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No Consensus About the Future

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As the election year progresses, we are exposed to wildly diverging predictions about the future of the American economy.  The Democrats are telling us that in President Obama’s capable hands, the American economy keeps improving every day – despite the constant efforts by Congressional Republicans to derail the Recovery Express.  On the other hand, the Republicans keep warning us that a second Obama term could crush the American economy with unrestrained spending on entitlement programs.  Meanwhile, in (what should be) the more sober arena of serious economics, there is a wide spectrum of expectations, motivated by concerns other than partisan politics.  Underlying all of these debates is a simple question:  How can one predict the future of the economy without an accurate understanding of what is happening in the present?  Before asking about where we are headed, it might be a good idea to get a grip on where we are now.  Nevertheless, exclusive fixation on past and present conditions can allow future developments to sneak up on us, if we are not watching.

Those who anticipate a less resilient economy consistently emphasize that the “rose-colored glasses crowd” has been basing its expectations on a review of lagging and concurrent economic indicators rather than an analysis of leading economic indicators.  One of the most prominent economists to emphasize this distinction is John Hussman of the Hussman Funds.  Hussman’s most recent Weekly Market Comment contains what has become a weekly reminder of the flawed analysis used by the optimists:

On the economy, our broad view is based on dozens of indicators and multiple methods, and the overall picture is much better described as a modest rebound within still-fragile conditions, rather than a recovery or a clear expansion.  The optimism of the economic consensus seems to largely reflect an over-extrapolation of weather-induced boosts to coincident and lagging economic indicators — particularly jobs data.  Recall that seasonal adjustments in the winter months presume significant layoffs in the retail sector and slow hiring elsewhere, and therefore add back “phantom” jobs to compensate.

Hussman’s kindred spirit, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI), has been criticized for the predictiction he made last September that the United States would fall back into recession.  Nevertheless, the ECRI reaffirmed that position on March 15 with a website posting entitled, “Why Our Recession Call Stands”.  Again, note the emphasis on leading economic indicators – rather than concurrent and lagging economic indicators:

How about forward-looking indicators?  We find that year-over-year growth in ECRI’s Weekly Leading Index (WLI) remains in a cyclical downturn . . .  and, as of early March, is near its worst reading since July 2009.  Close observers of this index might be understandably surprised by this persistent weakness, since the WLI’s smoothed annualized growth rate, which is much better known, has turned decidedly less negative in recent months.

Unlike the partisan political rhetoric about the economy, prognostication expressed by economists can be a bit more subtle.  In fact, many of the recent, upbeat commentaries have quite restrained and cautious.  Consider this piece from The Economist:

A year ago total bank loans were shrinking.  Now they are growing.  Loans to consumers have risen by 5% in the past year, which has accompanied healthy gains in car sales (see chart).  Mortgage lending was still contracting as of late 2011 but although house prices are still edging lower both sales and construction are rising.

*   *   *

At present just four states are reporting mid-year budget gaps, according to the National Conference of State Legislatures; this time last year, 15 did; the year before that, 36. State and local employment, which declined by 655,000 between August 2008 and last December – a fall of 3.3% – has actually edged up since.

*   *   *

Manufacturing employment, which declined almost continuously from 1998 through 2009, has since risen by nearly 4%, and the average length of time factories work is as high as at any time since 1945.  Since the end of the recession exports have risen by 39%, much faster than overall GDP.  Neither is as impressive as it sounds:  manufacturing employment remains a smaller share of the private workforce than in 2007, and imports have recently grown even faster than exports as global growth has faltered and the dollar has climbed.  Trade, which was a contributor to economic growth in the first years of recovery, has lately been a drag.

But economic recovery doesn’t have to wait for all of America’s imbalances to be corrected.  It only needs the process to advance far enough for the normal cyclical forces of employment, income and spending to take hold.  And though their grip may be tenuous, and a shock might yet dislodge it, it now seems that, at last, they have.

A great deal of enthusiastic commentary was published in reaction to the results from the recent round of bank stress tests, released by the Federal Reserve.  The stress test results revealed that 15 of the 19 banks tested could survive a stress scenario which included a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices.  Time magazine published an important article on the Fed’s stress test results.  It was written by a gentleman named Christopher Matthews, who used to write for Forbes and the Financial Times.  (He is a bit younger than the host of Hardball.)  In a surprising departure from traditional, “mainstream media propaganda”, Mr. Matthews demonstrated a unique ability to look “behind the curtain” to give his readers a better idea of where we are now:

Christopher Whalen, a bank analyst and frequent critic of the big banks, penned an article in ZeroHedge questioning the assumptions, both by the Fed and the banks themselves, that went into the tests.  It’s well known that housing remains a thorn in the side of the big banks, and depressed real estate prices are the biggest risk to bank balance sheets.  The banks are making their own assumptions, however, with regards to the value of their real estate holdings, and Whalen is dubious of what the banks are reporting on their balance sheets. The Fed, he says, is happy to go along with this massaging of the data. He writes,

“The Fed does not want to believe that there is a problem with real estate. As my friend Tom Day wrote for PRMIA’s DC chapter yesterday:  ‘It remains hard to believe, on the face of it, that many of the more damaged balance sheets could, in fact, withstand another financial tsunami of the magnitude we have recenlty experienced and, to a large extent, continue to grapple with.’ ”

Even those that are more credulous are taking exception to the Fed’s decision to allow the banks to increase dividends and stock buybacks.  The Bloomberg editorial board wrote an opinion yesterday criticizing this decision:

 “Good as the stress tests were, they don’t mean the U.S. banking system is out of the woods.  Three major banks – Ally Financial Inc., Citigroup Inc. and SunTrust Banks Inc. – didn’t pass, and investors still don’t have much faith in the reported capital levels of many of the rest.  If the Fed wants the positive results of the stress tests to last, it should err on the side of caution in approving banks’ plans to pay dividends and buy back shares – moves that benefit shareholders but also deplete capital.”

