Canda’s Globe and Mail has one real slash-your-wrists outlook today with their article by John Ibbitson titled Speaking of doom, what if Obama only makes it worse?
I confess… watching the sheer illogic of what is going on in the beltway of late, this headline seems to fit that chill that runs thru my body when I think of the future. And apparently, I’m not alone.
We could be entering a future that none of us wants to face, a future in which we will be much poorer, a future in which we realize that everything Barack Obama tried only made things worse.
Most economists are debating whether the United States has led the world into a V-shaped recession, marked by sharp economic decline and an equally quick recovery, or a U-shaped recession, which takes a while to get under way but lasts a long time and takes a long time to climb out of.
But a minority of economists and economic analysts believe what’s happening is L-shaped. We are witnessing a global economic contraction resulting from years of artificial growth fuelled by personal, corporate and governmental debt. When we reach bottom, they say, we will stay there. Globalism will collapse, and deflation and depression will stalk the land.
If that doesn’t chill your heart, Ibbitson then goes on to discuss an early post on the Baseline Scenario blog, run by co-authors eter Boone, Simon Johnson and James Kwak.
Peter Boone is chair of Effective Intervention, a UK-based charity, and an Associate at the Centre for Economic Performance, London School of Economics.
Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is a co-founder of The Baseline Scenario.
James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.
The Baseline Scenario trio believes this is a “balance sheet recession”, and summarized:
“A ‘lost decade’ for the world economy is quite possible,” wrote Peter Boone, Simon Johnson and James Kwak in a much-discussed online analysis earlier this year on the website Baseline Scenario. “There will be some episodes of incipient recovery, as there were in Japan during the 1990s, but this will prove very hard to sustain.”
If so, the market recoveries and encouraging reports of the past few days are nothing but a dead-cat bounce: temporary phenomena masking an ongoing decline.
At a Japan Society symposium in Toronto yesterday, several economists and analysts revealed they had reached the same conclusion.
Canadians must face “the very real possibility that not only could the systemic global credit crisis and the spreading U.S. balance-sheet recession lead to a lost decade or worse for the global economy,” predicted veteran analyst William Macdonald in his written submission, “it could also lead to the breakdown of the globalization project itself.”
The Korea Times had an article about their balance sheet recession back in December of 2008, describing it as:
A balance sheet is composed of three major categories ― assets on the left-hand side and debts and capital (exactly owner’s equity such as cash or real estates) on the right-hand side.
The sums of both sides should be equivalent by definition. Hence, if asset prices go down, capital also decreases because the amount of debt has nothing to do with asset prices. As a result, the proportion of debt expands.
“When asset prices are declining, people are usually cutting back spending, scared by the possibility that they would default on debts because of the shrinking capital. Things are similar for companies,” Song said.
“If this is the case, people or firms do not spend money even if the central bank pours liquidity into the market. They just try to shore up their balance sheets by trimming debt,” he said.
The Baseline Scenario trio described the same self-devouring vortex..
Even the healthiest corporations fear bankruptcy, as demand plummets. In response, executives apply all revenue to corporate debt, in an effort to right the balance sheet. Fearful consumers do the same thing, creating a vortex of falling demand, declining revenue, curtailed investment, bankruptcies and rising unemployment.
Japan has been dealing with this type of recession since the 90s, but have muddled thru because of their exported goods. But as Baseline Scenario points out, if the globe is in a recession, who will you export to?
Martin Weiss, of Weiss Ratings issued a white paper last fall recommending against what Bush has started, and what Obama has accelerated to the Nth degree since assuming power. At that time, he said the original bailout of $700 bil was too little and too late to end the debt crisis, and too much and too soon for the US bond market.
They were considering only the banks that had failed, and not considering the enormity of those that were inevitably about to fail…. it was but an illusion to think the $700 bil was anything but a drop in the bucket.
His policy suggestions to Congress?
III. Policy Recommendations to Congress 1. Congress should limit and reduce the funds allocated to any bailout as much as possible, focusing primarily on our recommendation #4 below.
2. If Congress is determined to provide substantial sums to a new government agency to buy up bad private-sector debts, we recommend that the new agency pay strictly fair market value for those debts, including a substantial discount that reflects their poor liquidity.
3. Congress should clearly disclose to the public that there are significant risks in the financial system that the government is not able to address.
4. Rather than protecting imprudent institutions and speculators, Congress should protect prudent individuals and savers by strengthening existing safety nets, including the FDIC for bank deposits, SIPC for brokerage accounts and state guarantee associations that cover insurance policies.
To investors and savers, he suggested they continue to invest prudently, seeking the safest havens for their money (ie T-notes, and money market funds that invest in short term Treasury securities). Weiss’ paper also said that local and state government debt should take priority, based on their importance to services and homeland security.
There was no way, according to Weiss, the the government could absorb massive government bailouts without significant trauma to the economy.
In its Fiscal Year 2009 Mid-Session Review, Budget of the U.S. Government, the Office of Management and Budget (OMB) projects the 2009 federal deficit will rise to $482 billion. At the same time, the OMB seeks to minimize this record deficit by stating it will be only 3.3% of estimated GDP, which is lower than the recent peak of 3.6% of GDP.26
However, the OMB made this projection before the recently announced or proposed bailouts. Considering those that have come to light in the last fortnight alone, the potential bill for the government’s largesse can be calculated as follows:
Fannie Mae and Freddie Mac – $200 billion
AIG Insurance Corp. – 85 billion
Financial market bailout proposal – 700 billion
Total ……. $975 billionThis bill, approaching $1 trillion, is so extreme, it is undeniable that:
1. It could double or triple the federal deficit in a very short period of time.
2. Such a dramatic increase in the deficit would drive up the cost of borrowing not only for the U.S. Treasury, but also for other bonds and for millions of Americans seeking a mortgage or other credit, since Treasury yields are the benchmarks against which most borrowing is based.
