Inside Story Americas - Has capitalism proven its durability? "American Pie in the Sky" by Nouriel Roubini. Exit from comment view mode. Click to hide this space NEW YORK – While the risk of a disorderly crisis in the eurozone is well recognized, a more sanguine view of the United States has prevailed. For the last three years, the consensus has been that the US economy was on the verge of a robust and self-sustaining recovery that would restore above-potential growth. That turned out to be wrong, as a painful process of balance-sheet deleveraging – reflecting excessive private-sector debt, and then its carryover to the public sector – implies that the recovery will remain, at best, below-trend for many years to come. Even this year, the consensus got it wrong, expecting a recovery to above-trend annual GDP growth – faster than 3%. The reality is the opposite: for several reasons, growth will slow further in the second half of 2012 and be even lower in 2013 – close to stall speed.
Modern American Economic History in a Few Charts. Matt Stoller is a fellow at the Roosevelt Institute. You can follow him at The big economic strategy for the next term of whoever is Presidenti is essentially, “turn those machines back on”. It’s fracking to replace cheap oil and a new real estate bubble in housing.
Essentially, the idea is to turn America into more and more of a resource extraction economy, or a petro-state. If American politics seems more and more oligarchical, that’s because the American political system is beginning to reflect the Middle Eastern oil states its economic investment implies it should. Here are a series of charts explaining what is going on. First, this is data showing investment in various investment sectors. American politics looks increasingly like a petro-state, and this chart shows why.
And what of renewables? What you see is that renewables are increasingly rapidly, from a small base, during both the Bush and Obama administrations. And there we go. World’s Most Prestigious Financial Agency – Called the “Central Banks’ Central Bank” – Slams U.S. Economic Policy. The “Central Banks’ Central Bank” Slams the Federal Reserve The central banks’ central bank, the Bank of International Settlements or “BIS” – which is the world’s most prestigious mainstream financial body – has slammed the policy of America’s economic leaders. This is especially dramatic given that the banks own the Federal Reserve, and that the Federal Reserve and other central banks – in turn – own BIS.
In other words, BIS is criticizing one of its main owners. Economics professor Michael Hudson notes: Paul Krugman has urged the Federal Reserve to simply lend banks an amount equal to their bad loans and negative equity (debts in excess of the market price of assets). He urges a “Keynesian” program of spending to re-inflate the economy back to bubble levels. For background, see this and this. Too Big Has Failed BIS has also slammed “too big to fail” banks: The report [by BIS] was particularly scathing in its assessment of governments’ attempts to clean up their banks. The Telegraph noted: Edward Lazear: The Worst Economic Recovery in History. The Recovery According to Ed “We are not in a recession” Lazear.
In Tuesday’s WSJ, Edward Lazear argued that we are now experiencing the “Worst Economic Recovery in History”. Before dissecting this remarkable document, it would behoove the reader to recall that while he was Chair of George W. Bush’s Council of Economic Advisers, he stated unequivocally in May 2008 (also in the pages of the WSJ): “The data are pretty clear that we are not in a recession.” He wrote this less than five months before US GDP took a remarkable dive; in 2008Q4 q/q growth was -8.9 percent SAAR. In the available series, this loss was only exceeded in 1958Q1 (-10.4 percent). Despite Professor Lazear’s less than stellar record on reading the data, we should assess his statement at face value. Was the Slow Recovery Such a Surprise? Lazear writes: Indeed, that was the expectation [that the economy was in rapid catch-up mode and would eventually regain all that had been lost].
I want to take exception to the argument that the expectation was for a rapid recovery. Is Obama Still on the Austerity Train? Mean-Spirited, Bad Economics. By Simon Johnson The principle behind unemployment insurance is simple. Since the 1930s, employers – and in some states employees — have paid insurance premiums (in the form of payroll taxes, levied on wages) to the government. If people are laid off through no fault of their own, they can claim this insurance – just like you file a claim on your homeowner’s or renter’s policy if your home burns down. Fire insurance is mostly sold by the private sector; unemployment insurance is “sold” by the government – because the private sector never performed this role adequately. But the severity and depth of our current recession raise an issue on a scale that we have literally not had to confront since the 1930s. In negotiations currently under way, House Republicans propose to cut back dramatically on these benefits, asserting that this will push people back to work and speed the recovery.