So there’s still plenty for skeptics to read into Tuesday’s report.  For those who want to doubt the veracity of the banks’ bookkeeping, you can look to Whalen’s report.  For those who like to question the Fed’s decision making, Bloomberg’s argument is as good as any.  But at the same time, we all know from experience that things could be much worse, and Tuesday’s announcement appears to be another in a string of recent good news that, unfortunately, comes packaged with a few caveats.  When all is said and done, this most recent test may turn out to be another small, “I think I can” from the little recovery that could.

When mainstream publications such as Time and Bloomberg News present reasoned analysis about the economy, it should serve as reminder to political bloviators that the only audience for the partisan rhetoric consists of “low-information voters”.  The old paradigm – based on campaign funding payola from lobbyists combined with support from low-information voters – is being challenged by what Marshall McLuhan called “the electronic information environment”.  Let’s hope that sane economic policy prevails.


 

Be Sure To Catch These Items

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As we reach the end of 2011, I keep stumbling across loads of important blog postings which deserve more attention.  These pieces aren’t really concerned with the usual, “year in review”- type of subject matter.  They are simply great items which could get overlooked by people who are too busy during this time of year to set aside the time to browse around for interesting reads.  Accordingly, I’d like to bring a few of these to your attention.

The entire European economy is on its way to hell, thanks to an idiotic, widespread belief that economic austerity measures will serve as a panacea for the sovereign debt crisis.  The increasing obviousness of the harm caused by austerity has motivated its proponents to crank-up the “John Maynard Keynes was wrong” propaganda machine.  You don’t have to look very far to find examples of that stuff.  On any given day, the Real Clear Politics (or Real Clear Markets) website is likely to be listing at least one link to such a piece.  Those commentators are simply trying to take advantage of the fact that President Obama botched the 2009 economic stimulus effort.  Many of us realized – a long time ago – that Obama’s stimulus measures would prove to be inadequate.  In July of 2009, I wrote a piece entitled, “The Second Stimulus”, wherein I pointed out that another stimulus program would be necessary because the American Recovery and Reinvestment Act of 2009 was not going to accomplish its intended objective.  Beyond that, it was already becoming apparent that the stimulus program would eventually be used to support the claim that Keynesian economics doesn’t work.  Economist Stephanie Kelton anticipated that tactic in a piece she published at the New Economic Perspectives website:

Some of us saw this coming.  For example, Jamie Galbraith and Robert Reich warned, on a panel I organized in January 2009, that the stimulus package needed to be at least $1.3 trillion in order to create the conditions for a sustainable recovery.  Anything shy of that, they worried, would fail to sufficiently improve the economy, making Keynesian economics the subject of ridicule and scorn.

Despite the current “ridicule and scorn” campaign against Keynesian economics, a fantastic, unbiased analysis of the subject has been provided by Henry Blodget of The Business Insider.  Blodget’s commentary was written in easy-to-read, layman’s terms and I can’t say enough good things about it.  Here’s an example:

The reason austerity doesn’t work to quickly fix the problem is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy.  And when you further reduce tax revenue, you increase the deficit and create the need for more austerity.  And that even further clobbers the economy and tax revenue.  And so on.

Another “must read” blog posting was provided by Mike Shedlock (a/k/a Mish).  Mish directed our attention to a rather extensive list of “Things to Say Goodbye To”, which was written last year by Clark McClelland and appeared on Jeff Rense’s website.  (Clark McClelland is a retired NASA aerospace engineer who has an interesting background.  I encourage you to explore McClelland’s website.)  Mish pared McClelland’s list down to nine items and included one of his own – loss of free speech:

A bill in Congress with an innocuous title – Stop Online Piracy Act (SOPA) – threatens to do much more.

*  *  *

This bill’s real intent is not to stop piracy, but rather to hand over control of the internet to corporations.

At his Financial Armageddon blog, Michael Panzner took a similar approach toward slimming down a list of bullet points which reveal the disastrous state of our economy:  “50 Economic Numbers From 2011 That Are Almost Too Crazy To Believe,” from the Economic Collapse blog.  Panzner’s list was narrowed down to ten items – plenty enough to undermine those “sunshine and rainbows” prognostications about what we can expect during 2012.

The final item on my list of “must read” essays is a rebuttal to that often-repeated big lie that “no laws were broken” by the banksters who caused the financial crisis.  Bill Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City in the Department of Economics and the School of Law.  Black directed litigation for the Federal Home Loan Bank Board (FHLBB) from 1984 to 1986 and served as deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC) in 1987.  Black’s refutation of the “no laws were broken by the financial crisis banksters” meme led up to a clever homage to Dante’s Divine Comedy describing the “ten circles of hell” based on “the scale of ethical depravity by the frauds that drove the ongoing crisis”.  Here is Black’s retort to the big lie:

Sixty Minutes’ December 11, 2011 interview of President Obama included a claim by Obama that, unfortunately, did not lead the interviewer to ask the obvious, essential follow-up questions.

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal.

*   *   *

I offer the following scale of unethical banker behavior related to fraudulent mortgages and mortgage paper (principally collateralized debt obligations (CDOs)) that is illegal and deserved punishment.  I write to prompt the rigorous analytical discussion that is essential to expose and end Obama and Bush’s “Presidential Amnesty for Contributors” (PAC) doctrine.  The financial industry is the leading campaign contributor to both parties and those contributions come overwhelmingly from the wealthiest officers – the one-tenth of one percent that thrives by being parasites on the 99 percent.

I have explained at length in my blogs and articles why:

• Only fraudulent home lenders made liar’s loans
• Liar’s loans were endemically fraudulent
• Lenders and their agents put the lies in liar’s loans
• Appraisal fraud was endemic and led by lenders and their agents
• Liar’s loans could only be sold through fraudulent reps and warranties
• CDOs “backed” by liar’s loans were inherently fraudulent
• CDOs backed by liar’s loans could only be sold through fraudulent reps and warranties
• Liar’s loans hyper-inflated the bubble
• Liar’s loans became roughly one-third of mortgage originations by 2006

Each of these frauds is a conventional fraud that could be prosecuted under existing laws.

It’s nice to see someone finally take a stand against the “Presidential Amnesty for Contributors” (PAC) doctrine.  Every time Obama attempts to invoke that doctrine – he should be called on it.  The Apologist-In-Chief needs to learn that the voters are not as stupid as he thinks they are.


