TheDailyBanter.com

Krugman's Letter To Obama: The Economy is Worse Than Anyone Imagined

By Ben Cohen

The sobering but brilliant letter written by the economist Paul Krugman to Obama in Rolling Stone Magazine outlines just how bad the economic crisis is, and what he believes Obama must do to reverse it. Krugman believes that the economy is on the verge of a complete meltdown, and only massive government intervention can turn it around. I've tried to summarize the key points for Krugman's immediate recovery program below. He writes:

The Center on Budget and Policy Priorities, a nonpartisan research group that analyzes government programs, recently estimated the effects of a rise in the unemployment rate to nine percent — a worst-case scenario that now seems all too likely. So what will happen if unemployment rises to nine percent or more? As many as 10 million middle-class Americans would be pushed into poverty, and another 6 million would be pushed into "deep poverty," the severe deprivation that happens when your income is less than half the poverty level. Many of the Americans losing their jobs would lose their health insurance too, worsening the already grim state of U.S. health care and crowding emergency rooms with those who have nowhere else to go. Meanwhile, millions more Americans would lose their homes. State and local governments, deprived of much of their revenue, would have to cut back on even the most essential services.

Money Owes No Allegiance

By David Glenn Cox
http://theservantsofpilate.com

Jan. 5 (Bloomberg) -- "The engines that have lifted the U.S. economy out of every recession since World War II will be of little help this time around.

Inventory rebuilding, household spending, home construction and payroll growth -- the forces that powered, to a greater or lesser extent, each recovery since 1945 -- may remain missing for much of 2009. A glut of unsold properties may keep housing depressed, while shriveled savings will discourage consumers. Companies may be reluctant to restock and rehire while their profits are squeezed."

Shriveled savings are the result of wages not keeping up with inflation. The glut of unsold properties is exacerbated by millions of foreclosures. The Fed chose to save the banks rather than the consumers; rescuing the consumers would have helped to save the banks. The Fed put their faith in the banks because that is what we are dealing with here, faith in the system, and the Federal Reserve has none.

Republicans Using Crisis To Smash Unions

By Ben Cohen

It comes as no surprise that Republicans are using the Auto Workers to achieve a long held goal: To destroy unions and drive wages for working Americans down. Apparently, this model works because it helps business grow, increases corporate profits which trickles down to everyone else (just don't ask for any evidence). Unfortunately, Democrats aren't exactly fighting hard for working Americans and will probably be bullied into making concessions. Who loses? You guessed it - middle and working class Americans. So predictable. From The Real News:

On Thursday night, Republicans in the US Senate succeeded in filibustering the newest draft of the $14 B auto bailout bill. The Bush Administration and Treasury Department moved quickly to assure everyone that they would not allow Chrysler and GM to fail, and that they were considering committing some of the $700 B financial bailout money to the cause. Many of the Republican senators who voted down the bill cited the United Auto Workers union as the reason for the breakdown of the bill. Oppositely, many union members have accused the senators in question of union busting. The Real News Network spoke to Mark Brenner, an expert on the US labor movement and auto industry, to get his opinion on the standoff.

Watch the report here.

Economy Dangerously Close to Complete Meltdown

By Ben Cohen

According to several respected economists, the economy is close to complete melt down. Paul Krugman writes:

1. The economy is falling fast. We'll see what tomorrow's employment report says, but we could well be losing jobs at a rate of 450,000 or 500,000 a month.

2. Infrastructure spending will take time to get going -- a new Goldman Sachs report suggests that projects that are "shovel-ready" are probably only a few tens of billions worth, and that a larger effort would take much of a year to get going. Meanwhile, it's very questionable how much effect tax rebates will have on consumer demand. So it may be hard for stimulus to get much traction until late 2009 -- and that's even if Congress goes along, which may be a problem given all the bad analysis and disinformation out there.

So here's what I'm wondering: will it, in fact, even be possible to pull the economy out of its nosedive before unemployment goes into double digits? I'm starting to wonder.

Dr Doom Likes Obama's Economic Team

By Ben Cohen

We've been critical of Obama's economic team here at The Daily Banter, mostly because the next President has chosen ex Clinton staff and former deregulators. But Nouriel Roubini (otherwise known as 'Dr Doom'), who was credited with predicting the awful crash before it happened, thinks otherwise. In an interview with News Week, Roubini said he was confident the new team would be effective in combating the various economic maladies:

News Week: Your view of the economic future is often a bit less than optimistic. What does Obama's team signal about what could be coming?

Look, he wants to get things done, so he's choosing a really terrific team. To me, it says that he's choosing people who have great experience. He's choosing people who are pragmatic and who realize the severity of the national problem we're facing. They're knowledgeable about markets, about the economy and the political process in Washington. These are the very best people he could have chosen. I can't look too far, but it's a very good signal of what he wants to do.

