Archive for category Bailout
As Joan Rivers used to say, “Can we talk?” Because the corporate media coverage of the presidential race is barely mentioning the issues that affect you and me.
Lately all over cable TV they are vociferously debating whether Donald Trump is paying enough respect to the family of a U.S. Army captain who died heroically 12 years ago during Bush’s illegal invasion of Iraq (that Hillary voted for as a senator), after the father of said fallen warrior aimed a gratuitous insult at the notoriously thin-skinned Trump in a partisan DNC speech.
Most likely, this is a picture of the 2016 presidential campaign for the next 100 days. Hillary using surrogates to get Trump to say something that dominates the news cycle, or trying to get Trump to lose his temper during a debate. Anything Trump says is automatically news. Hillary has not held a press conference since last year.
What could the candidates talk about? Well, here is one suggestion. There is another recession coming, sooner rather than later. How will Hillary and Trump deal with the consequences?
Instead of ending the world of banks that are “too big to fail” and preventing banks from operating in ways that could again sink the economy, we have guaranteed them that the taxpayers are ready and waiting when they make another catastrophic mistake.
The Dodd-Frank regulations are not completely written yet, and probably won’t be in effect when the Wall Street billionaires crash our financial sector again. Is the American middle class about to take another big hit? Can somebody offer a plan to help us? We haven’t even recovered from the last time.
Hillary is going to have to offer much more than her current “OMG Trump!” campaign.
[W]e have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation, an attempt to scare the Greek public, not just into accepting creditor demands, but into getting rid of their government. It was a shameful moment in modern European history, and would have set a truly ugly precedent if it had succeeded.
HuffPo live updates
A couple key passages:
The US elites, similarly, took the smooth functioning of the political-economic system for granted. The only problem, as they saw it, was that they weren’t being adequately compensated for their efforts. Feelings of dissatisfaction ran high during the Bear Market of 1973—82, when capital returns took a particular beating. The high inflation of that decade ate into inherited wealth. A fortune of $2 billion in 1982 was a third smaller, when expressed in inflation-adjusted dollars, than $1 billion in 1962, and only a sixth of $1 billion in 1912. All these factors contributed to the reversal of the late 1970s.
Three years ago I published a short article in the science journal Nature. I pointed out that several leading indicators of political instability look set to peak around 2020. In other words, we are rapidly approaching a historical cusp, at which the US will be particularly vulnerable to violent upheaval. This prediction is not a ‘prophecy’. I don’t believe that disaster is pre-ordained, no matter what we do. On the contrary, if we understand the causes, we have a chance to prevent it from happening. But the first thing we will have to do is reverse the trend of ever-growing inequality.
And finally this one:
How does growing economic inequality lead to political instability? Partly this correlation reflects a direct, causal connection. High inequality is corrosive of social cooperation and willingness to compromise, and waning cooperation means more discord and political infighting. Perhaps more important, economic inequality is also a symptom of deeper social changes, which have gone largely unnoticed.
Starting today SNAP, or food stamp benefits, will be reduced by 5 percent. SNAP used to max out at $668 a month for a family of four. Now, the maximum amount will drop to $632, or a cut of $432 a year.
Thanks to the Great Recession and a commitment to austerity by the government in the wake of the recession, an additional 21 million people were added to SNAP since 2008. Today, more than 1 in 4 U.S. children live in a home that gets food stamps.
Another group with lots of members in SNAP: Veterans. U.S. Census Bureau data show that, in 2011, some 900,000 former U.S. military personnel lived in households that used food stamps.
Economists have found that every dollar of SNAP spending generates roughly $1.70 in local economic activity. The USDA has calculated that food stamps generate an even bigger bang for the buck. So pinching food stamp recipients will ripple into the broader U.S. economy.
Food bank operators are bracing for more people lining up at local pantries while Congress debates additional cuts to the supplemental nutrition program that helps 1 in 7 Americans, including 22 million children. Utah alone is already losing $26 million in SNAP funding this fiscal year.