 

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Obama Will Lose In 2012

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The criticisms voiced by many of us during President Obama’s first year in office are finally beginning to register with the general public.  Here’s an observation I made on December 14, 2009:

As we approach the conclusion of Obama’s first year in the White House, it has become apparent that the Disappointer-in-Chief has not only alienated the Democratic Party’s liberal base, but he has also let down a demographic he thought he could take for granted:  the African-American voters.  At this point, Obama has “transcended race” with his ability to dishearten loyal black voters just as deftly as he has chagrined loyal supporters from all ethnic groups.

On June 11 2010, Maureen Dowd gave us some insight as to what it was like on Obama’s campaign plane in 2008:

The press traveling with Obama on the campaign never had a lovey-dovey relationship with him.  He treated us with aloof correctness, and occasional spurts of irritation.  Like many Democrats, he thinks the press is supposed to be on his side.

The patrician George Bush senior was always gracious with reporters while conveying the sense that what we do for a living was rude.

The former constitutional lawyer now in the White House understands that the press has a role in the democracy.  But he is an elitist, too, as well as thin-skinned and controlling.  So he ends up regarding scribes as intrusive, conveying a distaste for what he sees as the fundamental unseriousness of a press driven by blog-around-the-clock deadlines.

The voting public is just beginning to digest the sordid facts of the Solyndra scandal.  Rest assured that the Republican Party will educate even the most intellectually challenged of those “low information voters” as to every detail of that rotten deal.  The timing of the Solyndra exposé couldn’t be worse for Team Obama.

On August 15, the Gallup Organization reported that during the week of August 8-14, Obama’s job approval rating dropped to 40% – the lowest it had been since he assumed office.  Another Gallup poll, conducted with USA Today during August 15-18 revealed that, for the first time, a majority of Americans – 53% – blame Obama for the nation’s economic problems.  Forty-seven percent still say he is “not much” (27%) or “not at all” (20%) to blame.

A new McClatchy-Marist poll, taken on September 14-15, revealed that Obama’s sinking popularity has placed him just 5 points ahead of non-candidate Sarah Palin (49-44 percent).  The Miami Herald noted that the poll results show the President just 2 points ahead of Mitt Romney (46-44):

Overall, the gains among Republicans “speak to Obama’s decline among independents generally, and how the middle is not his right now,” said Lee Miringoff, director of the Marist College Institute for Public Opinion, which conducted the national survey.

“This will require him to find ways to either win back the middle or energize his base in ways that hasn’t happened so far,” Miringoff said.

By a margin of 49 percent to 36 percent, voters said they definitely plan to vote against Obama, according to the poll.  Independents by 53 percent to 28 percent said they definitely plan to vote against him.

With that sentiment permeating the electorate a little more than a year before the general election, most Americans think Obama won’t win a second term.

By 52 percent to 38 percent, voters think he’ll lose to the Republican nominee, whoever that is.  Even among Democrats, 31 percent think the Republican nominee will win.

The most devastating development for Obama has been the public reaction to Ron Suskind’s new book about the President’s handling of the economy, Confidence Men.  Berkeley economics professor, Brad DeLong has been posting and discussing excerpts of the book at his own website, Grasping Reality With Both Hands.  On September 19, Professor DeLong posted a passage from Suskind’s book, which revealed Obama’s expressed belief (in November of 2009) that high unemployment was a result of productivity gains in the economy.  Both Larry Summers (Chair of the National Economic Council) and Christina Romer (Chair of the Council of Economic Advisers) were shocked and puzzled by Obama’s ignorance on this subject:

“What was driving unemployment was clearly deficient aggregate demand,” Romer said.  “We wondered where this could be coming from.  We both tried to convince him otherwise.  He wouldn’t budge.”

Because of Obama’s willful refusal to heed the advice of his own economic team, our nation’s unemployment problem has persisted at levels of 9% and above (with worse to come).  As Ron Suskind remarked in that passage:

The implications were significant.  If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise.

There you have it.  Despite the efforts of Obama’s apologists to blame Larry Summers or others on the President’s economic team for persistent unemployment, it wasn’t simply a matter of “the buck stopping” on the President’s desk.  Obama himself has been the villain, hypocritically advocating a strategy of “trickle-down economics” – in breach of his campaign promise to do the exact opposite.

Reactions to the foregoing passage from Confidence Men – appearing as comments to Brad DeLong’s September 19 blog entry – provide a taste of how the majority of Obama’s former supporters will react when they learn the truth about this phony politician.  Here are a few samples:

moron said…

.  .  .   This disgraceful shill for global capital has destroyed the Democratic party for a generation.

kris said…

The President sure does come across as awfully arrogant, dogmatic and not very smart from this excerpt (and as someone who does not like to listen to his advisors- especially the female ones.).

mike said…

Wow. Romer was oh so right. And Obama was oh, so so wrong… What a pathetic display of arrogance and bad leadership.      .   .   .

Th said…

And I was always joking about Obama as the “Manchurian Candidate” from the U of Chicago. Productivity? Really?

Dave said…

I’ve lost any last shred of respect for Mr. O.

Now that Confidence Men and the Solyndra scandal are getting increased publicity, we can expect that large numbers of voters will be losing their “last shred of respect” for Mr. Obama.  It’s past time for the Democratic Party to face reality:  If they seriously want to retain control of the Executive branch – someone will have to ask Obama to step aside.  DNC Chair, Debbie Wasserman-Schultz is obviously not up to this task.


 

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Obama On The Ropes

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You’ve been reading it everywhere and hearing it from scores of TV pundits:  The ongoing economic crisis could destroy President Obama’s hopes for a second term.  In a recent interview with Alexander Bolton of The Hill, former Democratic National Committee chairman, Howard Dean warned that the economy is so bad that even Sarah Palin could defeat Barack Obama in 2012.  Dean’s statement was unequivocal:  “I think she could win.”