3. To the degree that the Federal Reserve purchases U.S. government
securities for its own account to help support bond prices, it would devalue the U.S. dollar, risking a dollar collapse and the flight of much-needed foreign capital from the U.S.4. Ultimately, either of these outcomes — sharply higher U.S. interest rates or a U.S. dollar collapse — could seriously aggravate the very debt crisis that the bailout plan seeks to address.
I’m no economist… but this guy has just described the pit in my belly since we embarked on this path. It was a bad start under Bush, but the degree of acceleration under Obama is breathtaking.
But Weiss offered the “glass half full” theory by saying:
“An economic depression, although traumatic, is not the end of the world,” Mr. Weiss concludes. “Moreover, if managed wisely, it can deliver fundamental benefits: a cleansing of excess debts, a reduction in the cost of living, and a firmer foundation for subsequent growth.”
There it is… those words. “Managed wisely. Which brings me back to Ibbitson’s Globe and Mail article, and some extremely sobering thoughts.
U.S. financial analyst Martin Weiss, in a white paper he released last week, believes that a second Great Depression is already under way. If his and similar analyses are correct, then the Obama administration is doing everything wrong. Throwing billions at trying to remove and resell the toxic assets that banks accumulated is a waste of time, because those assets are worthless and should be written off.
Worse, according to some, Mr. Obama’s $3.6-trillion budget, with its emphasis on health care, education and energy reform, wastes money that is needed to combat the coming depression. It robs the economy of future growth by piling on debt. And it depletes the President’s political capital.
Obama clearly does not share Weiss’ analysis that a depression can be cleansing, and instead spends furiously trying to stave off that which may prove impossible to stop.
In which case we will end up with that “L” shaped depression. Quite apt when you remember it’s the popular street expression with the “L” against the forehead for “loser”.
So where does Martin Weiss stand today, over six months and trillions of dollars later and the promise of even more spending on the horizon?
He hasn’t changed his opinion one iota. In fact, he’s returned from a press conference with the National Press Club, and round-robin meetings with the pirates in Congress. He penned this Mar 23, 2009 article for Money and Markets, “Dangerous Unintended Consequences”.
Also, here’s the link to his Mar 19, 2009 white paper:
Can Only Prolong America’s Second Great Depression
And Weaken Any Subsequent Recovery
I am making these recommendations because I am optimistic we can get through this crisis. Our social and physical infrastructure, our knowledge base, our democratic form of government are strong enough to do so. As a nation, we’ve been through worse before, and we survived then. With all our wealth and knowledge, we can certainly do it again today.
But my optimism comes with no guarantees. Ultimately, we’re going to have to make a choice: The right choice is to make shared sacrifices, let deflation do its work, and start regenerating the economic forces that have made the United States such a great country. The wrong choice is to take the easy way out, try to save most big corporations, print money without bounds, debase our dollar, and ultimately allow inflation to destroy our society.
Now, the question is… will Obama/Pelosi/Reid listen? Or continue their spending spree and power grab.
Vietnam era Navy wife, indy/conservative, and an official California escapee now residing as a red speck in the sea of Oregon blue.
mata you know that they won’t listen, the big three are no longer car builders, they are the downfall of this nation. pelosi, reid and obama are taking this crisis and running with it. in our area the little league teams are fewer due to the fact that so many can no longer afford for their kids to play, the fees for playing have risen and the field use fees have also sky rocketed and i am working, erehtis talk that they are closing our county maintained fields. it is a cycle and the cycle needs to be broken, i am no economist but i do know you cannot continue to throw good money after bad(borrowed or not). this financial crisis scares me, we have worked hard for what we have and the thought of losing it is very real. we bought 10 years ago when prices were low, we put a decent chunk down and refinanced several years later for a much lower rate and went from a 30 year to 15 year loan. we have always paid extra on the principal monthly and now we are unable to, our savings in getting lower and i am worried. my husbands job is market driven and they are working sporadically and he gets unemployment when he is off, but i am still working, haven’t really noticed a slowing in our business as this is the normal slow time anyway, but i am worried what 4 months from now will bring, or even farther into the future. i am hoping for, at the ver most, an “u” shaped recession, the “L” one would break us. must be my mood this evening, but i am worried.
Screw John Ibbitson!! I live in Toronto and have read many of Ibbitson’s silly articles. He is supposed to be the Globe’s “America” expert. However, all he has been is a cheerleader for the Democrat Party….just like the Globe and Mail in general. He is just another clueless Canadian newspaper “reporter.”
Ibbitson did his best to sell the Obamamateur during all of 2008. He is a shameless liberal masquerading as a reporter….then again, aren’t most of them?
Has Obama made it worse?
Much, much worse.
And on purpose.
I thought that was self evident.
You guys are starting to remind me of Keith Olbermann drooling with glee over casuality statistics…
I knew one of the leftist hypocrites would spout off. Unfit in this case.
Unlike you unfit, we can see what’s coming. At least you will suffer
along with us.
Are you seeing what’s coming or what you want to happen?
To fitfit:
We see what is coming. We do not want it to happen, but we see what is coming.
You know, the old ant and grasshopper fable. Be prepared or suffer.
You know, if things really get bad, maybe America will have another revolution and maybe get this country back to where she needs to be. But after reading so many of the whacked-out left-wingers, I fear for this nation even if we did have another revolution.
No fit: We do not want America destroyed….we just see it being done
I really like the gist of this proposal, especially the “to big to bail” meme, but Weiss spends 46 pages talking about how we can’t buy our way out of this one, and then 1 page with vague “values” that we should follow for restructuring to avoid this again.
His basic premise is that the economy is going to shit no matter what, so we might as well start spending to protect citizens from the worst (which he claims we can do on the cheap). These two thoughts seem to be contradictory – if the economy is in such bad shape because of essentially worthless assets, how can we cheaply protect the owners of these assets? Of course, Weiss doesn’t go into this at all: how bad is the economy going to get? how much will people need to sacrifice (through taxes or otherwise)? what effect will this have on the global markets? Weiss and the Republicans reply with a shrug.