When we go shopping at Costco we always pick up some additional food to donate to the Utah Food Bank, which provides food to a statewide network of 134 emergency food pantries. Also we send them an annual cash contribution. Washington politicians are always ready with handouts for the rich and the corporations, but not for ordinary American people who work for a living. It’s going to be up to us to bail out the food banks!
My initial response to that question was to say, “Huh?”
But we’re talking about complex, interconnected systems. The argument goes something like this:
Start by recognizing that international economics and politics are a set of networks. Each national economy is a network connected to a larger, international network. These networks have key nodes. In terms of finances, the US and UK are two nodes whose influence is outsized simply because they are connected to so many other networks. The more links a network has to other networks, the easier it is to spread problems.
. . . if contagion spreads across links, network topology will have important consequences for the likelihood of spread. As it turns out, there is strong reason to believe that the international financial system is one of the latter kinds of networks rather than one of the former. On two measures of financial ties, most countries on the periphery of the network have few links to other peripheral countries, but pretty well everyone has links to the US, and many have links to the UK too.
In other words, the US exported its economic downturn to the rest of the world when our financial system crashed. What does that have to do with Iraq?
Military Keynesianism, says Thomas Oatley.
Now consider the Iraqi case. The sharp increase of military spending sparked by 9/11 and Iraq followed a massive tax cut (and coincidentally, we had a massive tax cut in 1964). Like Vietnam, therefore, the US borrowed to pay for the War on Terror. If the Vietnam War experience is any guide, this budget deficit must have had consequences for US macroeconomic and financial performance. The deficit was larger and persisted for longer than the Vietnam case. I argue that the choice to finance the War on Terror by borrowing rather than by raising taxes worsened the US external imbalance and the resulting “capital flow bonanza” triggered the US credit boom. The credit boom generated the asset bubble the deflation of which generated the great global crisis from which we are still recovering. Obviously, it takes a lot of heavy lifting to get from the war-related budget deficit to the global financial and economic crisis.
Oatley is writing a book exploring this theory.
In a less networked, less connection international economy, the effects of the US economic crash might have been limited to the US. Instead, however, the distortions of the US economy caused by the spending for the War on Terror in general and the Iraq war specifically, and the massive tax cuts that caused us to pay for it through borrowing, created ripples in the US economy the ultimately caused a US crash which, through our connection to all the networks, casued a worldwide economic crash.
Everything is connected to everything else. We’re talking aobut complex systems here, systems playing out in unexpected ways. It’s a prime example of the levels of complexity Adam Kahane talks about – social, dynamic and generative complexity working concurrently in crazy making ways. Tax cuts in 2001 and 2003 causing a crash in 2008? The Iraq war causing a global economic meltdown? It seems daft until you start thinking about interlocking parts connected to other interlocking parts. So, in a way, you can start building a case that the 2001 Bush Tax cuts are ultimately responsible for the economic problems in Greece, Spain and Cyprus.
One of Oatley’s colleagues explores the idea further, arguing that there’s a distinction between core and peripheral nodes and their crises. A peripheral node crisis is unlikely to spread further while a core node crisis will spread further:
Or take the examples of Iceland and Ireland. Iceland repudiated the debt of its banks, imposed capital controls, and told international investors to take a hike. Once again, this is a recipe for contagion yet systemic crisis did not result. Ireland did the opposite: it guaranteed the debt of its banks, did not institute capital controls, and paid off international investors. Systemic crisis also did not result. The opposite local policy response produced the same global outcome. Only the local outcome varied.
Contrast those cases (and all the other eurozone cases, and Argentina, and E Asia, and etc.) with the US in the Fall of 2008. A couple days of dithering — of the sort that the eurozone has made its speciality — lead to an immediate and profound downturn in global markets, including the largest single-day evaporation of wealth in absolute terms in history. The US tried to kick the can down the road, but couldn’t because it is the core node; the EU has been able to repeatedly kick the can down the road because those crises are in the periphery.
I conclude from this that policy always matters locally, but it only matters systemically when the crisis is in a core node. No matter what the policy response to peripheral crises is, systemic contagion is exceedingly unlikely.
