It's Japan Again, Stupid
Everyone should just calm down and get a grip. The problem is not the fiscal stimulus. It is not pork barrel politics. It is not the banks. Nor is it those parasites, the bankers. It's not even the debt.
It's the cost of debt. And it's just like Japan, 1990-2009.
Don't be fooled by the zero short-term Fed Funds Rate. Other more important rates are much higher and rising. The average 30-year-fixed-rate-mortgage has just climbed back upwards to 5.28%.
To stop the downward spiral, the Fed must lower borrowing costs across-the-board -- short and long rates, safe and risky. Soon bankruptcies will slow, defaults will ease, foreclosures will let up, and unemployment start to fall. There's even a chance the undeserving banks could be saved. But it has got to be done soon, before the downward debt-deflationary spiral spins out of control.
Just think about it. Home-owners -- some of whom were good for their debts just a year ago -- are defaulting. Why? Because they're losing their jobs, or their contracts or their businesses. Everything must be done to help them hang on.
Yet at this time -- the gravest debt crisis in US history -- corporate and mortgage interest rates are high and rising. What is the Fed thinking?
And take U.S. companies -- many are sound businesses faced by slumping markets. To compound this challenge they have back-breaking borrowing costs on debt they were persuaded to take on by bankers and financiers -- and they're going bust.
They can't be blamed for the slump in the markets -- that's down to the bankers. And they can't be blamed for borrowing. After all, the lending binge was cheered on and facilitated by the Fed, by politicians, by officials and by orthodox economists.
Now these innocents have been abandoned. Banks and capital markets are refusing to lend enough to roll-over the debt, and to keep sound businesses going. Where they do lend, the price -- i.e. interest rates -- has soared.
It's these borrowing costs that are bankrupting businesses, and can be directly blamed for the rise in job losses. More bankruptcies, more job losses, more properties on the market - all this is pushing down prices, while the cost of debt rises.
It is just like Japan, 1990-2009.
Between 1992 and 2001 Japanese Finance Ministers launched 10 emergency budgets in a desperate bid for a fiscal stimulus that would revive the economy and create jobs. But without having first fixed borrowing costs, the emergency budgets just made things worse -- because they triggered rises in the long-term cost of borrowing.
Now while the US fiscal stimulus is vital -- it will create jobs where the market has failed -- government spending has a downside. Ask the Japanese. Without lowering interest rates first they were building roads and bridges to nowhere.
Be clear -- there's no reason why the Fed cannot control interest rates across-the-board. Without Federal Reserve management of borrowing costs, big spending by the US government could help drive interest rates up -- in particular long-term rates. I really hate to admit it, but the Republicans have a point here.
They're wrong of course to say that budget deficits are like household deficits and implicitly unsound. They're not like household deficits. The government's budget will recover when the economy recovers. Plain and simple. In the meantime the government has to step in where the market has failed. But if the fiscal stimulus takes precedence over the management of borrowing costs - it could make things worse.
It's a sequencing issue. John Maynard Keynes understood it, but his so-called followers, including Larry Summers and Tim Geithner, don't seem to get it. Keynes would have argued strongly to get borrowing costs down now - as a matter of urgency. Then use the fiscal stimulus to create jobs and revive the fast-expiring economy.
The Obama administration's advisers are not heeding Keynes. By cherry-picking his theory so that bankers and other free-marketeers can get their hands on taxpayer funds, they are doing the great man, and the global economy, a dis-service. Never mind tax-payers.
Above all, by not learning from Japan; by refusing to take control over all rates of interest - short and long, safe and risky - the Fed, US politicians and their advisors are driving this great country into the Mother of all Depressions. Just ask the Japanese.
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Close but not quite.
Japan purposely ground their own people into a Depression so they could lend the US funny money till eternity. And as our debt grew bigger and bigger, it gave Japan more leeway with exporting their stuff into our country with practically no taxes. And of course we destroyed our car manufacturing base for them.
But now we can't pay our debt. Even funny money loans are no longer good.
Japan tried to bailout the banks. Failed. just like Hoover.
If she right, this depression will have results that the US in the 30's ijust avoided, by various ways and means. Neither Democrats nor Republicans will survive this one. And this time the American people will not stand idly by for 20% unemployment or a decade of depression. The military will be used and the government as we know it will not be around. So, it would be good if the lawmakers understood Keynes; unfortunately, the politicans are the cause the problems.