Still, this is a strong counter-argument to bailout philosophy, and congress needs to run with it: why don’t the Republicans put some real numbers on the table – how much to protect homeowners, how long do we expect to suffer, what regulationary principles we now follow, how do we protect us from the world. There’s a real potential for alternative here, I just hope it’s a bit meatier than the venn diagrams they’ve been feeding us so far.
Simply read what the G20 is saying…..NO MORE BLANK CHECKS USA….STOP YOUR SPENDING BECAUSE WE’RE NOT FINANCING IT ANYMORE!!!
and
Gee….hmmmmm…..perhaps we need a new global currency. The dollar is worth crap and is being cranked out like there’s no tomarrow. Heck, your own Tresury Sec seems to agree (before he got spanked and was told to shut up).
Sadly, so many people are gonna get blindsided by this and they’ll freek. When that happens, my heart feels they’ll submit even more to the government. When government gets THAT much power, then even “angels and messiahs” get tempted.
You get the impression that the current administration wants this to happen.
@Pete Bondurant, your opinion of Ibbitson has absolutely nothing to do with Baseline Scenario’s analyses, and Martin Weiss’ white papers. Ibbitson is merely the one bringing it to the western media’s attention at large. Certainly the NYTs or WaPo hasn’t. Neither has the right leaning print MSM. Pointless point… thank you for playing (H/T to Aye)
trizzlor, I am impressed that you seem to be the first that actually clicked on the link, went to the white papers and read Weiss’ analysis and proposals. I’ve always thought we had to do a world of hurt in order to correct, while Obama seems bent on plugging the dike. There’s no dodging the recession/depression bullet. The question is, do we have a shorter one, or drag it out and lose a decade because of incurred debt that will merely exacerbate it?
INRE your question:
I have been against Obama’s housing rescue plans for the very reason that it just lowers the rates to help the defaulting buyers keep a toxic asset. I’ve always supported selling out the assets for the real market price, and figuring out a way for the losses to be absorbed. Trying to reinflate the bubble isn’t the answer.
And, in fact, Weiss points out that tho the problem may have originated in residential mortgages, they now actually compose less than half of the problem. As he said in his first white paper last fall:
Then you have to consider the percentage of that $14.8 trillion to the amount of mortgages that are not in jeopardy. The percentage of those that are in default is still small compared to those that are not. Just as some financial institutions will fail, so will some individual businesses and homeowners. But it’s not the entire nation.
What Weiss focuses on is lending support to those that are solvent and prudent – from large financial institutions to the individual. Those that take a loss can, and will recoup. People have lived thru bankruptcy and still come back to financial life stronger. It’s a temporary set back, not a permanent one. And most definitely a “cleansing”.
Fit, I’m not sure why you want to make this a “drooling with glee” moment. Frankly, if Weiss is right, Democrats and the O’faithful are in da sheeeeeeet as bad as their conservative counterparts Unless you are a favored VIP in a despotic government, you will be living thru this L-shaped depression like the rest of the world.
Perhaps the better question is this… why are you and so many willing to blindly place such a large bet on our future with so little debate on the consequences? It took us over a decade to get into this position. Certainly time can be taken for the wise way to guide us out.
As it stands now, it’s been slammed down our throats. Obama does not seem open to other proposals and depends largely on the same economic advisors who are closely connected to the creating the original problem.
As he wanders around the country campaigning for the passage of big spending, he is simultaneously laying the groundwork to lower expectations… ala his comment “acknowledge that we make mistakes sometimes, and that we don’t always have the right answer..”. He is also looking to deflect the blame when he puts pressure on the int’l leaders who do not share his spending plans, telling the world that it will take everyone upping their “stimulus” spending to make it work.
This indicates to me that he isn’t that all fired confident either.
But I will go the extra mile in this. I don’t think Obama/Pelosi/Reid are deliberately trying to sabatoge the economy. Rather I think they are doing this out of arrogance, pride and yes… downright stupidity. They have, after all, proposed their Euro-socialist agenda as an urban utopia for decades. They may genuinely believe this is the cure.
However they miss the fly in the ointment with their stubborn faith in this spending plan. When you don’t have fruitful production in the nation, there is nothing to “redistribute”. But at least some sort of equality will emerge. Everyone will be equally destitute.
I would propose that it’s time for everyone – all parties – to tell Congress to stop, take a breath, put all the potential fallout on the table prior to running willy nilly into what could be a very wrong path. It’s time to stop depending upon blind faith, and start questioning authority.
With the Middle class and it’s purchasing power hollowed out, and the financial sector in shambles, I can see why Obama is trying to rebuild the foundation of the economy for the future. It can’t be done on the cheap. Doing nothing, or saying a depression isn’t the end of the world as Mr. Weiss said, is failing our kids, and not acceptable. I sent a reply last night, but it didn’t get posted, was that just a glitch, or do some not want to hear any other views here without perhaps blocking, flaming, or degrading the person and not the message? I don’t know, but it seems a discussion amongst both sides of this issue would be a good thing.
Moose, first INRE spam filters. Occasionally people get caught in them. I’ve even had to bail myself out on occasion. I cleaned out over 200 messages this AM, but I go thru them page by page to bail out the legit posts. I did not see anything by you in there. So perhaps you got inadvertently emptied with the garbage by another. It does take time to go thru 10-15 pages of spam.
However you are not censored. If you were “blocked”, your above message wouldn’t get thru. If you were being moderated, you’d know when you hit the submit button. No conspiracy going on.
INRE your comments. I would suggest you *read* Mr. Weiss’ latest white paper (link near bottom of post) before assuming he suggests “doing nothing”. This is some of it in a nutshell….
1: there isn’t enough money to “fix” the failing institutions. And that’s the lesser portion of the outstanding debt overall
2: it’s healthy for insolvent institutions to fail… ala cleansing
3: it’s cheaper and more productive to encourage the solvent, and provide nominal bridge loans to borderline institutions
4: local governments need to take priority because they provide for emergency assistance. As Weiss says, we need to pad for survival during the recouperation stage. Spend elsewhere by trying to plug the dike, and there’s no money left over to shore up necessities that local governments provide.
