Month: November 2009 Page 2 of 4

Via Paul Rosenberg at Open Left, this table summarizing a recent Winthrop poll:

Winthrop Poll On Stimulus

Seem pretty straightforward.  The real irony, of course, is that the general public opposes what the government has done most of, and agrees with what the government has been reluctant to do.

Government by the financial elites, for the financial elites.

It seems there is no solution to California’s budget shortfalls (via Digby):

“I think that there will be across-the-board cuts again,” he said at a San Jose news conference….

“I can’t think of any good solutions,” said Assemblywoman Noreen Evans (D-Santa Rosa), who chairs the budget committee. Although the projected deficit would be smaller than the last one, she said, “the cuts are going to be harder to make because we’ve already made such substantial cuts.”

This is, in one sense, false.  The solution to California’s budget woes is to raise taxes, primarily on the rich, and to allow municipalities to raise property taxes.  The solution is dead simple.

However, in a more real sense, there is no solution.  Because California’s constitution allows a minority rump of Republicans to veto the majority, no such tax rises can pass.  And since California’s proposition system is what made property tax rises impossible, and since a proposition to remove the limits is unlikely to pass, there is no solution.

Californians are going to have grow up.  They can’t have low taxes and services.  It is simply not possible.

• The constitution needs to be rewritten to allow budgets to pass on a majority vote
• The proposition system itself needs to be ended, and any proposition now in effect should be able to be nullified by the legislature, on a simple majority vote.
• Taxes need to be raised, both income taxes on the rich, and property taxes.  If necessary put limits on tax raises for primary residences only for as long as they are owned by one owner, with a reset when they are sold or passed on, but otherwise, taxes can be raised.
• Grow up.

I feel very little sympathy for Californians as a group though I recognize that many Californians are individually blameless.  This has been coming for decades, and whenever given a chance to make things worse, Californians have done so, as when they kicked out the last Democratic Governor and installed the Governator, a man who never saw a budget problem which couldn’t be solved by floating more bonds and cutting services to the poor.

You get what you pay for.  For years, Californians thought they could have government services without paying for them.

As goes California, so goes the country.  Americans as a group still think they can have things they won’t pay for, and that they can have lots of billionaires and widespread prosperity.  Has never happened.  Will never happen.

Period.

A friend of mine noted that the Fed is supposed to try and achieve both price stability and employment, and thus seems to believe that leaving interest rates low is something the Fed should do.

But monetary policy alone isn’t going to get the US to full employment.  It requires properly done fiscal policy combined with proper financial regulation to encourage lending to the real economy and real investment.

Right now what is happening is that banks have cheap money, but consumers and most businesses have expensive money.  They risk creating another financial bubble, minus the part where some ordinary people manage to get rich off flipping houses because banks aren’t lending their cheap money to companies or people who create any significan numbers of jobs, they’re using that money for leveraged plays, buyouts and so on.

As usual, this was predicted by a number of people this time last year when TARP was formalized.

The Fed, Treasury, FDIC and federal regulators, under the direction of the President (and yes, the Fed does do what the President wants right now, if Bernanke wants to keep his job, which he does) could do a number of things to fix this, but doing so would require telling bankers who they’re going to lend to and what interest rates they’re going to charge, and /that/ would require being willing to threaten them with (and if necessary follow through with) withdrawal of special facilities, real audits, and having the FDIC take over banks who absolutely refuse to play ball.  Which means a willingness to risk having those sweet sweet donation from the financial sector flip back to the Republicans.

The rest of what needs to be done rests in the combined hands of the President and Congress.  For a pittance compared to the full so-called stimulus bill, cash for clunkers produced noticeable growth. If the government wants to pass a real stimulus bill, actually designed to create large numbers of jobs, it could get a lot of bang for only a few hundred billion dollars.

No one, not the Fed, nor Congress, nor the President, is serious about full employment.  If they were they would have done, would be doing, and would be planning on doing different things than they have done.

Employment will probably start picking up again in the spring, but employment as a percentage of America’s population will not recover this economic cycle.  My suspicion is that it won’t recover within 20 years.

That is a policy choice, either deliberately, or through stupidity (I suspect both.)  Fixing it requires all three of the Fed, President and Congress to decide to do the right things for the population as a whole, rather than for their friends, donors and cronies in the financial industry.

I leave it to others to decide how likely that is to occur.

It seems there is a proposal to create a new board to set accounting standards (h/t Digby):

The mechanism is contained in an amendment set to be introduced in mid-November by Rep. Ed Perlmutter (D-Colo.) that would move final authority over the Financial Accounting Standards Board (FASB) from the Securities and Exchange Commission to a new body, a so-called “oversight” board, that would include the officials charged with managing systemic risks to the financial markets.

These regulators would have the authority to override FASB’s accounting guidelines by taking into account economic conditions. (emphasis added)

The key factor in Japanification is that you don’t allow bankrupt or insolvent banks or other major firms to fail.  You let them keep bad loans and “assets” on their book at inflated values, and you let time go by, intending to write the bad loans down very slowly as time goes by.  The effect of this is that real access to credit in the actual economy dries up, and as a result there is much less real growth.

Trading leverage at banks is up.  There are fewer, larger banks, few, too larger to fail banks, that is. Credit for consumers is more expensive, and the non-government guaranteed mortgage market has seized up.  Elsewhere Digby also notes that reports of mortgage fraud are actually up from last year.

There is going to be a recovery, it has already started in Asia.  Job numbers should start turning around in the spring in the US, though the number of people employed as a percentage of the population will not recover this economic cycle, and probably not for a generation.

However, Japanification doesn’t mean you don’t get some recoveries.  You do, then they sputter out.  Employment never really recovers, wages stagnate and things are just generally lousy without plunging the country into an all out depression.  So, yes, in that sense the country was “saved’ from a Great Depression, but choosing the worst alternative.

That alternative isn’t just Japanification, it is a continuation of the status-quo ante.  The Bush years, and indeed the Clinton years to a lesser extent, were about financial plays.  Instead of building a real economy, the chimerical returns of financialization were pursued.  Real businesses return 5% and consider that good.  Financialized companies, taking on too much risk and debt, slashing employees and capital and seeking returns through offshoring and outsourcing return 15%.  Leveraged financial plays return far more even than that.  The returns are fictional, the bailouts wiped out most of the profits of the last 8 years, but bonuses and salaries are paid on them, so they aren’t fictional to executives, and it is executives who make the decisions.

What Obama, Geithner and Bernanke have been doing is attempting to reboot the financialized economy.  Rather than winding it down, breaking up banks, reinstituting Glass-Steagall, and regulating banks like utilities, they are attempting to get the Busheconomy working again.

The cost of all of this has been high.  In the trillions.  Instead of increasing progressive taxation to make the rich pay for their bailouts, what is being done is to make the poor and middle class pay.  This may be through high interest rates (letting credit card rates go to 29%, among other things) or it may be forcing the population to buy private health insurance, but once again, the rich fail, and everyone else pays the price.

The end result of Japanifying, regressive taxation (whether direct or indirect) and  attempting to restart the financial casino will not be pretty.  There will not necessarily be any immediate disaster, and some numbers will look good.  But the fundamental problems of the economy under Bush have not only not been fixed, they have been made worse and the evidence is being systematically buried.  There won’t be another financial crisis immediately, but another one has been made inevitable.

Economically this is the legacy of this Congress, Federal reserve, and presidency.