June 24, 2010
They’re at the starting line, getting ready to trash the economy and turn our “great recession” into a full-on Great Depression II (to steal an expression from Paul Farrell). Barry Ritholtz calls them the “deficit chicken hawks”. The Reformed Broker recently wrote a clever piece which incorporated a moniker coined by Mark Thoma, the “Austerians”, in reference to that same (deficit chicken hawk) group. The Reformed Broker described them this way:
. . . this gang has found a sudden (upcoming election-related) pang of concern over deficits and our ability to finance them. Critics say the Austerians’ premature tightness will send the economy off a cliff, a la the 1930’s.
Count me among those who believe that the Austerians are about to send the economy off a cliff – or as I see it: into a Demolition Derby. The first smash-up in this derby was to sabotage any potential recovery in the job market. Economist Scott Brown made this observation at the Seeking Alpha website:
One issue in deficit spending is deciding how much is enough to carry us through. Removing fiscal stimulus too soon risks derailing the recovery. Anti-deficit sentiment has already hampered a push for further stimulus to support job growth. Across the Atlantic, austerity moves threaten to dampen European economic growth in 2011. Long term, deficit reduction is important, but short term, it’s just foolish.
The second event in the Demolition Derby is to deny the extension of unemployment benefits. Because the unemployed don’t have any money to bribe legislators, they make a great target. David Herszenhorn of The New York Times discussed the despair expressed by Senator Patty Murray of Washington after the Senate’s failure to pass legislation extending unemployment compensation:
“This is a critical piece of legislation for thousands of families in our country, who want to know whether their United States Senate and Congress is on their side or is going to turn their back on them, right at a critical time when our economy is just starting to get around the corner,” Mrs. Murray said.
The deficit chicken hawk group isn’t just from the Republican side of the aisle. You can count Democrat Ben Nelson of Nebraska and Joe “The Tool” Lieberman among their ranks.
David Leonhardt of The New York Times lamented Fed chairman Ben Bernanke’s preference for maintaining “the markets’ confidence in Washington” at the expense of the unemployed:
Look around at the American economy today. Unemployment is 9.7 percent. Inflation in recent months has been zero. States are cutting their budgets. Congress is balking at spending the money to prevent state layoffs. The Fed is standing pat, too. Bond investors, fickle as they may be, show no signs of panicking.
Which seems to be the greater risk: too much action or too little?
The Demolition Derby is not limited to exacerbating the unemployment crisis. It involves sabotaging the economic recovery as well. In my last posting, I discussed a recent report by Comstock Partners, highlighting ten reasons why the so-called economic rebound from the financial crisis has been quite weak. The report’s conclusion emphasized the necessity of additional fiscal stimulus:
The data cited here cover the major indicators of economic activity, and they paint a picture of an economy that has moved up, but only from extremely depressed numbers to a point where they are less depressed. And keep in mind that this is the result of the most massive monetary and fiscal stimulus ever applied to a major economy. In our view the ability of the economy to undergo a sustained recovery without continued massive help is still questionable.
In a recent essay, John Mauldin provided a detailed explanation of how premature deficit reduction efforts can impair economic recovery:
In the US, we must start to get our fiscal house in order. But if we cut the deficit by 2% of GDP a year, that is going to be a drag on growth in what I think is going to be a slow growth environment to begin with. If you raise taxes by 1% combined with 1% cuts (of GDP) that will have a minimum effect of reducing GDP by around 2% initially. And when you combine those cuts at the national level with tax increases and spending cuts of more than 1% of GDP at state and local levels you have even further drags on growth.
Those who accept Robert Prechter’s Elliott Wave Theory for analyzing stock market charts to make predictions of long-term financial trends, already see it coming: a cataclysmic crash. As Peter Brimelow recently discussed at MarketWatch, Prechter expects to see the Dow Jones Industrial Average to drop below 1,000:
The clearest statement comes from the Elliott Wave Theorist, discussing a numerological technical theory with which it supplements the Wave Theory’s complex patterns: “The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016.”
* * *
There will be a short-term rally at some point, thinks Prechter, but it will be a trap: “The 7.25-year and 20-year cycles are both scheduled to top in 2012, suggesting that 2012 will mark the last vestiges of self-destructive hope. Then the final years of decline will usher in capitulation and finally despair.”
So it is written. The Demolition Derby shall end in disaster.
Tool-Trashing Time
I never liked Joe “The Tool” Lieberman. If you run that name (nickname included) on the search bar at the upper-right corner of this page, you will find a total of 13 previous entries wherein I discussed him in uncomplimentary terms. What bugs me most about Lieberman is that so many people consider him as the personification of centrism. I believe that Lieberman gives centrism a bad name because he is simply an opportunist. The guy doesn’t really appear to stand for anything in particular – he is simply a tool for whatever lobbyist or other interest group is willing to play his quid pro quo game. After Lieberman lost the Democratic Primary for his Senate seat in 2006, he chose to run as an Independent and in the process, he betrayed those individuals who contributed to his election campaign, believing that Lieberman would champion the causes he advanced before he had to sell his soul to Bush and Cheney in order to save his political hide. It was only because Ned Lamont (the man who defeated him in the Democratic Primary) came down with a bad case of The Smug – spending more time vacationing than campaigning for the November election – that Lieberman managed to win a fourth term as junior Senator from Connecticut.
Needless to say, Emily Bazelon’s recent article for Slate, “Good Riddance, Joe Lieberman – Why I loathe my Connecticut Senator” was a real treat. It was nice to see that a good number of people were as thrilled as I to hear that The Tool was calling it quits. While discussing the celebratory outpouring of enthusiasm by anti-Lieberman-ites Ms. Bazelon mentioned this:
As an aside, the first half of that passage was characterized as “the money quote” by the Red State blog and other far-right commentators, anxious to avenge Sarah Palin since her “crosshairs” SarahPac campaign ad was criticized after the attempted assassination of Representative Gabrielle Giffords. The magic word, “hate” gave the hard right the opportunity to argue that “liberals hate politicians, too”. Actually, the real “money quote” can be found by clicking on the highlighted language discussing the fight over the Financial Accounting Standards Board rules:
Does that rhetoric sound familiar?
After his 2006 victory, Lieberman continued to betray the people of Connecticut by abandoning his duties in the Senate to follow John McCain all along the 2008 campaign trail (including McCain’s trip to Afganistan) in the hope of securing a place for himself in the would-be McCain administration. The Tool knew he would never win a fifth term in the Senate. His only hope was to latch on to McCain’s pantsleg and hang on for dear life. In the wake of that fiasco, The Tool’s approval rating continued to slide and by October of 2010, it was down to 31 percent. A fifth term in the Senate was definitely out of the question. His campaign war chest could be put to better uses – such as buying “friendships” before beginning a new career as a lobbyist.
Despite Lieberman’s crucial effort in the repeal of the military’s “don’t ask – don’t tell” policy, it is interesting to observe how many gay people are willing to overlook that good deed while celebrating Lieberman’s retirement. A review of the comments at the joemygod blog exposes these reactions:
So much for that legacy thing . . .
Daniela Altimari of The Hartford Courant’s CapitolWatch blog, revealed a wide spectrum of reactions to Lieberman’s announcement. As one might expect, the remarks from politicians were painfully cordial, polite and not worth our time here. I’ll provide you with two of the more interesting quotes:
The Connecticut Mirror provided these reactions:
As we approach The Tool’s final days in the Senate, I will be looking forward to similar tributes.