TheCenterLane.com

© 2008 – 2018 John T. Burke, Jr.

Scary Economic News

Comments Off on Scary Economic News

The information which I’m passing along to you today might come as a shock to those listening to the usual stock market cheerleaders, who predict good times ahead.  Let’s start with economist John Hussman of the Hussman Funds.  For quite a while, Dr. Hussman has been warning us to avoid drinking the Kool-Aid served by the perma-bulls.  In his latest Weekly Market Comment, Hussman offers yet more sound advice to those under the spell of brokerage propagandists:

I want to emphasize again that I am neither a cheerleader for recession, nor a table-pounder for recession.  It’s just that given the data that we presently observe, an oncoming recession remains the most probable outcome.  When unseen states of the world have to be inferred from imperfect and noisy observable data, there are a few choices when the evidence isn’t 100%.  You can either choose a side and pound the table, or you can become comfortable dwelling in uncertainty, and take a position in proportion to the evidence, and the extent to which each possible outcome would affect you.

With most analysts dismissing the likelihood of recession, I have been vocal about ongoing recession concerns not because I want to align myself with one side, but because the investment implications are very asymmetric.  A slow but steady stream of modestly good economic news is largely priced in by investors, but a recession and the accompanying earnings disappointments would destroy some critical pillars of hope that investors are relying on to support already rich valuations.

Yale Professor Robert Shiller is the guy who invented the term “irrational exuberance”, which was title of his bestselling book – published in May of 1996.  Although the widely-despised, former Federal Reserve Chairman, Alan Greenspan is often credited with creating the term, Greenspan didn’t use it until December of that year, in a speech before the American Enterprise Institute.  Shiller is most famous for his role as co-creator of the Case-Shiller Home Price Indices, which he developed with his fellow economists Karl Case and Allan Weiss.  While many commentators decried the idiotic economic austerity programs which have been inflicted across Europe, Professor Shiller investigated whether austerity is at all effective in spurring economic growth, seeking a better understanding of austerity’s consequences.  In a recent essay on the subject, Dr. Shiller cited the work by Jaime Guajardo, Daniel Leigh, and Andrea Pescatori of the International Monetary Fund, who recently studied austerity plans implemented by governments in 17 countries in the last 30 years.  The conclusion reached by Professor Shiller should sober-up the “rose-colored glasses” crowd, as well as those aspiring to implement similar measures in the United States:

The austerity plans being adopted by governments in much of Europe and elsewhere around the world, and the curtailment of consumption expenditure by individuals as well, threaten to produce a global recession.

*   *   *

There is no abstract theory that can predict how people will react to an austerity program.  We have no alternative but to look at the historical evidence.  And the evidence of Guajardo and his co-authors does show that deliberate government decisions to adopt austerity programs have tended to be followed by hard times.

Policymakers cannot afford to wait decades for economists to figure out a definitive answer, which may never be found at all.  But, judging by the evidence that we have, austerity programs in Europe and elsewhere appear likely to yield disappointing results.

The really scary news concerning the state of the global economy came in the form of a report published by the World Bank, entitled Global Economic Prospects (Uncertainties and vulnerabilities).  The 157-page treatise was written by Andrew Burns and Theo Janse van Rensburg.  It contains more than enough information to induce a serious case of insomnia.  Here are some examples:

The world economy has entered a very difficult phase characterized by significant downside risks and fragility.

*   *   *

The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome.  At the same time, the slow growth in Europe complicates efforts to restore market confidence in the sustainability of the region’s finances, and could exacerbate tensions.

*   *   *

While contained for the moment, the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains.  In particular, the willingness of markets to finance the deficits and maturing debt of high-income countries cannot be assured.  Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic cannot be ruled out.  The world could be thrown into a recession as large or even larger than that of 2008/09.

*   *   *

In the event of a major crisis, activity is unlikely to bounce back as quickly as it did in 2008/09, in part because high-income countries will not have the fiscal resources to launch as strong a countercyclical policy response as in 2008/09 or to offer the same level of support to troubled financial institutions.

*   *   *

Developing countries need to prepare for the worst

In this highly uncertain environment, developing countries should evaluate their vulnerabilities and prepare contingencies to deal with both the immediate and longer-term effects of a downturn.

If global financial markets freeze up, governments and firms may not be able to finance growing deficits.