I no longer feel guilty about writing so many “I told you so” pieces about Obama’s failure to heed sane economic advice since the beginning of his term in the White House.  A chorus of commentators has begun singing that same tune.  In July of 2009, I wrote a piece entitled, “The Second Stimulus”, wherein I predicted that our new President would realize that his economic stimulus program was inadequate because he followed the advice from the wrong people.  After quoting the criticisms of a few economists who warned (in January and February of 2009) that the proposed stimulus would be insufficient, I said this:

Despite all these warnings, as well as a Bloomberg survey conducted in early February, revealing the opinions of economists that the stimulus would be inadequate to avert a two-percent economic contraction in 2009, the President stuck with the $787 billion plan.  He is now in the uncomfortable position of figuring out how and when he can roll out a second stimulus proposal.

President Obama should have done it right the first time.  His penchant for compromise – simply for the sake of compromise itself – is bound to bite him in the ass on this issue, as it surely will on health care reform – should he abandon the “public option”.  The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return.  The voting public will perceive this as weak leadership.

Stephanie Kelton recently provided us with an interesting reminiscence of that fateful time, in a piece she published on William Black’s New Economic Perspectives website:

Some of us saw this coming.  For example, Jamie Galbraith and Robert Reich warned, on a panel I organized in January 2009, that the stimulus package needed to be at least $1.3 trillion in order to create the conditions for a sustainable recovery.  Anything shy of that, they worried, would fail to sufficiently improve the economy, making Keynesian economics the subject of ridicule and scorn.

*   *   *

In July 2009, I wrote a post entitled, “Gift-Wrapping the White House for the GOP.” In it, I said:

“If President Obama wants a second term, he must join the growing chorus of voices calling for another stimulus and press forward with an ambitious program to create jobs and halt the foreclosure crisis.”

With the recent announcement of Austan Goolsbee’s planned departure from his brief stint as chairman of the Council of Economic Advisers, much has been written about Obama’s constant rejection of the “dissenting opinions” voiced by members of the President’s economics team, such as those expressed by Goolsbee and his predecessor, Christina Romer.  Obama chose, instead, to paint himself into a corner by following the misguided advice of Larry Summers and “Turbo” Tim Geithner.  Ezra Klein of The Washington Post recently published some excerpts from a speech (pdf) delivered by Professor Romer at Stanford University in May of 2011.  At one point, she provided a glimpse of the acrimony, which often arose at meetings of the President’s economics team:

Like the Federal Reserve, the Administration and Congress should have done more in the fall of 2009 and early 2010 to aid the recovery.  I remember that fall of 2009 as a very frustrating one.  It was very clear to me that the economy was still struggling, but the will to do more to help it had died.

There was a definite split among the economics team about whether we should push for more fiscal stimulus, or switch our focus to the deficit.  A number of us tried to make the case that more action was desperately needed and would be effective.  Normally, meetings with the President were very friendly and free-wheeling.  He likes to hear both sides of an issue argued passionately.  But, about the fourth time we had the same argument over more stimulus in front of him, he had clearly had enough.  As luck would have it, the next day, a reporter asked him if he ever lost his temper.  He replied, “Yes, I let my economics team have it just yesterday.”

By May of 2010, even Larry Summers was discussing the need for further economic stimulus measures, which I discussed in a piece entitled, “I Knew This Would Happen”.  Unfortunately, most of the remedies suggested at that time were never enacted – and those that were undertaken, fell short of the desired goal.  Nevertheless, Larry Summers is back at it again, proposing a new round of stimulus measures, likely due to concern that Obama’s adherence to Summers’ failed economic policies could lead to the President’s defeat in 2012.  Jeff Mason and Caren Bohan of Reuters reported that Summers has proposed a $200 billion payroll tax program and a $100 billion infrastructure spending program, which would take place over the next few years.  The Reuters piece also supported the contention that by 2010, Summers had turned away from the Dark Side and aligned himself with Romer in opposing Peter Orszag (who eventually took that controversial spin through the “revolving door” to join Citigroup):

During much of 2010, Obama’s economic advisers wrestled with a debate over whether to shift toward deficit reduction or pursue further fiscal stimulus.

Summers and former White House economist Christina Romer were in the camp arguing that the recession that followed the financial markets meltdown of 2008-2009 was a unique event that required aggressive stimulus to avoid a long period of stagnation similar to Japan’s “lost decade” of the 1990s.

Former White House budget director Peter Orszag was among those who cautioned against a further big stimulus, warning of the need to be mindful of ballooning budget deficits.

By the time voters head to the polls for the next Presidential election, we will be in Year Four of our own “lost decade”.  Accordingly, President Obama’s new “Jobs Czar” – General Electric CEO, Jeffrey Immelt – is busy discussing new plans, which will be destined to go up in smoke when Congressional Republicans exploit the opportunity to maintain the dismal status quo until the day arrives when disgruntled voters can elect President Palin.  Barack Obama is probably suffering from some awful nightmares about that possibility.


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Hillary Throws A Tupperware Party

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While reading through Saturday’s Links at the Naked Capitalism website, I came across a posting by Jane Hamsher entitled, “Hillary Clinton Hosts ‘Iraq Opportunities’ Party For War Profiteers”.  I was reminded that a war, initiated under the pretext of finding Saddam Hussein’s “weapons of mass destruction”, was really all about creating “Iraq Opportunities”.  Using the “good cop / bad cop” routine, the “bad cops” of our One-Party System (the “Republican” branch of the Republi-cratic Corporatist Party) promoted a war, which the “good cop” Democrat branch of the Republi-cratic Corporatist Party claimed it was “forced” to support.  Just because Saddam wasn’t really stockpiling any weapons of mass destruction, doesn’t mean we can’t find any “Iraq Opportunities”.

Sure, there’s been a “changing of the guard” since the Iraq war began, but a look at the guest list for Hillary’s “Iraq Opportunities Party” will reveal the identities of some corporations, which expect to benefit from the expenditure of human lives and trillions of taxpayer dollars on the Iraq war effort.  Of course, Halliburton and KBR were invited to send some partygoers to the fete.  But don’t forget – the Obama Administration has been in charge for over two years  . . . so Alex von Sponek of Goldman Sachs was on the guest list.  As you can imagine, a Tupperware Party just wouldn’t be a Tupperware Party without a representative from Tupperware in attendance.  Accordingly, Rick Goins, the company’s CEO, received an invitation.

