As for the banks, one of the obscenities of our time is that so many in the financial community who owe their survival to the massive taxpayer bailouts, not only rewarded themselves with absurd bonuses, but now have the gall to sport the plumage of deficit hawks.  The unemployed?  Let them eat cake, the day after tomorrow.

Gerald Celente, publisher of The Trends Journal, wrote a great essay for The Daily Reckoning website entitled, “Let Them Eat Losses”.  He pointed out how the kleptocracy violated and destroyed the “very essence of functioning capitalism”.  Worse yet, our government betrayed us by forcing the taxpayers “to finance the failed financiers”:

No individual, business, institution, nation or empire is too-big-to-fail.  Had true capitalism been allowed to function unimpeded, the bloated, over-extended, inefficient and gluttonous firms and industries would have failed.  There would have been hardships and losses but, finally rid of its financial tapeworms, the purged system could be restored to health.

No “ism” or “ology” — regardless of purity of intent or moral foundation — is immune to corruption and abuse.  While capitalism itself is being blamed for the excesses that brought on financial chaos, prior to the most recent gambling binge, in tandem with the blanket dismantling of safeguards and the overt takeover of Washington by Wall Street, capitalism was responsible for creating one of the world’s most successful and universally admired societies.

As I discussed on July 8, because President Obama lacked the political courage to advance an effective economic stimulus package last year, the effects of his “semi-stimulus” have now abated and we are headed into another recession.  Reuters reported on July 27 that Robert Shiller, professor of economics at Yale University and co-developer of Standard and Poor’s S&P/Case-Shiller Index, gave us this unsettling macroeconomic prognostication:

“For me a double-dip is another recession before we’ve healed from this recession … The probability of that kind of double-dip is more than 50 percent,” Shiller said.

“I actually expect it.”

During the last few months of 2009, did you ever think that someday you would be looking back at that time as “the good old days”?