I'm reading Amity Schlaes Forgotten Man. If she's right, then we should probably be looking to Adam Smith and not to Keynes. In any case, perhaps this Depression WILL "throw the bums out" of Congress -- all of them, both parties. They are just pigs at the trough, like Wall Street!
Congress should eliminate the Federal Reserve or veto many of its decisions.
Congress should consider backing our currency with gold, silver, and other commodities.
People may want to support an Amendment to the United States Constitution that allows state governments to make gold coins and silver coins.
I posted comments after Steve Bartin's "PUBLIC PENSION TROUBLES LOOM FOR STATE AND LOCAL GOVERNMENTS" at http://www.newgeography.com/content/00572-public-pension-troubles-loom-state-and-local-governments
Many countries should stop taxing interest from savings accounts, dividends, capital gains, and estates. Businesses need capital to stay in business. Businesses need capital to pay their employees.
It makes more sense to increase sales taxes on wealthy people and others.
Many countries should legalize, regulate, and tax the sale of marijuana, heroin, and cocaine for people who are at least 18 years old. Many governments may make a lot of money and fewer people may be in prisons. Many terrorists and violent criminals may make less money from drugs. Many people may be safer.
Sincerely,
Ken Stremsky
The author of this article should wrap up her analysis this way. As long as the U.S. and England have their national bank in private hands, the cycles of boom, bust, inflation, deflation, recession and depression will be administered at will by powerful private men. Dr. Carroll Quigley, Bill Clinton's mentor in world affairs, tried to identify these private men in his book, Tragedy and Hope.
As long as the central banks of the England/U.S. are in hands of private international bankers, debate is muted as a result.
As long as the head of the Federal Reserve is seen leaving the secret Bilderberg meetings, as seen here: http://cryptome.info/bilderberg08/bilderberg08.htm , governments are powerless to administer the economy. As long as the heads of the treasuries of those two governments are assigned by The Bilderberg Group (both Paulson and Gueitner attended the past 2008 meeting), the government is reduced to just managing debt.
England and the U.S. must nationalize their central banks and convert to a low interest credit issuance economy as opposed to the private central banks running a debt and interest based economy.
Richard Branson, Virgin, once stated that every corporate business desires to achieve a monopoly in the market place. The purpose of privately run central banks is to achieve a monopoly. That monopoly is a single global currency with them in charge.
People don't want to know the truth which is that our economy runs on the fuel of debt. For all of those interested check out this clip:
http://www.silverbearcafe.com/private/moneyasdebt.html
Ahem... and the Euro is valued higher than the US Dollar because ....
Japan also had a huge real estate bubble.
When the bubble bursts after huge run-up of real estate prices, a few things should happen for real estate to start appreciating in a rational manner:
* -- Average incomes should rise so that people who _need_ to buy a home can affordably purchase it for the long term. The easy money of purchasing a huge mortgage, to "flip" a property for a quick short term profit -- is about as likely to come back as the dot-com bubble. Rampant greed driven, real estate speculation has burned its way through the available appreciation potential far too quickly, far in front of average home-owners' ability to keep up.
* -- A drop in prices
* -- An inflationary, destructive cycle, that will also erode value, and prompt incomes to keep up w/inflation.
For real estate -- the best thing to hope for is to prevent a huge slide, maybe for it to merely stabilize for a few years. People with mortgage troubles with their primary residence should get help. The easy, quick money is over in this market. Speculators & bad mortgage lenders should take their losses and move one. The government should not devote a great deal of taxpayer money, subsidizing gamblers and highly paid professionals in the industry who should have known better. This market will have to restructure, minimize & take their losses, and quickly gear towards tommorrow rather than yesterday.
There is no such thing as capitalism, unless you believe that capitalism is socialism, which is what it now has become. Socialize the losses and privatize the gains. Bailouts for the uber-rich bankstas and gangstas, while the working class go without jobs, since they have been shipped overseas causing people to move out of their homes letting them go empty. 8 million projected by end of 2009.
The solution is to recall every penny of profit held overseas by the corporations that moved off-shore with the jobs---$450B, then stop the war bleeding---$500B, then cut defense and HLS budgets with their no-bid crony contracts----$500B, then raise the tax rate on the millionaire and billionaires---are we at $3 T in new revenues yet? This can be done overnight, basically. Then stop the TARP and put it in local banks around the country. Nationalize the failed bankrupt mega banks, fire their CEOs, reorganize them, make the toxic debt transparent and auction the crap off, then sell off the assets to smaller banks willing to buy the good stuff.