*   *   *

One major uncertainty concerns the interaction of the policy-driven slowing of growth in middle-income countries, and the financial turmoil driven slowing in Europe.  While desirable from a domestic policy point of view, this slower growth could interact with the slowing in Europe resulting in a downward overshooting of activity and a more serious global slowdown than otherwise would have been the case.

In other words, Europe’s economic austerity programs could turn another round of economic contraction into a global catastrophe (as if we needed another).

This is what happens when economic policymaking is left to the plutocrats and their tools.  “Those who fail to learn from the past are doomed to repeat it.”  It appears as though we are well on our way to a second financial crisis – with more severe consequences than those experienced as a result of the 2008 episode.


wordpress stats

Circular Firing Squad

Comments Off on Circular Firing Squad

I knew this would happen.  Near the end of Obama’s first year in office, I anticipated that the President’s polling numbers would eventually sink and his reelection campaign would face strong headwinds.  By that point – on the eve of his reelection campaign – someone would blame the defection of white voters for Obama’s failure to win a second term.  In December of 2009, I wrote a piece discussing how the “race card” would not serve as a “free pass” for the Disappointer-In-Chief.  I referenced critiques, written by several African-American commentators, who were more-than-a-little upset with Obama’s job performance during that first year.

As expected, once Obama’s approval rating dropped to 40%, it didn’t take too long for someone to step forward with the “blame whitey” meme.  Melissa Harris-Perry, a professor of political science at Tulane University, recently wrote an article for The Nation, wherein she blamed racism for Obama’s declining popularity:

The 2012 election may be a test of another form of electoral racism:  the tendency of white liberals to hold African-American leaders to a higher standard than their white counterparts.  If old-fashioned electoral racism is the absolute unwillingness to vote for a black candidate, then liberal electoral racism is the willingness to abandon a black candidate when he is just as competent as his white predecessors.

*   *   *

President Obama has experienced a swift and steep decline in support among white Americans – from 61 percent in 2009 to 33 percent now.  I believe much of that decline can be attributed to their disappointment that choosing a black man for president did not prove to be salvific for them or the nation.  His record is, at the very least, comparable to that of President Clinton, who was enthusiastically re-elected.  The 2012 election is a test of whether Obama will be held to standards never before imposed on an incumbent.  If he is, it may be possible to read that result as the triumph of a more subtle form of racism.

Despite the fact that Obama has yet to lose the 2012 election, Professor Harris-Perry has already seen fit to assemble a “circular firing squad” to assign blame for the Obama campaign’s inevitable failure.  Her theory about racism drew quick fire from more-intelligent commentators, who exposed the absurdity of her claim.  Corey Robin, who earned a PhD in Political Science from Yale, did a thorough job of debunking Professor Harris-Perry’s claim.  Among the points made by Dr. Robin, was this:

In fact, according to this September Washington Post story, “Five months ago, 83 percent of African Americans held ‘strongly favorable’ views of Obama, but in a new Washington Post-ABC news poll that number has dropped to 58 percent.”  That’s why, according to this piece, Obama has made special outreach efforts to blacks:  he’s worried about their dwindling support.  But as the Post also goes onto explain, “That drop is similar to slipping support for Obama among all groups.”

The most important point made by Corey Robin was his focus on the overarching problem of Obama’s politics:

But when we assess Obama, like any other president, we’re not thinking about his skills and talents; we’re thinking about what we call his “politics” and, even more important, how his politics reflect larger forces and structures in American society: corporate power, neoliberal ideology, declining organizational capacity on the left, and so on.  We see him, often, as a symptom of those forces, not a challenge to them.  Not, again, because of any lack of intelligence or ability on his part, but because, in part, he is a product of the structure (with all its failings) we would like to see dismantled.

Yves Smith of Naked Capitalism ripped Professor Harris-Perry’s article to shreds.  Ms. Smith concluded her essay by placing blame back on the man himself:

It took most people far too long to get that Obama was a phony because the presumption that a black man would be sympathetic to the fate of the downtrodden is a deeply embedded but never voiced prejudice (and this bias is exploited successfully by the right in depicting Obama as a socialist).

*   *   *

These traditional iconic symbols of liberalism – secular urban elitism, blackness, technocratic skill, micro-issue identity based political organizing groups – have been fully subverted in the service of banking interests.  Obama is the ultimate, but not the only, piece of evidence that these symbols are now used simply to con the Democratic base out of their support and money.  The task of moving forward will require rebuilding the symbolic vocabulary of the defenders of the middle class.