Why not take some time to read what he has to say instead of assuming he proposes “doing nothing”. And if you want to take the “our children” BS line, not extending this depression and piling on onerous debt is the best course of action for future generations.
@mooseburger:
Postings often get stuck in the spam filter, I’ve got one in spam right now. It has nothing to do with opposing views.
@Mata,
Your responses were good, but I want to clarify even further the apparent conadiction in Weiss’ recommendations vs. the “real” contradictions in Obama’s words and actions.
@Fitfit – the dicussion is for you as well. I, like most other fiscal conservatives, DO NOT want to see this get worse. But in order to gain support and convince others to take action and call their congressional representatives, the disaster potential has to be communicated somehow, along with suggestions for minimizing the destruction. Would you rather thas we sit on our hands and do nothing? Should we be unpatriotic and NOT criticize the president?
Anyway, Weiss’ argument for spending is essentially this: even though we have brought massive debt upon ourselves with poorly targeted spending, it might be wise to do a modicum of strategic spending. For the purposes of ridding banks of toxic assets, the recommendation is as follows:
“2. If Congress is determined to provide substantial sums to a new government agency to buy up bad private-sector debts, we recommend that the new agency pay strictly fair market value for those debts, including a substantial discount that reflects their poor liquidity.”
He advocates spending only to the extent that it helps the innocent, responsible investors:
“4. Rather than protecting imprudent institutions and speculators, Congress should protect prudent individuals and savers by strengthening existing safety nets, including the FDIC for bank deposits, SIPC for brokerage accounts and state guarantee associations that cover insurance policies.”
Contrast the above to Geithner’s plan to create inflationary funds of up to $1 trillion, and use this money and future tax revenues as leverage (on the order of 7 to 1) for private investors to purchase toxic assets at a steep discount (as if the leveraging wasn’t enough of a sweetener). No doubt these private investors will bundle these new securitized debt objects (residential mortgage backed securities – RMBSs – and commercial mortgage backed securities – CMBSs) and try to sell them to big overseas investors by understating their risk levels. Two things will then happen: (1) Some of these securities will perform well, and money will move out of the US, increasing our trade deficit; and (2) The remainder of the securities will fail due to mortgages defaults, but the banks won’t care, since they already got paid for the assets with tax money and inflationary funny money. Who gets hurt the worst? The working middle and lower classes, who have far fewer resources with which to weather the storm. And these are the 95% of Americans that Obama claimed he was going to help. He helped us, alright, helped us destroy our nest eggs and prospects for a brighter future. But he doesn’t care; he won, and his campaign donors will ensure that he, like them, will have plenty of cushion.
With Geithner’s plan, we’ll balance the bank’s books with tax money and higher inflation. The Treasury *could* attempt to lower the inflation by contracting the money supply, but don’t count on it happening; it would tend to worsen unemployment, and no president wants that to happen on his watch.
So unless there’s a revolution of some kind, we’re screwed royally. Even if there is a revolution, we’d be screwed for a while, but the future would be more promising.
Jeff V
Other proposals? You mean like this? This is a joke, not an alternate proposal. A MAD magaizine spoof of policy proposal would have been less embarasing than this. I have created documents in the back of bumpy schoolbus, twenty minutes before class that were better than this.
MataHarley
Thanks for clearing up the posting deal.
When I said “Doing nothing, or saying a depression isn’t the end of the world as Mr. Weiss said, is failing our kids, and not acceptable.” I wasn’t implying that Mr. Weiss was saying to do nothing, only that either of these lines of reasoning were selling out our future, surrendering to it being a given.
Mr. Weiss and others share the view you outlined above:
1: there isn’t enough money to “fix” the failing institutions. And that’s the lesser portion of the outstanding debt overall
2: it’s healthy for insolvent institutions to fail… ala cleansing
3: it’s cheaper and more productive to encourage the solvent, and provide nominal bridge loans to borderline institutions
4: local governments need to take priority because they provide for emergency assistance. As Weiss says, we need to pad for survival during the recouperation stage. Spend elsewhere by trying to plug the dike, and there’s no money left over to shore up necessities that local governments provide.
While these things are essentially true, Consider:
1: Free Trade has taken it’s toll and America has gotten little for it in the bargain. It has sent businesses scrambling to survive in the Global market, our jobs going to places where poverty is extreem. Our manufacturing base is mostly gone, and with it, the purchasing power of the middle class, the largest consumer base the world has ever known.
2: Our southern border has been left open, even in the height of the War on Terror. Does this make sense? Yes, it does. Cheap labor can and did shore up the ability for business to survive, for a time. If you own a construction company, you cannot compete with the low bids from companies who employ cheap illegal labor. This also suppresses the wages of those who are employed in this line of work, as well as many others. These are jobs your Sons and Daughters will not have, and potential companies that they will not be aable to launch.
3: Our middle class with it’s diminished purchasing power, coupled with our financial sector being undermined, to what degree we don’t even really know, means that two main pillars are weakened and in danger of collapse. The last Depression was during a time when the Rural economy was still a big factor, it is not today. Many folks in the last Depression didn’t live much differently after the crash than they did before. We all know the potential implications of a Depression today, food shortages, riots, gang rule in Urban areas, martial law. Our prosperity, security as a nation and future for our kids are at stake. Bill Clinton started the Free Trade bandwagon, this is not a Liberal or Conservative rant, both parties have led the way toward this day of reconing for over 16 years. The outcome was predictable, and that day has arrived.
4: Mr. Obama is certainly making a huge gamble with his huge big blowout budget. We as a country face rebuilding a new economy, to lay a foundation for jobs and a chance for us to not become a third rate economy. The stakes are high and to reap the fruits of failure in this endeavor would indeed be dire. All the folks who are doing their Tea Parties, buying guns and ammo, already understand this on a subliminal level. But gamble he must, the potential dire consequences of not setting the stage for the next phase for our economy far exceed the consequences of what he proposes to do.