Debt is a requirement for manufacturing to get re-started. It is required to sell off empty home at reasonable prices. But end swaps, and make leveraging limited to around 15:1.
http://eye-on-washington.blogspot.com
First of all, you can't imply what Japan has had over the last 18 years is depression. It is a very protracted recession mixed with periods of very slow, sub par growth.
Second, it is not republican owned thesis that government spending drives up long-term rates. It is admitted by everyone, including Summers. It is a big concern for policy makers.
Third, as far as I know, there are already measures deliberated and implemented to attack the long-term rates. Whether rates are the most important or just one of the very important reasons for the crisis, I don't think anyone can claim for sure. It is not an exact science with exact answers. Most of all, there is this expectation that we can actually do something to fix it soon. I think this is overrated, even the powerful US government can't fix it soon enough. We will be in the dirt for quite some time.
this is OBAMA'S CHANCE! is he going to listen to the Repugs who want to give money unrestricted to the banks ( A BLANK CHECK) and tax cuts for the WEALTHY..
He needs to give tax credits to the bottom 60% for property taxes, interest payments, standard deductions and healthcare...If a deduction for the rich for a charitable contribution is 35% of the deduction, then for Grandma Robinson, the deduction should be worth 35% of the contribution... same across the board with caps to allow this for people earning less than 250 grand, the 95% of us....AND then remove the tax deductibility for the people over 250 grand....TAX POLICY IS Social Engineering and right now the Rich are getting 95% of the benefits...
Obama quote ... I found this national debt, doubled, wrapped in a big bow waiting for me as I stepped into the Oval Office. ... What do you think a stimulus is? It’s spending — that's the whole point! Seriously."
Seriously, where has Obama been the last eight years? What does he think got us into this mess? Where does he think those deficits came from? Here are the facts. Before President Bush took office, the federal government took in $2 trillion in revenue in 2000. In 2009, the federal government is expected to take in $2.4 trillion. After eight years under President Bush, the federal government is taking in $400 billion more a year in revenue. So why did Congressional Budget Office project a $1.4 trillion deficit for the 2009 budget?
Last night Obama told Democrats, "If you’re headed for a cliff, you have to change direction." That's a decent analogy, but the problem is his Trillion Dollar Debt Plan is not a change in direction. It is a foot on the accelerator. Instead, the Senators voting today should take another saying to heart: "When you find yourself in a hole, stop digging."
Bingo! As I see it, there really is no difference between the GOP and the DEMs, except in the manner in which they proceed to the same ends - send Amerca into the dumps ASAP.
Only three individuals, in the campaign for POTUS, made mention of "the problem" - of course, all three were shut down, mocked, shunned, etc. Neither Obama, nor Biden, were one of these individuals.
"And to the republic, for which it stands....." ????
This article is a welcome change from the "stimulus" cheerleading. And you are right on with your comment. Unfortunately, the republicans have lost their cred when they turned a blind eye to the out of control spending over the last eight years. And the democrats are no better. For all the, "It's Bush's fault" raging that happens here, I don't seem to recall ANY democrats standing up during the prescription drug benefit legislation saying, "Hey, we can't afford this." Both parties are to blame: The democrats for going along willingly with massive entitlement spending, and the republicans for their blind party loyalty in passing whatever absurd spending Bush felt appropriate.
Let's not forget that Clinton left for Bush a surplus. Which was not supposed to be wasted and turned into a big deficit. One of the purposes of a surplus is to help you go through hard times (see the Chinese) - if we had a surplus in 2008, it would have been much easier to fix it now. Bush was an irresponsible manager of the nation's wealth by wasting it on an unnecessary war and by distributing big chunk to the very few that are well off beyond imagination.
Many say the reason Japan's 'rescue ' did not work is because they waited way TOO LONG.
SO lets get moving on a sensible careful package. No more playing partisan politics .
Its all about power .Voters took it away from the GOP decisively. Jobs are being lost business's are closing - partly because they can't get credit. These bankers are ' hoarding ' our money 1
SO we need to just do it !!
The Japanese also Hoovered it by trying to bailout the banks.
SO Ms Pettifor What do you propose we do about this growing crisis ? Every 'expert ' out there has a different opinion. The GOP wants large cuts in the package for education and funds to help people....thats their MO. Greedy and selfish. All they ever want is more cuts for the wealthy..Its been that way since Reagan forward. Now this load of crap has been dumped on Obama. FOLKS- NO ONE knows for sure how - or if - we can stop the ' bleeding' in our economy. Obama should hang tough and do what HE feels is right. AFter all - the GOP will stab him in the back whatever he does.