News of this event confirmed my worst suspicions about the Iraq war.  I wasn’t simply reacting to what Jane Hamsher had to say about Hillary’s Tupperware Party:

As Congress launches a bipartisan PR campaign to stay in Iraq forever, the White House throws a corporate looting party.

Ben White of Politico described the event as an expansion of Wall Street’s tentacles:

FIRST LOOK:  WALL STREET IN IRAQ? – Secretary of State Hillary Clinton and Deputy Secretary Tom Nides (formerly chief administrative officer at Morgan Stanley) will host a group of corporate executives at State this morning as part of the Iraq Business Roundtable.  Corporate executives from approximately 30 major U.S. companies – including financial firms Citigroup, JPMorganChase and Goldman Sachs – will join U.S. and Iraqi officials to discuss economic opportunities in the new Iraq.

While most of us have been conditioned to think of the Iraq War as a product of the neoconservative agenda, several commentators have discussed the role of neoliberalism as a motivator for the invasion of Iraq.  In a great essay entitled, “On Neoliberalism”, Sherry Ortner of the Anthropology Of This Century website, discussed the role of what Naomi Klein, author of The Shock Doctrine, called “disaster capitalism” in bringing us to that moment of “shock and awe”:

If social or natural disasters do not offer themselves up, Klein shows convincingly that they will be manufactured, the war in Iraq being the latest case in point.  Let us follow the Iraq war thread into David Harvey’s 2007 book, A Short History of Neo-Liberalism, where it is his opening example.   Like Klein, Harvey sees “the management and manipulation of crises” (p. 162), whether floods, wars, or financial melt-downs, as part and parcel of establishing the neoliberal agenda.  And like Klein, he provides abundant evidence to show that the war in Iraq was a crisis manufactured to “impose by main force on Iraq… a state apparatus whose fundamental mission was to facilitate conditions for profitable capital accumulation”(p. 7).

Harvey offers a clear definition of neoliberalism as a system of “accumulation by dispossession,” which has four main pillars:  1) the “privatization and commodification” of public goods; 2) “financialization,” in which any kind of good (or bad) can be turned into an instrument of economic speculation; 3) the “management and manipulation of crises” (as above); and 4) “state redistribution,” in which the state becomes an agent of the upward redistribution of wealth (159-164 passim).

Harvey places particular emphasis on the last point, the upward redistribution of wealth.  He takes issue with other writers who argue that the enormous growth of social inequality since the beginnings of neoliberalization in the 1970s is an unfortunate by-product of what is otherwise a sound economic theory.  Instead Harvey sees the vast enrichment of an upper class of capital owners and managers at the expense of everyone else as an intrinsic part of the neoliberal agenda:  “Redistributive effects and increasing social inequality have in fact been such a persistent feature of neoliberalization as to be regarded as structural to the whole project.” (p. 16).

The only real surprise to me was the revelation that the elite “upper class of capital owners and managers” likes to attend Tupperware parties.


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Obama And The TARP

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I always enjoy it when a commentator appearing on a talk show reminds us that President Obama has become a “tool” for the Wall Street bankers.  This theme is usually rebutted with the claim that the TARP bailout happened before Obama took office and that he can’t be blamed for rewarding the miscreants who destroyed our economy.  Nevertheless, this claim is not entirely true.  President Bush withheld distribution of one-half of the $700 billion in TARP bailout funds, deferring to his successor’s assessment of the extent to which the government should intervene in the banking crisis.  As it turned out, during the final weeks of the Bush Presidency, Hank Paulson’s Treasury Department declared that there was no longer an “urgent need” for the TARP bailouts to continue.  Despite that development, Obama made it clear that anyone on Capitol Hill intending to get between the banksters and that $350 billion was going to have a fight on their hands.  Let’s jump into the time machine and take a look at my posting from January 19, 2009 – the day before Obama assumed office:

On January 18, Salon.com featured an article by David Sirota entitled:  “Obama Sells Out to Wall Street”.  Mr. Sirota expressed his concern over Obama’s accelerated push to have immediate authority to dispense the remaining $350 billion available under the TARP (Troubled Asset Relief Program) bailout:

Somehow, immediately releasing more bailout funds is being portrayed as a self-evident necessity, even though the New York Times reported this week that “the Treasury says there is no urgent need” for additional money.  Somehow, forcing average $40,000-aires to keep giving their tax dollars to Manhattan millionaires is depicted as the only “serious” course of action.  Somehow, few ask whether that money could better help the economy by being spent on healthcare or public infrastructure.  Somehow, the burden of proof is on bailout opponents who make these points, not on those who want to cut another blank check.

Discomfort about another hasty dispersal of the remaining TARP funds was shared by a few prominent Democratic Senators who, on Thursday, voted against authorizing the immediate release of the remaining $350 billion.  They included Senators Russ Feingold (Wisconsin), Jeanne Shaheen (New Hampshire), Evan Bayh (Indiana) and Maria Cantwell (Washington).  The vote actually concerned a “resolution of disapproval” to block distribution of the TARP money, so that those voting in favor of the resolution were actually voting against releasing the funds.  Earlier last week, Obama had threatened to veto this resolution if it passed.  The resolution was defeated with 52 votes (contrasted with 42 votes in favor of it).  At this juncture, Obama is engaged in a game of “trust me”, assuring those in doubt that the next $350 billion will not be squandered in the same undocumented manner as the first $350 billion.  As Jeremy Pelofsky reported for Reuters on January 15:

To win approval, Obama and his team made extensive promises to Democrats and Republicans that the funds would be used to better address the deepening mortgage foreclosure crisis and that tighter accounting standards would be enforced.

“My pledge is to change the way this plan is implemented and keep faith with the American taxpayer by placing strict conditions on CEO pay and providing more loans to small businesses,” Obama said in a statement, adding there would be more transparency and “more sensible regulations.”

Of course, we all know how that worked out  .   .   .  another Obama promise bit the dust.