5: I have two children, I personally don’t think it is B.S. to state that I hope for a better future for them. These are just my opinions and the way I see things. My opinions are subject to change when education, enlightenment, or other conditions warrant a re examination based on logic, other views or arguments, or facts.
Thank you for including what I omitted, ruaqtpi2. Geithner’s purchase of toxic assets presents no risk to the “private investors” purchasing them, and places all risk on the taxpayers. They are using taxpayers’ cash with low interest loans that don’t need to be paid back in the event of a loss. If they make money, they reap the benefits. If they lose, the taxpayer covers the loss. Me? If Obama pushes this thru, I’m trying to figure out how to be one of those “win win” investors… LOL
Weiss says separate the toxic assets, sell them out for market value (instead of trying to keep them artifically high and wait for the appreciation to catch up) and deal with the repercussions of the loss. If a facility has so much loss after their liquidation and is deemed insolvent, let them fail. If the loss leaves the institution borderline, bridge loan with minimal input. And bolster those that ran their businesses prudently.
As he says on pg 48 of his 94 pg March white paper:
The key words in the above are, to me, “moving [a loss] around on the balance sheet, or time-shifting it to a different period does not change that loss.” Deflation of these assets are necessary, and how much deflation will be driven by market demand.
To allow them to be liquidated at what the Obama admin negatively feels are “fire sale” prices is a natural deflation, and provides opportunities for investors (group or individuals). This is far preferable to propping up the toxicity, and consumers keeping a rigor mortis death grip on their cash, withdrawing from healthy spending, and furthering the vortex… ala the balance sheet recession.
Instead we have leaders who think curing the kid with a cold entails brain surgery, instead of letting them tough it out with some chicken soup.
Oh please unfit. You’ll attatck anything that isn’t from the left.
You’re just another braindead leftist.
The media has suppressed the alternatives proposed by the Reps until they wised up
and took it straight to the people.
The fact you seem to think the solution obama and the dems have put forward is so great only
proves you are mindlessly partisan. Hell, even when Bush did things like expand Medicare
and school spending etc., those like you attacked him for it simply because of the
“R” next to his name. Now that a dem is doing it, nothing but praise.
You are a massive hypocrite and a simpleton.
Fit, I place no faith in either party of Congress. They are composed primarily of lawyers, not economists. They are the prime factor in the failures of the economy over decades. Why would I expect any viable or credible solution from any of them?
So your partisan game and train of thought just reveals how shallow you are in what’s genuinely good for the country’s future.
Good leadership means surrounding yourself with reputable and sage advisors with a plethora of overviews, historic perspectives, and proposals. There are other economists that have suggested paths similar – tho not as in depth with reality – as Weiss. Obama does not have these people on his team, nor do they listen to them.
Which means Obama is not open to alternative proposals…. by experts.
Moose, many of us have kids. I, however, don’t wish to bank on their future with knee jerk spending proposals.
You have hit on some phrases that show you aren’t grasping the obvious… ala
1: The first cure for an addict is recognition you are an addict. Like the steps to recovery, the admin and nation needs to surrender to the reality that we cannot stop a deflation of assets and the absorbing of toxic assets. All we can wisely do is attempt to control the deflation, and pad for the worst until it turns around. On an individual level, this is like one who is so in debt, there is no bailing out unless you win the lottery. Bankruptcy has been the saving grace for many businesses and individuals. Hence the cleansing. And most who have filed for BK have recognized that had they done it sooner, they would have recovered much sooner.
This is the reasoning behind Weiss’ statement that it is not the end of the world.
2: My opinion is you and the O’faithful are trying to reinvent the wheel. There is no need to “remake America” or “(re)build a new economy”. (an odd statement since how do you “rebuild” something that is “new”?)
Most of your comment was all over the place, Moose. Overblown, overthinking by including each and every beef you have as some sort of arguable component in the economic decline. The narrow focus sells all your comments short.
ala you say there is little benefit for America with global free trade, but ignore that cheaper goods for consumption has been the result. Then you contradict yourself with the next immigration tirade and defend the increased benefits of cheap labor. If you think of it, you’ve just said that global cheap goods is detrimental, but global cheap labor is essential.
But specifics on your wandering thoughts aside, none of this has anything to do with “the cure” of a very simple concept… capital is the ratio of asset to debt… period. Outlandish spending, dollar devaluation, and attempts to keep a bubble afloat do nothing to cure that base reality of balance sheet problems, but can most certainly aggrevate the problem.
Spend all the time filling your mind up with individual policy flaws… of which there are many on our lawbooks. But it simply does not have whit to do with the reality that spending massive amounts of money compound the problem, and lead to a longer recovery time.
AND, BTW, such massive debt, devalued dollar and longer recovery time increases the potential that all your social fears in #3 actually come to pass.
Dunno, guy…. sounds like “just words” to me. I’m not sure how one can go thru the financial realities that there is not enough money to fix what is on the horizon… laid out very well in the 94 pages by Weiss, including named institutions and their debt… and then still think that bailout after bailout is going to work. And then, after all this massive cash down the drain, and still holding toxic assets, pile on even more spending and debt for the inevitable inflation.
If you do not consider this “education, enlightenment or other conditions” warranting a reexamination already, I fear there is no help for your mindset.
If Obama pushes this thru, I’m trying to figure out how to be one of those “win win” investors… LOL
You need ten billion in assets and proven ability to raise $500 million in capital to qualify as a bidder. This giveaway is for the big players.
We as a country face rebuilding a new economy
I half agree with this, except that it looks to me like the economy is perfectly capable of rebuilding itself. The most obvious sector misallocation is that we have 8% of our GDP in the financial sector (instead of the long-term historical average of 3%), and that going forward we will probably need more effort devoted to alternative energy (or just new sources of traditional energy) in order to deal with shrinking oil supplies. What Obama doesn’t seem to be able to grasp is that bailing out the financial sector slows down the needed readjustment.