We KNOW the GOP conservative method does not work.
Domestic Investment in Americans ALWAYS WORKS.
It's only the fusillade of GOP lies that make it seem there is any serious doubt
we need to invest our way out.
Damn, I like strong women!!
With regard to the above, YES, YES, YES! What I mean by that is that you are the first to my limited knowledge who has "Nailed It". Is anybody listening; God, I hope so.
Let me suggest, though, that regulating banks and other lenders can only be considered a first step. There is a broader issue that needs to be addressed as soon as possible; and that is the basic paradigm. What we have been working with for the last hundred years is parasitic and predatory the origins of which are rooted in the early days of the industrial revolution. The real sadness is that it has lasted this long and done this much damage.
President Obama has already put out a call to the people of the entire world to come together and solve this crisis. All of us, as citizens of the world must step up to the plate. I am presently putting together a basic framework for what I think is needed to rebuild the world we live in such that it can be made to work for all of us in the future. I'll get back to you on that.
Yeah, you do that.
The problem IS and has been the GOP policies of the last 25 + years. We all know the story by now.
Reagan's deregulation of banks ( and others ) trickle down ( vodoo ) economics, huge tax cuts that benefitted the wealthy and one we could not afford- Reagan's HUGE tax cut lowered the top tax rate of 80 % to about 30 %. As usual, the middle class got a relative few 'crumbs ' The BUsh decided the wealthy ; needed' even MORE tax cuts- Greed knows no bounds. Do we see a pattern here ? Giving the middle class a tax cut makes much more sense, since we will likely spend it on goods and services. We are in an emergency situation. We need to act quickly but carefully. Every week brings more and more job losses. SOme of the ideas I've read are good ones- such as-let the worst banks fail, lets only help the stronger banks that have a chance of remaining in business. Help homeowners who are losing their homes. If we don't - that would mean more unsold homes on the market, worsening our housing crisis. The Repubs are now ' worried 'about spending- where were they the last 8 years when they gave Bush all the tens of billions he asked for ? The GOP- has to STOP the phony partisan politics.
Oh, right, the fact that Bush Crime Family has allow unchecked greed to reign for eight years and gutted the SEC and allow our Treasury to be looted and scam artist to float over 70 TRILLION in derivatives and rent estate to flip like hamburger after a Pink Floyd concert has NOTHING to do with the mess we are in, nooooooooooooo
That wasn't said in the article... It's talking about solutions, not how everything started....
Inherent in the solutions is the full grasp for how this unfolded.
The Federal Reserve is a private bank that is trying (and succeeding) to enslave the entire planet. We don't need lower interest rates because this just gets us into more debt with the Federal Reserve and further enslaved in the system. I think we need to abolish capitalism. As Stalin said "Give enough rope to the capitalist and he is sure to hang himself." I'm not suggesting we become Communists. Capitalism has nothing to do with our constitution or democracy. We need to develop a system that creates equality but rewards positive achievements. Right now we disproportionately reward those that can get away with cheating the system and lay off the good honest laborer. This is an unjust ecosystem that will never succeed as it doesn't work in nature either.
If you look at all the real problems we face i.e. global warming, health care, poverty and violence/war the only solution we can come up with is money. Isn't it ridiculous to think we can't do something because we don't have these green pieces of paper? In reality we could do whatever we wanted whenever we wanted if it weren't for this fact. We could have been on Mars and built the Starship Enterprise by now. I'm tired of the religion of capitalism we have invested so heavily in. We are stuck because the legacy toxic industries i.e. big oil, big war, Wall Street and the Federal Reserve wouldn't have it any other way.
What is your alternative to capitalism? No- we can not eliminate capitalism- We just need to have comon sense regulations & safe guards. Madoff got away with his huge scheme because lack of controls made it posible ! It will likely take years for us rebuild our economy. and begin to rid ourselves of the GOP policies of Reagan / Bush / Bush SR. Reagan's massive deregulation & trickle down economics- plus the fact that he lowered the top tax rate from 80 % to about
30 % put us on the road to disaster. Reagan's huge tax cuts should be eliminated. How much wealth was ' redistributed ' to fat cats - while the middle class got the ' crumbs ' The GOP answer to every thing is more & more tax cuts for the very wealthy. ENOUGH ! Voters have become a lot smarter. Even- Alan Greenspan ( Former Sec of Treasury ) recently ' apoligized ' for ' pushing ' deregulation for so many years. He said " I was wrong " At least he had the b____s to admit it.
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