As a progressive site, we will continue to be critical of Obama's choices, but it must be said, he is moving swiftly and decisively. The hope is that Obama's team will not be ideological, and will enforce a vision laid out by Obama, not their own preconceived ideas about 'free markets' etc. Roubini's endorsement is a big plus, but the proof of course, will be in the pudding. The appointment of Paul Volcker as head of a new economic advisory committee is also a big boost for progressives, as Volcker has a history of challenging deregulation and standing up to free marketers.

Forbes (!?!) calls Paulson the "the worst treasury secretary we've had in modern times"

by Ari Rutenberg

Huh...I guess all the supply-siders aren't in lockstep on every issue.  To hear the prophet of the free market (Forbes) call Paulson the "worst" is particularly jarring given that they are very much of a similar mind about economics.  Except I guess Forbes actually believes in business plans and transparency as opposed to magic and intuition.  These guys really suck at their jobs.

From CNN's Peter Lainer:

"Forbes magazine President and CEO Steve Forbes called Treasury Secretary Henry Paulson “the worst treasury secretary we’ve had in modern times”, citing, among other things, the government’s handling of the housing crisis.

In an interview with CNN’s Wolf Blitzer on Sunday, Forbes repeatedly called on the treasury secretary to be more straightforward about the money used to bail out mortgage giants Fannie Mae and Freddie Mac.

“Have Henry Paulson do at least one thing right, and that is, have the government explicitly guarantee the debt of Fannie and Freddie,” the financial mogul and former Republican presidential candidate said.""

Read the full article here

Who is Tim Geithner? Part One

by Ari Rutenberg

I've spent the last few days trying to find out who Tim Geithner, Obama'a pick for Secretary of Treasury, really is.  Wall Street seems to like him, which could be a very bad omen.  But so do a lot of left-wing bloggers, at least on the face.  I found a great article by Chinese-American economist Ann Lee from late 2007 which is not only prescient in its discussion of the impending crisis, but offers solutions that would have prevented it. 

Anyway her thoughts on Geithner are as follows (from the HuffPost):

"They will only provide transparency if they are forced to do so. Unfortunately, Tim Geithner, the NY Fed President, is not the one who will have the guts to get tough on banks since it was his former boss Bob Rubin who installed him in that lofty position and who now needs him to return the favor as Citicorp is falling apart. It isn't a coincidence that politicians and regulators can talk all they want about a need for transparency, but they don't spell it out, and they don't make it happen."

Uh-oh.  Looks like Cohen's right about this one.

Mort Kondracke (of Fox News) has called for a "Keynesian Moment" in economic policy

by Ari Rutenberg

Holy crap!  The winds of change have truly arrived.  Mort Kondracke is calling for Keynesian economic policy, which means using government spending to create infrastructure programs, and thus jobs for the working class.  It's kind of like the Pope calling for a "temporary secularization" of the Catholic Church.  It is heresy from the one of the high-priests of tax cuts.

OK, OK...Kondracke is actually relatively moderate in terms of fiscal policy.  He is more against government spending than for irresponsible and unending tax cuts. However he is still generally right-of-center, and is constantly on Fox News with Brit "Jowely McJowels" Hume and Fred "I want to fuck Sarah Palin" Barnes taking hackery for the masses to new and unknown places.  But he seems to be making sense this time.  And that in itself is a sign of the massive political realignment that is happening all over the country.

What can I say? I love it... but I doubt it will last.  Can anyone really see this guy calling for more social housing to get homeless people off the street or advocating a Carbon tax on large corporations? No? Well me neither.

Welcome back to the reality-based community, Mort, even if you're just stopping by to say hi.

From Roll Call (behind paywall), via RealClearPolitics:

An emerging consensus among conservative and liberal economists seems to indicate that we'll experience negative growth - 2 percent to 4 percent-through 2009 and into 2010.

And unemployment will rise past 10 percent...As to what to do, former Clinton White House domestic policy adviser William Galston, now at the Brookings Institution, observed that "this is a classic Keynesian moment," and he pointed to a remarkable exchange that took place on PBS' "Newshour with Jim Lehrer" on Monday.

Unconventional Wisdom: The Dow Jones Industrial Average

by Ari Rutenberg

There is a lot of conventional wisdom surrounding the mainstream discussion of the economy.   Most of it, like almost all cw (conventional wisdom), is derived by taking something specific, say the Dow Jones Industrial Average, and equating it with the general health of the economy.

The reality is that the DJIA has three main problems when used as an indicator of welfare.  First it is simply a poor indicator of the general welfare, as it only matters directly to those who are wealthy and need near-term access to their securitized (read non-cash) funds. 

How Wall St Has Affected Real People

By Ben Cohen

An interesting BBC report on those in the city who do not get million dollar bonuses. The culture on Wall St has been rightly targeted as the major cause for the financial meltdown, but we should not forget that there are many hardworking, decent people trying to make a living in the financial sector who are not responsible for the current catastrophe.