Anyway, the discussion is moot. Things will play out sort of like this:
– More financial disasters are on their way as the crisis unfolds. We have credit card debt defaults, commercial real estate mortgage defaults, corporate bond defaults, and various international debt problems still coming down the pike, along with a likely second round of residential real estate trouble (prices have not yet bottomed, though volume may have). Oh, and corporate pension underfunding to drag down the US stock market.
– Congress, backed by the Fed, back by the US Treasury, will keep bailing. Note, the Fed has already crossed the Rubicon; they have begun monetizing the debt. They’ll be doing more of that as the year goes on.
– at first, this will seem to be relatively harmless. We are still in a major deflationary contraction, so the expansion of the money supply won’t at first have a significant effect on prices. For now deflation is winning the contest of forces; everyone wants to be holding cash, people are saving more and cautious of big purchases, and there is a lot of inventory liquidation going on in some industries.
– at some point, the dollar bubble will burst. Everyone holding dollars (and *also* interesting-bearing instruments denominated in dollars, e.g. Treasuries) will realize that the dollar is headed for inflation and devaluation, and will, in a rush, try to trade in their dollars for something else. When inflation comes, it will not be as gradual a ramping up as we have seen in the past, but a shockwave.
Winners in this scenario: people with dollar debt, people holding material assets. Losers: creditors, old people, investors in dollar-denominated securities (and dollars).
In some ways, it’s not a bad scenario (by which I mean, things could be much worse). Big inflation can be regarded as a Jubilee, where all the debt gets written down; the fundamental factors of production – people, land, machinery – remain. And history shows that you can recover from even severe inflation quite quickly (once grownups are back in charge and it abates). One probable downside is that foreign governments are going to end up owning more US assets, either stocks (if they’re smart) or real estate (if they’re stupid, like the Japanese in the 1980s). Their dollars have to go somewhere. Alternatively, they’ll blow the money on oil and we’ll be scrambling to drill the Bakken formation :-).
Pity the AARP, they of all people should be screaming bloody murder, but they don’t even realize that we just threw grandma and grandpa under the bus.
In my opinion, worth as little as it is, Obama (through his proxy, Geithner) is committing economic treason by continuing to capitalize banks whose executives refuse to A) explain where the money has gone, B) explain where the money is going, C) refuse to allow valuation of their “toxic assets, and D) haven’t shown a business plan for a return to profitability. Every tax dollar that disappears down the wishing well shifts wealth to the super rich elite (who return the favor with campaign contributions), and every newly printed dollar increases inflation and reduces the value of the rest of the citizens’ holdings. In other words, it steals everyone else’s “stuff” and gives it all to a tiny group of self-appointed elite. Without proper valuation of the assets for which “investments” are being made on the behalf of taxpayers, isn’t this an illegal contract? It’s not voluntary (that’s for certain) and there’s no reason to believe that it is an equitable exchange. Where are the contract lawyers? Isn’t this the equivalent of illegal seizure of property, per our constitution? Or does it get justified as regulation of trade/commerce?
I am sooooo pissed off!
Jeff V
I actually think Obama is trying to make it worse by design.
Reminds me of the oath of office: — enemies foreign and DOSMETIC
Mata,
I was not defending the cheap labor in any way, just pointing out that this was allowed to happen to stall for time before the course we are on hits the bottom. Where in my post did you see where I was defending it?
We all have our mindset, but just because you feel my comments are all over the place doesn’t mean there is no common thread. In a nutshell, our middle class has been decimated, the banking system perverted and weakened, and whether the term new economy or rebuild, whatever, most Folks agree with what the President is doing, despite the fear and worry.
Moose, “most people” would only be slightly more than half. Conversely that means there’s a sheeeeet pile of folks that *don’t* agree with what Obama’s doing.
That said, maybe the “herd mentality” works for a guy with “Moose” in his cyberhandle. But I don’t uses the percentage of the masses’ group think as a measure of correct decision making. I will remind you, as I have others here, that there was a time when the masses were also sure the world was flat.
So the Left was so adamant that America’s politics were the source of the world’s hate, how ’bout
the way the US economy wrecked (and worsened by BO) the world over??? Blame the Americans
who needed mansions, Hummers, flat screens and fast food – and all on credit.
Let’s take stock of our Values and become prudent in our lives.
The middle class has not been decimated. It has been gutted.
Decimated is originally a reference to punishment of a group of Roman soldiers for whatever reason.
Every 10th man was executed.
Sorry to nitpick but I’m hearing it used incorrectly much too often.
Mata, my point about Ibbitson was this: it doesn’t take great insight to see that Obama’s economic proposals are extreme and dead wrong for future economic prosperity, the kind that has been experienced in the past. If Ibbitson was a real reporter, he would have brought this up during the election campaign- he did not. There were plenty of clues and statements made by Obama himself on how he would direct the economy. Nobody should be surprised.
However, all of a sudden, Ibbitson is concerned. Great. Where was this concern last summer? Where was the thorough reporting then? It wasn’t coming from Ibbitson or the Globe and Mail, that is for sure.
That was the point I was making. Hopefully the US economy (for which Canada is extremely dependant on) turns around in spite of Obama.
In conclusion, Ibbitson is an idiot and his profile should not be raised by a good site like this.
I would say we’ve been in a depression for about a decade.(GDP growth is not a cast iron indicator of progress as it merrily occurred under FDR during the Great depression.) For my money, we’ve been enjoying a fiscal stimulus, loosening of credit and expanding Government employment and welfare since the dot com bubble burst. Or at least that’s how things look to me in the UK.
The Asian banking crisis spooked Governments enough to set up the G-20 and collectively decide the way forward. Then the Dotcom bubble burst. The respective Governments did all they could to encourage growth to recover the lost value. It was fantastically short sighted and I suspect partly based on a simple fear of statistics. Largely concerning GDP and inflation.