The new President’s efforts to enrich the Wall Street banks at taxpayer expense didn’t end with TARP.  By mid-April of 2009, the administration’s “special treatment” of those “too big to fail” banks was getting plenty of criticism.  As I wrote on April 16 of that year:

Criticism continues to abound concerning the plan by Turbo Tim and Larry Summers for getting the infamous “toxic assets” off the balance sheets of our nation’s banks.  It’s known as the Public-Private Investment Program (a/k/a:  PPIP or “pee-pip”).

*   *   *

One of the harshest critics of the PPIP is William Black, an Economics professor at the University of Missouri.  Professor Black gained recognition during the 1980s while he was deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC).

*   *   *

I particularly enjoyed Black’s characterization of the PPIP’s use of government (i.e. taxpayer) money to back private purchases of the toxic assets:

It is worse than a lie.  Geithner has appropriated the language of his critics and of the forthright to support dishonesty.  That is what’s so appalling — numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies.  He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent.  He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything.  He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Although President Obama’s hunt for Osama bin Laden was a success, his 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 – became Obama’s own “Tora Bora moment”, at which point he allowed economic recovery to continue on its elusive path away from us.  Economist Steve Keen recently posted this video, explaining how Obama’s failure to promote an effective stimulus program has guaranteed us something worse than a “double-dip” recession:  a quadruple-dip recession.

Many commentators are currently discussing efforts by Republicans to make sure that the economy is in dismal shape for the 2012 elections so that voters will blame Obama and elect the GOP alternative.  If Professor Keen is correct about where our economy is headed, I can only hope there is a decent Independent candidate in the race.  Otherwise, our own “lost decade” could last much longer than ten years.


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Another Cartoon For The Bernank To Hate

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Those of us who found it necessary to explain quantitative easing during the course of a blog posting, have struggled with creating our own definitions of the term.  On October 18, 2010, I started using this one:

Quantitative easing involves the Federal Reserve’s purchase of Treasury securities as well as mortgage-backed securities from those privileged, too-big-to-fail banks.

What I failed to include in that description was the fact that the Fed was printing money to make those purchases.  I eventually resorted to simply linking the term to the definition of quantitative easing at Wikipedia.org.

Suddenly, in November of 2010, a cartoon – posted on YouTube – became an overnight sensation.  It was a 6-minute discussion between two little bears, which explained how “The Ben Bernank” was trying to fix a broken economy by breaking it more.

We eventually learned a few things about the cartoon’s creator, Omid Malekan, who produced the clip for free on the xtranormal.com website.  Kevin Depew, the Editor-in-Chief of Minyanville, interviewed Malekan within days of the cartoon’s debut.  Malekan expressed his disgust with what he described as “the Washington-Wall Street Complex” and the revolving door between the financial industry and those agencies tasked to regulate it.  David Weigel of Slate interviewed Malekan on November 22, 2010 (eleven days after the cartoon was made).  At that point, we learned a bit about the political views of the 30-year-old, former stock trader-turned-real estate manager:

I’m all over the map.  Socially, I’m pretty liberal.  Economically, I’m fairly free-market oriented.  I generally prefer to vote third party, because it’s just good for the country if we get another voice in there.  To me none of this is really partisan because things are the same under both parties.  Ben Bernanke was appointed by Bush and re-appointed by Obama, so they both have basically the same policies.  The problem, really, is that monetary policy is now removed from people in general.  People like Bernanke don’t have to get elected.  There’s a disconnect between them and the people their decisions are affecting.

One month later, Malekan was interviewed by “Evan” of The Point Blog at the Sam Adams Alliance.  On this occasion, the animator explained his decision to put “the” in front of so many proper names, as well as his reference to Ben Bernanke as “The Bernank”.  Malekan had this to say about the popularity of the cartoon:

To be fully honest, I had no idea this would get the wide audience that it did.  Initially when I made it, it was to explain it to a select group of friends of mine.  And any other straggler that happened to see it, and I never thought that would be over 3 million people.  But, the main reason was cause I think monetary policy is important to everybody because it’s monetary policy.  Unlike fiscal policy or regulation, monetary policy, because of the way it impacts interest rates and the dollar, impacts every single person that buys and sells and earns dollars.  So I think it’s something that everybody should be paying attention to, but most people don’t because it’s not ever presented to them in a way they could hope to understand it.

Omid Malekan produced another helpful cartoon on January 28.  The new six-minute clip, “Bank Bailouts Explained” provides the viewer with an understanding of what many of us know as Maiden Lane III – as well as how the other “backdoor bailouts” work, including the true cost of Zero Interest Rate Policy (ZIRP) to the taxpayers.  This cartoon is important because it can disabuse people of the propaganda based on the claim that the Wall Street megabanks – particularly Goldman Sachs – owe the American taxpayers nothing because they repaid the TARP bailouts.  I discussed this obfuscation back on November 26, 2009:

For whatever reason, a number of commentators have chosen to help defend Goldman Sachs against what they consider to be unfair criticism.  A recent example came to us from James Stewart of The New Yorker.  Stewart had previously written a 25-page essay for that magazine, entitled “Eight Days” — a dramatic chronology of the financial crisis as it unfolded during September of 2008.  Last week, Stewart seized upon the release of the recent SIGTARP report to defend Goldman with a blog posting which characterized the report as supportive of the argument that Goldman owes the taxpayers nothing as a result of the government bailouts resulting from that near-meltdown.  (In case you don’t know, a former Assistant U.S. District Attorney from New York named Neil Barofsky was nominated by President Bush as the Special Investigator General of the TARP program.  The acronym for that job title is SIGTARP.)   In his blog posting, James Stewart began by characterizing Goldman’s detractors as “conspiracy theorists”.  That was a pretty weak start.  Stewart went on to imply that the SIGTARP report refuted the claims by critics that, despite Goldman’s repayment of the TARP bailout, it did not repay the government the billions it received as a counterparty to AIG’s collateralized debt obligations.  Stewart referred to language in the SIGTARP report to support the spin that because “Goldman was fully hedged on its exposure both to a failure by A.I.G. and to the deterioration of value in its collateralized debt obligations” and that “(i)t repaid its TARP loans with interest, bought back the government’s warrants at a nice profit to the Treasury” Goldman therefore owes the government nothing — other than “a special debt of gratitude”.  One important passage from page 22 of the SIGTARP report that Stewart conveniently ignored, concerned the money received by Goldman Sachs as an AIG counterparty by way of Maiden Lane III, at which point those credit default obligations (of questionable value) were purchased at an excessive price by the government.  Here’s that passage from the SIGTARP report:

When FRBNY authorized the creation of Maiden Lane III in November 2008, it lent approximately $24.6 billion to the newly formed limited liability company, and AIG provided Maiden Lane III approximately $5 billion in equity.  These funds were used to purchase CDOs from AIG counterparties worth an estimated fair value of $29.6 billion at the time of the purchases, which were done in three stages on November 25, 2008, December 18, 2008, and December 22, 2008.  AIGFP’s counterparties were paid $27.1 billion, and AIGFP was paid $2.5 billion per an agreement between AIGFP and FRBNY.  The $2.5 billion represented the amount of collateral that AIGFP had previously paid to the counterparties that was in excess of the actual decline in the fair value as of October 31, 2008.

FRBNY’s loan to Maiden Lane III is secured by the CDOs as the underlying assets.  After the loan has been repaid in full plus interest, and, to the extent that there are sufficient remaining cash proceeds, AIG will be entitled to repayment of the $5 billion that the company contributed in equity, plus accrued interest.  After repayment in full of the loan and the equity contribution (each including accrued interest), any remaining proceeds will be split 67 percent to FRBNY and 33 percent to AIG.

The end result was a $12.9 billion gift to “The Goldman Sachs”.

Thanks to Mr. Malekan, we now have a cartoon that explains how all of AIG’s counterparties were bailed out at taxpayer expense, along with an informative discourse about the other “backdoor bailouts”.

Omid Malekan has his own website here.  You should make a point of regularly checking in on it, so you can catch his next cartoon before someone takes the opportunity to spoil all of the jokes for you.  Enjoy!


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Some Sad News

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From Steve Waldman’s Interfluidity website on January 25:

Maxine Udall, “girl economist”, has been one of my favorite bloggers, a person who combines the power of economic thinking with a deep appreciation for moral and social concerns, all expressed in a very human, very charming, voice.

Today we learn that her name in real life was Alison Snow Jones, and that she is with us no more.  Wow.  This is an awful loss.

I don’t really know what to say.  But Maxine Udall had plenty to say, so I’ll just excerpt.

David Pinney and Meredith Frost have been kind enough to keep the Maxine Udall website going, with this, their expressed wish, in mind:

Please read, link to, and mine Dr. Jones’s writing for information, insight and inspiration.  Her deepest hope was to challenge people to think in new ways about our society and how we live, and to bring her unique viewpoint to as many people as possible.

Accordingly, I have added the Maxine Udall Girl Economist site to my blogroll and I encourage you to click on that link to read some of her essays.  I expect that we will find some interesting comments posted there in the weeks and months ahead.  Dr. Jones had some great thoughts and I would like to contribute to the effort toward keeping those thoughts alive in cyberspace and in the minds of others for as long as possible.

Steve Waldman provided some great excerpts from a few of the essays by Dr. Jones here.

What follows is a passage from a piece she wrote last year, lamenting our ongoing pathetic state of affairs and beyond that – the fact that the financial industry became a “brain drain” –  pulling talented people away from professions which could have allowed those individuals to make more significant contributions to society:

I remain committed to capitalism:  free markets when they function well, regulated markets when they don’t.   The above are simply additional arguments for reining in and regulating casino-like behavior and casino-like rewards in any market, not just capital markets.  In the long run, we will all be dead, but as long as someone will be alive, they deserve a better world and a better life than one gets in a casino where the odds are disproportionately in favor of the house and the house is an unholy combination of corporate power and wealth backed by government laissez faire and largesse.

The following statement by Steve Waldman concerning the loss of Dr. Jones highlights the feelings shared by many of us:

I scan and read so many blog posts every day, even great writing often fades into the background.  Going through the last few months of her work makes me terribly sad that this is a person I will never meet.


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Two Years Too Late

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October 11, 2010

Greg Gordon recently wrote a fantastic article for the McClatchy Newspapers, in which he discussed how former Treasury Secretary Hank Paulson failed to take any action to curb risky mortgage lending.  It should come as no surprise that Paulson’s nonfeasance in this area worked to the benefit of Goldman Sachs, where Paulson had presided as CEO for the eight years prior to his taking office as Treasury Secretary on July 10, 2006.  Greg Gordon’s article provided an interesting timeline to illustrate Paulson’s role in facilitating the subprime mortgage crisis:

In his eight years as Goldman’s chief executive, Paulson had presided over the firm’s plunge into the business of buying up subprime mortgages to marginal borrowers and then repackaging them into securities, overseeing the firm’s huge positions in what became a fraud-infested market.

During Paulson’s first 15 months as the treasury secretary and chief presidential economic adviser, Goldman unloaded more than $30 billion in dicey residential mortgage securities to pension funds, foreign banks and other investors and became the only major Wall Street firm to dramatically cut its losses and exit the housing market safely.  Goldman also racked up billions of dollars in profits by secretly betting on a downturn in home mortgage securities.

By now, the rest of that painful story has become a burden for everyone in America and beyond.  Paulson tried to undo the damage to Goldman and the other insolvent, “too big to fail” banks at taxpayer expense with the TARP bailouts.  When President Obama assumed office in January of 2009, his first order of business was to ignore the advice of Adam Posen (“Temporary Nationalization Is Needed to Save the U.S. Banking System”) and Professor Matthew Richardson.  The consequences of Obama’s failure to put those “zombie banks” through temporary receivership were explained by Karen Maley of the Business Spectator website:

Ireland has at least faced up to the consequences of the reckless lending, unlike the United States.  The Obama administration has adopted a muddle-through approach, hoping that a recovery in housing prices might mean that the big US banks can avoid recognising crippling property losses.

*   *   *

Leading US bank analyst, Chris Whalen, co-founder of Institutional Risk Analytics, has warned that the banks are struggling to cope with the mountain of problem home loans and delinquent commercial property loans.  Whalen estimates that the big US banks have restructured less than a quarter of their delinquent commercial and residential real estate loans, and the backlog of problem loans is growing.