Melissa Harris-Perry is forgetting that Barack Obama is only half  black.  In fact, many of us are blaming Obama’s white half for breaking so many campaign promises and for his selling out to the plutocracy.


 

wordpress stats

Understanding The Creepy Bailouts

Comments Off on Understanding The Creepy Bailouts

March 26, 2009

The voting, taxpaying public had no trouble understanding the outrageousness of AIG’s use of government-supplied, bailout money to pay $165 million in bonuses to its employees.  As we all saw, there was a non-stop chorus of outrage, running from letters to the editors of small-town newspapers to death threats against AIG employees and their next-of-kin.  However, what most people don’t really understand is how this crisis came about and what the failed solutions have been.  Some of us have tried to familiarize ourselves with the alphabet soup of acronyms for those government-created entities, entrusted with the task of solving the most complex financial problems of all time.  Nevertheless, we are behind the curve with our own understanding and we will remain behind the curve regardless of how hard we try.  It’s no accident.  Opacity is the order of the day from the Federal Reserve, the Treasury, the Securities and Exchange Commission and the Commodity Futures Trading Commission.  In other words:  You (the “little people”) are not supposed to know what is going on.  So just go back to work, pay your taxes and watch the television shows that are intended to tie-up your brain cells and dumb you down.

This week, Wall Street was excited to learn the details of Treasury Secretary “Turbo” Tim Geithner’s latest version of what, last week, was called the Financial Stability Plan.  In order to make the unpopular plan sound different, it was given a new name: the PPIP (Public-Private Investment Partnership or “pee-pip”).  Those economists who had voiced skepticism about the plan’s earlier incarnations were not impressed with the emperor’s new clothes.  As Nobel laureate and Princeton University Professor Paul Krugman explained in The New York Times:

But the real problem with this plan is that it won’t work.  Yes, troubled assets may be somewhat undervalued.  But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem.  They lost that bet.  And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

The plan’s supporters now claim that Professor Nouriel Roubini, an advocate for “nationalization” (or more accurately:  temporary receivership) of insolvent banks now supports the “new” plan.  As one can discern from the New York Daily News op-ed piece by Dr. Roubini and fellow New York University Professor Matthew Richardson, they simply described this plan a “a step in the right direction”.  More important were the caveats they included in their article:

But let’s not have any illusions.  The government bears the risk if and when the investors take a bath on the taxpayer-provided loans.  If the economy gets worse, it could get very ugly, very quickly.  The administration should be transparent in making clear that there is still a wealth transfer taking place here – from taxpayers to investors and banks.

*    *    *

Moreover, there’s the issue of transparency – or lack thereof.  No one knows what the loans or securities are worth.  Competing investors will help solve this by promoting price discovery.  But be careful what you wish for.  We might not like the answers.

James K. Galbraith (the son of famed economist John Kenneth Galbraith) has a PhD in Economics from Yale and is a professor at the University of Texas at Austin.  His reaction to the PPIP appears on The Daily Beast website in an article entitled:  “The Geithner Plan Won’t Work”:

The ultimate objective, and in President Obama’s own words, the test of this plan, is whether it will “get credit flowing again.”  (I have dealt with that elsewhere.)  Short answer:  It won’t.  Once rescued, banks will sit quietly on the sidelines, biding their time, until borrowers start to reappear.  From 1989 to 1994, that took five years.  From 1929 to 1935 — you get the picture.

*    *    *

And the reality is, if the subprime securities are truly trash, most of the big banks are troubled and some are insolvent.  The FDIC should put them through receivership, get clean audits, install new management, and begin the necessary shrinkage of the banking system with the big guys, not the small ones.  It should not encumber the banking system we need with failed institutions.  And it should not be giving CPR to a market for toxic mortgages that never should have been issued, and certainly never securitized, in the first place.

Back in May of 2006, Dr. Galbraith wrote an article for Mother Jones that is particularly relevant to the current economic crisis.  Many commentators are now quoting Galbraith’s observations about how “the predator class” is in the process of crushing the rest of us:

Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle-class utopia.  Instead, predation has become the dominant feature — a system wherein the rich have come to feast on decaying systems built for the middle class.  The predatory class is not the whole of the wealthy; it may be opposed by many others of similar wealth.  But it is the defining feature, the leading force.  And its agents are in full control of the government under which we live.