In the UK in particular Chancellor Brown was keen to talk up the constant growth, much of it through greater Government spending and credit spending rather than increased productivity. My nation and my Government has become heavily burdened with unneccessary debt. In the US the military campaigns have provided a vague justification for the substantial increase in Government debt, Government employment and the welfare system continued to grow. Had the dotcom bubble been allowed to shake itself out of the system appropriately we would likely be poorer as nations in terms absolute monetary wealth but saddled with far less personal and taxpayer debt.
I also think the fear of deflation has been too rigidly seen as a bad thing. Deflation caused by the substantial expansion of relatively free trade is really no bad thing. The cost of living reduces and wealth is redistributed to other peoples in other nations entirely by choice. Foreigners gain employment through making things for us cheaper than we can, freeing up more of our time to be more productive at whatever it is we as nations do well. Yet this particular deflationary pressure was and is entirely at odds with both the US, UK, Eurozone and others’ policy of targetting inflation to keep it relatively low but always positive. In order to counteract the substantial deflation from global trade we either have to become more productive (which we haven’t) or ramp up credit spending (which we have). Interest rates were been kept relatively low to encourage the latter. By excluding the cost of housing from the CPI measure of inflation an asset bubble was created.
A major factor in all of this is our politicians and those in the public sector choose to believe what is on paper infront of them rather than what they can see out of their office/car/aeroplane window. The measure of inflation was important. Positive GDP was important. Running sound economies and ecouraging real productivity was not. The biggest disconnect with reality that I have witnessed in recent weeks is British Government politicians still claiming there is a pressing need for millions more houses to be built in the UK. I don’t know what planet they are on but all they would have had to do is look outside to see we’ve had a boom in construction for many years. We needed to. To keep the mortgages and funny money merry-go-round moving.
This is all a massive problem but particularly so for Europe. Through relaxing/encouraging the credit boom tax coffers have swollen and there was no pressing need for value for money Government. Out of control Government spending and Government waste haven’t been a problem until now. Credit spending was there to provide revenue in place of real income and real productivity. Now the credit spending has been crunched this source of income has vanished. As they scratch around blaming everyone but themselves they dare not face up to the fact that wasteful spending must be reigned in and Governments must retreat to more manageable sizes. The nanny state must be cut down to size. It is the only sensible and prudent option.
Moose, “most people” would only be slightly more than half. Conversely that means there’s a sheeeeet pile of folks that *don’t* agree with what Obama’s doing.
That said, maybe the “herd mentality” works for a guy with “Moose” in his cyberhandle. But I don’t uses the percentage of the masses’ group think as a measure of correct decision making. I will remind you, as I have others here, that there was a time when the masses were also sure the world was flat.
Mata, come on now….talking herd mentality based on the handle including Moose….
I could point out that many Harley riders have the same uniforms on and ride together in packs….I give you more credit than that, snappy little snarky comebacks like that are beneath your intelligence.
It is woth pointing out that when ruaqtpi2 says:
“In my opinion, worth as little as it is, Obama (through his proxy, Geithner) is committing economic treason”
Or bill-tb says:
“I actually think Obama is trying to make it worse by design.
Reminds me of the oath of office: — enemies foreign and DOSMETIC”
And other comments with the basic theme being that Obama is, on purpose and with forethought, attempting to destroy the economy, you don’t challenge their arguments, or resort to trashing their character or username.
The folks who believe 911 was a United States Government plot believe just as strongly in their views as some here who believe Obama is a Socialist, Marxist set our to destroy America.
Mata, I don’t know why you don’t respond to that type of post, or don’t demean their usernames unless perhaps this is the “herd” that you identify with.
Here we go again…. Moose, I am not everyone’s Mom and Grandma, responsible for disciplining the masses.
So let me tell you why I respond to you and your comment, and not arguments that are founded on the “basic theme” that Obama is doing this on purpose. And let me do this by analogy. A risk, I know since analogies never quite fit the bill. But I’ll do the best I can.
Let’s assume that the government decides they will be the lone car manufacturer to the nation, and only issue cars that are white in color, and that self destruct after a certain period of usage to save the landfills.
I believe a car that’s a ticking time bomb is wrong, and fight against it. Someone else shows up, and hates it because it can’t be painted candy apple red. Another one comes in, arguing that it can’t be retrofitted with low profile tires. A third whines that the dash doesn’t accommodate a multi-CD player, and no room for a DVD screen in the back seat for the kids. A fouth person comes in and labels it corruption because some elected official owns the factory where they are manufactured.
It doesn’t matter to me that we all have a different opinion as to why the car is wrong in the first place…. even tho I may disagree with their reasoning. Nor do I feel it my task to change their mind as to why they hate the dang car. Bottom line is, we all think the idea is ludicrous for sundry reasons, and needs to be stopped.
My battles lie with those that come into the argument saying what a great idea it is to have a government issued white, CD-unfriendly, homogenous ticking time bomb for a car. And that’s where you come in with Obama/Pelosi/Reid and their spending plans. It’s an economic time bomb that must be stopped, IMHO.
However, on the point of Obama’s agenda, you will see BTW, I dissed the more conspiratorial belief in my comment to Pete on this very thread. I certainly believe that Obama thinks Euro-socialism and government is the cure to all that ails the world. But I don’t think he’s deliberately trying to sabotoge the economy to accomplish that since… without the wealthy… his Euro-social nation could not survive. He’s intelligent, but is most definitely doing this out of stubborn stupidity and pride.
As to your other comment:
On the lighter side, you’d have to beat me to the punch on the “uniforms” of bikers. Someone once said Harley riders were “rugged individualists”… to which I burst out laughing. Rugged individualists all wearing black tees, jeans, black leather jackets and bandanas. Yes, that made me laugh.
But as to your discomfort with my Moose/herd mentality comment. Frankly, Moose, I’d rather not engage in such repartee. However when you decide to justify your opinions by saying “most Folks agree with what the President is doing, despite the fear and worry”, you have literally begged for an equally banal retort. kapisch?
