The reform of the credit agencies, which creates an office in the SEC which assigns securities to the agencies to be rated, rather than the security issuer choosing (and paying) who rates them, is an actual good reform. The Fed audit, while it is more limited than I would have liked, if done properly, should be very interesting. Financial reform is still far from sufficient, but some intelligent good stuff is being passed.
Month: May 2010 Page 3 of 4
It has been suggested to me that cramming down social security would be a way of letting the bond markets know that the US is capable of making “difficult decisions”.
A politically difficult decision would be, say, raising taxes on the rich. Cramming down SS is just standard soak the middle class neoliberal claptrap. It is totally unecessary. Current projections show a problem 32 years in the future. Any projection out 30+ years is essentially a guess. Add 1% to productivity increases and the entire SS “problem” goes away.
The US may have real spending problems, but they aren’t concentrated in social security.
However those actions which would really reduce those spending problems, like single payer (save 1/3rd per capita costs on health care), or slashing the military (there is no rational justification for spending 50% of the world’s military budget), or moving back to heavy progressive taxation, or increasing the estate tax, are on the table. The only things on the table are actions which hurt the poor and middle class.
There is no crisis with social security. If there is a deficit crisis (due to hot money’s desire for better returns than they deserve) it is because we refuse to do the things which would actually solve the problem. Because anything that impacts the rich or the military or pharma is off the table, apparently all that’s on the table is making ordinary Americans take it in the neck.
So, just no to cramming down Social Security: no increase in the retirement age, no decrease in benefits. If you must make changes, just uncap the FICA tax. There, “problem” solved.
James Galbraith has a good interview with Ezra Klein on the deficit being meaningless, which you should read. A good chunk of the interview is Modern Monetary Theory, though not all.
Let’s put it more simply: the government can print money. IF you owe your debts in your own currency, and that currency is a fiat currency, then you cannot run out of money. You can have some inflation issues, you can have some problems with misallocation of resources, you can
have some issues with currency rates and so forth, but you can’t run out of money.
The key to doing this, to using the printing power, is to use it in ways which either don’t lead to massive increases in exports, or which lead to reducing dependence on exports. Likewise you need to always remember that while money as such matters less than people think, actual real productive capacity matters much more. If you’re building aircraft carriers, those people and other resources cannot be used to build other things. If you’re building yachts and $50,000/night hotel rooms, those people and resources cannot be used for other things.
Money is how you allocate resources, how an economy decides what to do. If price signals are distorted, and they are right now, you wind up spending a lot of resources on things which are not productive-which do not build up the real productive capacity of the economy, instead of the largely useless, and indeed destructive financial sector, which, at its current state of development, has gone from being a symbiote to a parasite on the economy.
I cannot emphasize enough: this is the sign of a fixed market. It is impossible that this could happen in a free market. Impossible.
This means they are extracting money from the markets, aka: from everyone who isn’t a market mover. Small traders, pension funds, trading accounts of cities, etc… Even if those actors aren’t actually in decline, they are making less money than they should as the banks make sure that their buy orders are filled at the highest price possible, and their sell orders at the lowest level possible. And, in fact, many of them will be in outright decline as a result of these games.
At this point, if you are not a market mover, you can only make money in the market by anticipating the moves of the market movers. This is now about guessing what a few people will do, so you can ride the tiger. Just don’t fall off.
Um, dude, no, Boehner is right, and you’re wrong, when it comes to the real world (h/t Cujo)
That was odd, wasn’t it? The disconnect makes it seem as if GOP talking points are lacking in flexibility, unable to adapt to changing circumstances. When the economy was losing jobs every month, Boehner would say, “Where are the jobs?” Now that the economy has added more than 200,000 jobs in two consecutive months for the first time in four years, Boehner is still saying, “Where are the jobs?” It suggests the would-be Speaker isn’t paying attention to current events very well.
Ok, depending on how you count it, the economy needs to add about 140K to 150K jobs JUST to keep up with increases in the population. About 8.4 million jobs were lost in the last recession. At a rate of, say 250,000 jobs/month, it will take 7 years to both put everyone back to work, and to sop up population increases.
For people in the ordinary economy “where are the jobs?” is a perfectly valid question, and it is a perfectly valid election strategy, because even if the economy starts regularly producing jobs at over 300,000, when November rolls around, the vast majority of people who need a job, still won’t have one.
Here’s my prediction: as a percentage of population, employment will not recover before the next recession. 80%+ of all productivity increases will go to corporate profits, and wages will stagnate.
Boehner is right to ask “where are the jobs?” Both as a matter of fact, because there aren’t enough jobs, and as a matter of electoral strategy.
Uh-huh. Which means, as I said earlier, that the security markets are not free markets. They are moved, at will, by the muscle, money and foreknowledge of a relatively small number of large traders. The small time but professional traders (aka. people who used to make money) are livid, because systems which used to give reliable trading signals have become far less reliable. This is why, on virtually every econo/market blog you will find that the commenters are angry.
This is an oligarchical society. This is true whether you live in Europe, the US or China, it is only a question of who is a member of the oligarchy.
And, with maybe one or two exceptions, no one reading this is.
Some folks seem to misunderstand what I wrote (which indicates I wasn’t clear enough.) I do not know if the huge drop was a message, it certainly may have been. But whether it was deliberate or not, it indicates that the big money CAN crash the market whenever it wants. This is a sharper demonstration of what the 2008 crisis showed—that the hot money can crash the markets and the economy any time it wants.
The lesson of 2008, as understood by political elites, was that this hot money MUST be appeased. The money wants high, risk free returns, and if it doesn’t get them, it will make everyone hurt. This is why, instead of taxing the rich, which is where the money is and which has essentially no economic costs (a 20% tax on purchases of luxury goods or services over 1.5 million would have essentially zero cost to the real economy) what is happening instead is talk of slashing entitlements, or in edge economies like Greece, austerity. (Britain will soon be getting cuts at their national level and States and Cities have already had cuts in the US.)
Instead of appeasement, the 2008 crisis offered an opportunity to break the rich, by forcing them to recognize their losses, by refusing to bail out the financial institutions so that shareholders AND bondholders got smashed. At the same time, to reduce the effect on the real economy, either the FED could have loaned directly to businesses and consumers or the FDIC could have taken over major banks which were dead, like Citigroup, and pushed out Fed money through the newly nationalized banks.
The end result would have been the power and wealth of the rich broken, and the real economy in not much worse shape, but able to recover much better, since the recovery wouldn’t be hobbled by the need to prop up insolvent banks, by crippled lending by effectively insolvent banks and by the need to provide above market returns to banks and the hot money rich.
This is explicitly what I was proposing in 2008, but of course, it didn’t happen. So, instead, we get a decade of suck, if we’re lucky, the EU gets multiple failed economies and austerity plans, and the rich get 80%+ of the profits of the coming economic cycle. If we’re unlucky (or maybe if we’re lucky) it crashes out sometime before then, since it is teetering on the edge.
Here is the basic thing you need to understand:
You can have lots of rich people, or you can have widespread prosperity. You cannot have both.