In raw numbers, we lost more than eight million jobs, most of which have not returned. Graphic of World Military Spending (Iran's too Small to Show up)
To sort... The Wyden-Ryan Plan for Health Care. Housing & Homeownership in America. Short-termism and the risk of another financial crisis. The truth is, some of us did see this coming. We tried to stop the excessive risk-taking that was fueling the housing bubble and turning our financial markets into gambling parlors. But we were impeded by the culture of short-termism that dominates our society. Our financial markets remain too focused on quick profits, and our political process is driven by a two-year election cycle and its relentless demands for fundraising.
I’ve had a unique vantage point during my five-year term as chairman of the Federal Deposit Insurance Corp., from the early failure of IndyMac Bankto the implementation of reforms designed to ensure that no conglomerate ever again is deemed “too big to fail.” Now that I’m stepping down, I want to sound the alarm again. The common thread running through all the causes of our economic tumult is a pervasive and persistent insistence on favoring the short term over the long term, impulse over patience.
The media has also played a role in expanding our short-termism. The 2007/8 financial crisis. Cognitive Regulatory Capture. Get Ready for TARP 2.0. Washington DC appears to be readying itself for a repeat of the TARP, namely, the passage of unpopular legislation to appease the Market Gods (and transfer even more income from ordinary Americans to the Masters of the Universe). It isn’t yet clear whether this drama will be played out via generating bona fide financial market upheaval or mere threat-mongering (the Treasury market seems pretty confident that well-trained Congresscritters will fall into line).
But unlike the TARP, which was a classic example of well-placed interests finding opportunity in the midst of upheaval, this reprise is a far more calculated affair. The latest episode of brinksmanship is the breakdown in talks between Obama and John Boehner Friday afternoon. Boehner claims Obama retraded the deal, asking for more tax increases; Obama, in an unusually incoherent press conference, says he bent over backwards and the Republicans just won’t be satisfied. Let’s review how we got here. Jobless Recoveries... I>Lost Decades</I>, Illustrated. When I discuss Lost Decades I always stress the fact that the “s” denotes the plural.
Figure 1 shows that a decade and a half in, the trajectory of output has been noticeably depressed since 2001Q1. Figure 1: Log GDP (dark blue), OECD forecasted (light blue), potential GDP (gray), and nearest neighbor fit against time, local weighting, bandwidth=0.3 (red). Source: BEA, 2011Q3 2nd release, OECD November 28 forecast, CBO Budget and Economic Outlook (August 2011), and author’s calculations.
The downtrend post-2001Q1 is more pronounced in per capita terms (extends only to 2011Q3, since I don’t have population post November 2011, and didn’t have the patience to hunt up projections to interpolate to quarterly frequency). Figure 2: Log per capita GDP (dark blue), potential GDP (gray), and nearest neighbor fit against time, local weighting, bandwidth=0.3 (red). In Lost Decades, we make clear that we can avoid two complete lost decades, if we implemented reasonable policies.
Source: Open Secrets. Wall Street’s Euthanasia of Industry. Michael interviewed on Guns N Butter with Bonnie FaulknerListen here “When I was in Norway one of the Norwegian politicians sat next to me at a dinner and said, “You know, there’s one good thing that President Obama has done that we never anticipated in Europe. He’s shown the Europeans that we can never depend upon America again. There’s no president, no matter how good he sounds, no matter what he promises, we’re never again going to believe the patter talk of an American President.
Mr. Obama has cured us. He has turned out to be our nightmare. Topics: The jobless recovery; the debt ceiling and default charade; China; Greece: banks, not countries, receive the bailouts; financial warfare; IMF and EU; European Central Bank; US credit default swaps; US agricultural exports create food dependency; currency devaluation devalues the price of labor; class war of banks against the rest of society. I’m Bonnie Faulkner. That’s why the stock market is down 160 points today. Rep. Ms. Mr. Mr. Mr. The False Dichotomy of Greed. By Sell on News, a macro equities analyst. Cross posted from MacroBusiness The Euro crisis appears to be developing into something similar to the 1980s Latin American debt crisis when the idea that, to quote Walter Wriston, who ran First National City/ Citibank from the 1960s into the 1980s it was assumed that: “countries don’t go out of business.”
The Latin American leadership demonstrated that they, in effect, could, by defaulting. As a number of bloggers at MacroBusiness have pointed out, government finances are not like household finances, although they are often seen that way. That much is well understood in the financial community, although perhaps not as well in the wider public. What is not acknowledged in the financial community is the assumption implicit in Wriston’s comment: that governments can be seen like a business. That is the nonsense we now live in and it is the key to why governments have abrogated their responsibility to govern in the financial system. American lessons in how to run a single currency. 20 July 2011, Financial Times In the 1990s, when European monetary union was a plan but not a reality, I would explain to students that the effect was to replace currency risk by credit risk. With exchange rates free to float, loose monetary and fiscal policies would lead sooner or later to a fall in the exchange rate.