Mata,
Just a little rib.
It’s “capice?.”
That’s the one of the good things about being an “urbanite.”
In the metropolitan New York area, you grow up around Italian-Americans and learn the lingo.
The way you spell it looks like a Yiddish word. You know, like “chutzpah.”
It’s “capice” if you’re Italian, Dave. I picked up this expression from my Hungarian grandfather… who didn’t know Italian. Like yiddish, it’s a phonetic spelling of the way he pronounced it… a hard “K” beginning with an “ish” ending.
But, since I so love Italian food… you can assume it as capice as well. LOL BTW, after 17 years in LA, and a couple in the north Bay area, I have ample “urbanite” in my culture.
“most Folks agree with what the President is doing, despite the fear and worry”
I would argue that being afraid of what someone is doing, and worried about what someone is doing does not equate to agreeing with what they are doing. If your point is that they are “afraid and worried” about the economy in general, then that underlying uneasiness indicates that they instinctively know Obama is not going to solve the problem. Admitting their doubts publicly would force them to face the situation instead of hiding their heads in the sand and hoping it all gets better.
Now if you had said “most folks are ignorant of what the President is doing…” or “Most folks do not see any way to stop what the President is doing…” or “Most folks are so self absorbed that they remain blissfully unaware of what the President is doing…” you might have had a valid point. “Most folks” only know what the MSM bothers to tell them. To them, “doing something” = “fixing the problem”, regardless of whether the “something” is the “right thing”.
In any case, basing the appropriateness of Obama’s policies upon poll numbers is sheer lunacy.
Lightbringer and Mata:
You are probably right that I should clarify a bit. Obama laid out what he intended to do during the campaign, I don’t think it is any secret what he is doing now is what he said he intended to do. The Economy, Healthcare, Education and Energy. The Economy started it’s freefall in Oct 2007, when President Bush and Secretary Paulson went full bore into the Bailout phase. “Most Folks” voted for Obama. One of the reasons he won was because of the fear they ALREADY HAD. This fear was foisted upon us during Mr. Bush’s stewardship over our country.There is no evidence that most folks fear what Obama is doing now. Some certainly do, but most don’t. The Republican’s were held to account for their stewardship of the economy, this probably trumped the Palin Factor and I still contend that Most Folks are willing to give Obama a chance. We can and will render our verdict on his leadership come votin’ time.
I am not contending that we should be “basing the appropriateness of Obama’s policies upon poll numbers”
“the appropriateness of Obama’s policies” will be judged by the next election. He laid them out already and they were found to be preferable to the majority of voters. Until the opposition provides a detailed plan to address the problems, including the Economy, Healthcare, Education and energy, Obama is about the only ticket in town.
““Most folks” only know what the MSM bothers to tell them.”
Have you ever heard of Fox News? Do you listen to AM radio? The internet? Blaming the MSM is a great talking point that ignores all the choices folks have to get their news. Fox News viewership is blowing away all other cable networks. I think your message is certainly being represented and getting out there. If “most Folks” don’t vote for that viewpoint, maybe it says a bit about the message itself.
@Moose
Fair enough on all points. I still think you overestimate exactly how much attention the majority of Americans paid to what Obama said he was going to do. But as you stated, until the next election, there isn’t a whole lot we can do except bitch and help wake up more people to the reality behind the “cool”, “historic” masquerade.
One wonders if the shantytowns will be called Bushburgs or Obamavilles?
On your first comment above, thank you for your clarification. Certainly Obama *did* lay out what he intended to do. However the news archives are filled with stories of those who were absolutely sure Obama would “govern from the center”. Fool’s folly that we must now all pay for.
Which leads me to your second comment INRE the message getting out thru the MSM. This, of course, only brings to mind Gary Larsen’s famous Far Side cartoon with the human speaking to the cat… who translates all as merely “blah blah blah…. Ginger… blah blah blah…”. Subsequent interviews by many talking heads of voters-on-the-street reveal a frightening number that can’t place VPs and policy with the property candidates, and can’t name current VP, Speaker and Senate Majority leader. Give them the name, and they still haven’t got a clue.
The only thing too many of the O’faithful remember of the Obama promises is “tax cuts for 95% of Americans”, and “raising taxes on the rich”. Even Iraq was a moot point as the withdrawal was determined by Iraq and the Bush admin with the SOFA.
The tax cuts for 95% are slipping away too.
Soon the only thing that the Obamanation will have are the YouTube videos of the fancy speeches.
It was always going to be a temporary campaign promise filled, Aye. For the not-so-clueless, it was impossible *not* to see his cap and trade, health care reform, and spending plans and know that any tax cut would be short lived at best.
But reality doesn’t play into the “blah blah blah, Ginger… blah blah blah” mentality. Obama can claim he fulfilled a promise by giving the tax cuts, then taking them away in the interest of the country’s health. And the O’faithful will never put two and two together that it was his intention to do that all along.
@Pete: Sorry I slid right by your response about Ibbitson.
I see your point, plus I thank you on behalf of the other authors for your compliments on Flopping Aces. But I like to give credit where credit is due.
Had I not seen Ibbitson’s article on Baseline Scenario and Martin Weiss, I also would not have known about his efforts to educate Congress and the public to some economic history and realities. It would have been disingenuous of me to leap only to his source material, bypassing his contribution. And I can certainly say there isn’t one MSM that reports his [Weiss’s] white paper presentation, his well taken economic points, nor his meetings with some Congressional members.
Different events bring out some different sides of journalists… and even occasionally a good article. One person that I think illustrates this best is Jake Tapper. A few years ago, I couldn’t abide most of his work. However during the 2008 campaign, and even now, he is one of the few with a liberal bent that is actually pounding home some hard questions and criticism. Before, I wouldn’t give him the time of day. Now I consider him a not-to-be-missed journalist… even tho I’m sure we disagree in our base philosophies.