This is eroding bank profitability, because they are no longer collecting interest on a huge chunk of their loan book.  At the same time, they also face higher administration and legal costs as they deal with the problem property loans.

Banks nursing huge portfolios of problem loans become reluctant to make new loans, which chokes off economic activity.

Ultimately, Whalen warns, the US government will have to bow to the inevitable and restructure some of the major US banks.  At that point the US banking system will have to recognise hundreds of billions of dollars in losses from the deflation of the US mortgage bubble.

If Whalen is right, Ireland is a template of what lies ahead for the US.

Chris Whalen’s recent presentation, “Pictures of Deflation” is downright scary and I’m amazed that it has not been receiving the attention it deserves.  Surprisingly — and ironically – one of the only news sources discussing Whalen’s outlook has been that peerless font of stock market bullishness:  CNBC.   Whalen was interviewed on CNBC’s Fast Money program on October 8.  You can see the video here.  The Whalen interview begins at 7 minutes into the clip.  John Carney (formerly of The Business Insider website) now runs the NetNet blog for CNBC, which featured this interview by Lori Ann LoRocco with Chris Whalen and Jim Rickards, Senior Managing Director of Market Intelligence at Omnis, Inc.  Here are some tidbits from this must-read interview:

LL:  Chris, when are you expecting the storm to hit?

CW:  When the too big to fail banks can no longer fudge the cost of restructuring their real estate exposures, on and off balance sheet. Q3 earnings may be the catalyst

LL:  What banks are most exposed to this tsunami?

CW:  Bank of America, Wells Fargo, JPMorgan, Citigroup among the top four.  GMAC.  Why do we still refer to the ugly girls — Bank of America, JPMorgan and Wells Fargo in particular — as zombies?  Because the avalanche of foreclosures and claims against the too-big-too-fail banks has not even crested.

*   *   *

LL:  How many banks to expect to fail next year because of this?

CW:  The better question is how we will deal with the process of restructuring.  My view is that the government/FDIC can act as receiver in a government led restructuring of top-four banks.  It is time for PIMCO, BlackRock and their bond holder clients to contribute to the restructuring process.

Of course, this restructuring could have and should have been done two years earlier — in February of 2009.  Once the dust settles, you can be sure that someone will calculate the cost of kicking this can down the road — especially if it involves another round of bank bailouts.  As the saying goes:  “He who hesitates is lost.”  In this case, President Obama hesitated and we lost.  We lost big.



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We Took The Wrong Turn

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October 7, 2010

The ugly truth has raised its head once again.  We did it wrong and Australia did it right.  It was just over a year ago – on September 21, 2009 – when I wrote a piece entitled, “The Broken Promise”.  I concluded that posting with this statement:

If only Mr. Obama had stuck with his campaign promise of “no more trickle-down economics”, we wouldn’t have so many people wishing they lived in Australia.

I focused that piece on a fantastic report by Australian economist Steve Keen, who explained how the “money multiplier” myth, fed to Obama by the very people who caused the financial crisis, was the wrong paradigm to be starting from in attempting to save the economy.

The trouble began immediately after President Obama assumed office.  I wasn’t the only one pulling out my hair in February of 2009, when our new President decided to follow the advice of Larry Summers and “Turbo” Tim Geithner.  That decision resulted in a breach of Obama’s now-infamous campaign promise of “no more trickle-down economics”.  Obama decided to do 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.  At the Calculated Risk website, Bill McBride lamented Obama’s strident posturing in an interview conducted by Terry Moran of ABC News, when the President actually laughed off the idea of implementing the so-called “Swedish solution” of putting those insolvent banks through temporary receivership.

With the passing of time, it has become painfully obvious that President Obama took the country down the wrong path.  The Australian professor (Steve Keen) was right and Team Obama was wrong.  Economist Joseph Stiglitz made this observation on August 5, 2010:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world.  He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon.  So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked:  Australia had the shortest and shallowest of recessions of the advanced industrial countries.

Fast-forward to October 6, 2010.  Michael Heath of Bloomberg BusinessWeek provided the latest chapter in the story of how America did it wrong while Australia did it right:

Australian Employers Added 49,500 Jobs in September

Australian employers in September added the most workers in eight months, driving the country’s currency toward a record and bolstering the case for the central bank to resume raising interest rates.

The number of people employed rose 49,500 from August, the seventh straight gain, the statistics bureau said in Sydney today.  The figure was more than double the median estimate of a 20,000 increase in a Bloomberg News survey of 25 economists.  The jobless rate held at 5.1 percent.

Meanwhile — back in the States — on October 6, ADP released its National Employment Report for September, 2010.  It should come as no surprise that our fate is 180 degrees away from that of Australia:  Private sector employment in the U.S. decreased by 39,000 from August to September on a seasonally adjusted basis, according to the ADP report.   Beyond that, October 6 brought us a gloomy forecast from Jan Hatzius, chief U.S. economist for the ever-popular Goldman Sachs Group.  Wes Goodman of Bloomberg News quoted Hatzius as predicting that the United States’ economy will be “fairly bad” or “very bad” over the next six to nine months:

“We see two main scenarios,” analysts led by Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients.  “A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10 percent, and a very bad one in which the economy returns to an outright recession.”

Aren’t we lucky!  How wise of President Obama to rely on Larry Summers to the exclusion of most other economists!

Charles Ferguson, director of the new documentary film, Inside Job, recently offered this analysis of the milieu that facilitated the opportunity for Larry Summers to inflict his painful legacy upon us:

Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him.  Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations — quite a feat.  Never once has Summers publicly apologized or admitted any responsibility for causing the crisis.  And now Harvard is welcoming him back.

Summers is unique but not alone.  By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government.  What few Americans realize is that the revolving door is now a three-way intersection.  Summers’ career is the result of an extraordinary and underappreciated scandal in American society:  the convergence of academic economics, Wall Street, and political power.

*     *     *

Now, however, as the national recovery is faltering, Summers is being eased out while Harvard is welcoming him back.  How will the academic world receive him?  The simple answer:  Better than he deserves.

Australia is looking better than ever  —  especially when you consider that their spring season is just beginning right now     .   .   .