That expectation implied higher interest rates. Currency markets would limit the scope for bad economic policies. Monetary union meant sovereign governments could no longer print money. That change put them in the same position as any other borrower: and substantially increased the likelihood of default. Like businesses or households, governments would find that profligacy made loans more and more costly and difficult to obtain.
This was how decentralised budgeting worked in the US. The account I gave these students was profoundly misleading. Why were interest rate spreads in Europe so small? But markets also doubted whether default would happen. The Truth About the Economy. Financial Sector Fraud. The Billion-Dollar Bank Heist. OpenSecrets.org: Money in Politics -- See Who's Giving & Who's Getting. In U.S. Monetary Policy, a Boon to Banks. Note: The Trade is not subject to our Creative Commons license. The most pronounced development in banking today is that executives have become bolder as their business has gotten worse.
The economy is clearly weaker than expected, and housing prices are falling throughout the land, eroding bank asset values. Yet regulators are on their heels in Washington as bankers and their lobbyists push back against the postcrisis regulations, even publicly condemning the new rules. In a well-covered exchange [1], Jamie Dimon, JPMorgan Chase's chief executive, challenged Ben S.
Bernanke, the Federal Reserve chairman, about the costs and benefits of the Dodd-Frank rules. More attention has been paid to the banker's audacity, but the response of the world's most powerful banking regulator was more troubling. So this is a good occasion to step way back to understand just how good the banks have it today. The protection is so well established that we barely notice it anymore.
This bailout never ended. Rise in risk inequality helps explain polarized US voters. Public release date: 13-Jul-2011 [ Print | E-mail Share ] [ Close Window ] Contact: Philipp RehmRehm.16@osu.edu 614-292-8196Ohio State University COLUMBUS, Ohio – A new study of political polarization in the United States suggests that changes in the labor market since the 1970s has helped create more Republican and Democratic partisans and fewer independents. The growth in partisanship has to do with people's current income and – importantly – their expectations of job security, said Philipp Rehm, author of the study and assistant professor of political science at Ohio State University.
At one time, many voters were "cross-pressured" – when looking at what they earned now and their risks of losing that income, they felt torn between Republican and Democratic policies. The result is that they were natural independents, Rehm said. "This can help explain why politics has polarized so much over the last four decades. " "Income is not something that is fixed for life. . [ Print | E-mail. America: The Hungriest, Most Imprisoned Developed Country on Earth - Derek Thompson - Business.
Fault Lines... The politics and economics of Austerity. Debating the future of capitalism - perspectives...
The ‘strong-dollar’ policy of the US. The strong-dollar policy is a US government policy based on the assumption that a strong exchange rate of the dollar is both in the US national interest and in the interest of the rest of the world. The policy was first enunciated by the then-Secretary of the Treasury Robert E Rubin, shortly after he succeeded Lloyd Bentsen as US Secretary of the Treasury on 11 January 1995. It followed a sharp rise in Treasury bond yields at the end of 1994 and the weakness of the dollar early in 1995, especially vis-à-vis the deutschmark and the yen — at the time the two major currencies after the dollar. The dollar hit 80.63 yen on 18 April 1995, which was its post-war low until 16 and 17 March 2011. Since August 1995, the strong-dollar policy has consisted exclusively of periodic statements by government officials — mainly the Secretary of the Treasury, occasionally the Chairman of the Fed — insisting that the US continues to pursue a strong-dollar policy (Klein 2011).
Figure 1. Figure 2. Figure 3. The impotence of monetary policy. In-depth analysis on Credit Writedowns Pro. You are here: Economy » The impotence of monetary policy The Federal Reserve has released its latest statement on the state of the US economy.Its Chairman Ben Bernanke has now spoken to the press as well. The overall assessment was rather downbeat. (video below) Monetary Policy’s Impotence If you compare the Fed statement to its previous one, you will understand the Fed has downgraded the economy’s outlook.
Part of the slowdown is temporary, and part of it may be longer-lasting. Now remember, since the Panic of 2008, the Fed has brought its policy rate down to zero. The Balance Sheet Recession Nomura’s Chief Economist Richard Koo wrote a book last year called “The Holy Grail of Macroeconomics” which introduced the concept of a balance sheet recession, which explains economic behaviour in the United States during the Great Depression and Japan during its Lost Decade. I believe Ben Bernanke senses this as well. Inflation Targets So what was Mr. Gross Echoes Buffett Saying Treasuries Have ‘Little Value’ on Debt, Dollar.