This is a fascinating intellectual exploration. The part that should have been predictable but apparently wasn’t is the transmittability of economic problems throughout the network designed to facilitate capital flows. The US exported its financial crash to the rest of the world.
Certainly part of the reason why today’s Conservative Republicans come off as so stupid is due in large part to Bill O’Reilly’s bullshit “Talking Points Memo.” Recently Bill said:
Bill O’Reilly: Greece, Italy, Spain, Portugal, Ireland, now Cypress, all broke. And other European nations are close. Why? Because they are nanny states. And there are not enough workers to support all the entitlements these progressive paradises are handing out.
Economics professor Richard Wolff punished Bill O’Reilly. Here’s his smackdown on Democracy Now on Monday.
Economic Professor Richard Wolff: You know he gets away with saying things which no undergraduate in the United States with a responsible economic professor could ever get away with. If you want to refer to things as nanny states, then the place you go to in Europe is not the southern tier, Portugal, Spain, and Italy. The places you go are Germany and Scandinavia, because they provide more social services to their people than anybody else.
And guess what, not only are they not in trouble economically, they are the winners of the current situation. The unemployment rate in Germany is now below five percent. Ours is pushing between seven and eight percent.
So, ah, please get your facts right Mr. O’Reilly. The nanny state you call it; the program of countries like Germany and Scandinavia who tax their people heavily by all means, but who provide them with social services that would be the envy of the United States, a national health program that takes care of you whether you are employed or not and gives you proper healthcare.
In France for example the law says when you go to work you get five weeks paid vacation. That’s not an option, that’s the law. You get support when you are a new parent, childcare and so forth.
They provide services and they are successful in Germany and Scandinavia, much more than we are in the United States; and much more than those countries in the south.
So they are not broke in the south because they are nanny states, since the nanny states par excellence are doing better than everyone. The actual truth of Mr. O’Reilly is the opposite of what he says. The more you do nanny state, the better off you are during a crisis, and to minimize the cost of the crisis. That’s what the European economic situation actually teaches. He is just making it up as he goes along to conform to an ideological position that is harder and harder for folks like him to sustain so he has to reach further and further into fantasy.
It just keeps getting better. The DNC on a roll.
“In Tampa the Republican argument against the President’s re-election was pretty simple: We left him a total mess, he hasn’t finished cleaning it up yet, so fire him and put us back in.”
“I like the argument for President Obama’s re-election a lot better. He inherited a deeply damaged economy, put a floor under the crash, began the long hard road to recovery, and laid the foundation for a more modern, more well-balanced economy that will produce millions of good new jobs, vibrant new businesses, and lots of new wealth for the innovators.”
“The most important question is, what kind of country do you want to live in? If you want a you’re-on-your-own, winner-take-all society, you should support the Republican ticket. If you want a country of shared prosperity and shared responsibility — a we’re-all-in-this-together society — you should vote for Barack Obama and Joe Biden.”
The Republican vision is clear: ‘I’ve got mine, the rest of you are on your own.’
Republicans say they don’t believe in government. Sure they do. They believe in government to help themselves and their powerful friends.
After all, Mitt Romney’s the guy who said corporations are people. No, Governor Romney, corporations are not people. People have hearts, they have kids, they get jobs, they get sick, they cry, they dance. They live, they love, and they die.
And that matters, because we don’t run this country for corporations, we run it for people. And that’s why we need Barack Obama.
After the financial crisis, President Obama knew that we had to clean up Wall Street. For years, families had been tricked by credit cards, fooled by student loans, and cheated on mortgages.
I had an idea for a consumer financial protection agency to stop the rip-offs.
The big banks sure didn’t like it, and they marshaled one of the biggest lobbying forces on Earth to destroy the agency before it ever saw the light of day.
American families didn’t have an army of lobbyists on our side, but what we had was a President — President Obama leading the way.
And when the lobbyists were closing in for the kill, Barack Obama squared his shoulders, planted his feet, and stood firm. And that’s how we won.
By the way, just a few weeks ago, that little agency caught one of the biggest credit card companies cheating its customers and made it give people back every penny it took, plus millions of dollars in fines.
That’s what happens when you have a President on the side of the middle class.