The validity of Galbraith’s argument becomes apparent after reading Matt Taibbi’s recent article for Rolling Stone, called “The Big Takeover”.  Taibbi’s article is a “must read” for anyone attempting to get an understanding of how this mess came about as well as the sinister maneuvers that were made after la mierda hit the fan.  It’s not a pretty picture and Matt deserves more than congratulations for his hard work on this project, putting the arcane financial concepts and terminology into plain, easy-to-understand English.  Beyond that, he provides the Big Picture, which, for those who read Galbraith’s discourse on predation, is all too familiar:

People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough.  The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’etat.  They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grace:  Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess.  And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class.  But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Let’s hope I haven’t scared you out of reading Matt’s article.  Besides:  If you don’t — you are going to feel really stupid when you have to admit that you don’t know what the ABCPMMMFLF is.

Michelle In The Spotlight

Comments Off on Michelle In The Spotlight

November 20, 2008

I receive many strange comments on this website that I simply delete.  Although I am a strong proponent of First Amendment rights, I exercise my option of deleting defamatory remarks, spam-based “comments” and miscellaneous lunacy.  That final category includes a comment I received a while ago from an alleged female, focused on Michelle Obama.  The rant included this statement:  “Someone should look into Michelle  …”   I felt inclined to reply with the following:

An obstetrician actually did look into her and found two African-American babies, who were sired by Barack Obama.  Are you scared yet?

Throughout the Presidential campaign, the crazy stuff about Michelle kept turning up all over the media.  Monday, November 17, was a landmark day for that ignominious chapter in “news” coverage.  You may remember Fox News anchor E.D. Hill, who, on June 6, called attention to Michelle’s “terrorist fist jab” with Barack.  Fox News subsequently removed Hill from its America’s Pulse program.  On November 17, TVNewser reported that the Fox News Senior Vice-President of programming, Bill Shine, informed TVNewser of his decision not to renew Hill’s current contract with Fox, which expires within the next few months.  A small step for Fox, but a giant leap for  …  uh …  Fox.

From a more rational perspective, another item about Michelle appeared on today’s Daily Beast website.  The article, “Michelle’s Closet Agenda”, was written by Geraldine Brooks.  Ms. Brooks summarized the theme of her posting with this statement:

The point of this long-winded anecdote is not to add more fuel to the bonfire of the vanities surrounding the fact that, my God, we’re finally gonna’ have another first lady like Jackie who knows how to dress.  The point is twofold:  Michelle seems to be able to do everything she sets her mind to, and to do it at a high level of excellence.  And, more importantly: she knows this, and isn’t about to be “handled” into any role in which she is not supremely confident and comfortable.

This point emphasizes an aspect about Michelle that many people find threatening.  They saw it all before with Hillary Clinton:  A woman who attended law school with her husband at Yale, who went on to have an active and successful legal career.  Although Barack is two years older than Michelle, she graduated from Harvard Law School three years before our President-elect graduated from that same institution.  While working as Vice-President for Community and External Affairs for the University of Chicago Hospitals, Michelle was earning approximately $273,000 per year, in comparison with Barack’s $157,000 salary as a United States Senator representing the State of Illinois.

Michelle’s stint as First Lady follows that of Laura Bush, who did not have much to say during her husband’s eight-year tenure.  Nevertheless, book publishers are stomping on each other’s toes in the quest to obtain the publishing rights to Laura’s memoirs.  As for Michelle, many are expecting a First Lady who might have a little more to say, than did Laura Bush.  There is a great deal of doubt as to whether Michelle will become as involved in government as was Hillary Clinton, during her days promoting expanded health care.  Despite that, many people are anxious to get a little more insight from Michelle than we heard from Laura Bush.  One of the first commentators to express this craving was Jason Zengerle.  After Michelle’s speech at the Democratic National Convention, Mr. Zengerle had this to say in the August 25 edition of The New Republic:

Michelle Obama introduced herself as a sister, a wife, a mother, and a daughter–which are all incredibly important identities.  But those identities don’t reveal her full person–the Princeton and Harvard Law grad, the corporate attorney, the hospital executive–which were parts of her life that she barely mentioned.  Instead, she gave us predictable pap like “the Barack Obama I know today is the same man I fell in love with 19 years ago.”

Many pundits are hungry for more incisive, quotable wisdom from our next First Lady.  They will surely get it.  They will know better than to scrutinize Michelle’s statements for gaffes.  Joe Biden has proven himself as the new administration’s most abundant source of those.  Why look elsewhere?