Monday, January 31, 2011

The New Crusades

President George Bush made a general hash of his period in office by most accounts. He was known for his Bush-isms:

"You teach a child to read, and he or her will be able to pass a literacy test." -Townsend, Tenn., Feb. 21, 2001
On one subject he pretty much had it right, despite himself, when a week after the destruction of the Twin Towers he described the US response as a "crusade." It could have been a Bush-ism, or it could have been a Freudian slip, but in any event US allies prevailed and the crusade remark was withdrawn. And now whether we like it or not we seem to be getting sucked into a new world order that pits us in the west against them in the east, Christians versus Muslims. Were I a Muslim in the US I'd be packing my bags and looking for someplace else to raise a family.
That the Middle east conflagration has gone almost unreported in the US is no surprise. Who amongst us knows who the Hashemites are, or how they relate to the Wahhabi's. What the hell they're all rag heads. Yet there is no doubt that the revolutions that have been promised for a very long time are starting to break out everywhere. They call it "Unrest" in Egypt when the dictator, a "friend" of the US abolishes his government and promises reform, even as his capital city is taken over by protesters and armed civilians. Egypt has no oil.
Jordan is facing thousands in the streets protesting the dictator, a US friendly "King" whose rule has held back the people. Jordan has no oil.
Lebanon faces a new future, Iran friendly with Hezbollah out in the open leading the government. Lebanon has no oil.
Tunisia has lost a dictator and has opened it's doors to all the rebels who opposed the US friendly head of state. The BBC reports the exiled head of Tunisia's Islamic rebels has come home after two decades. His name isn't Khomeini, but it might as well be. Tunisia has no oil.
Yemen is bubbling over with rage, the poorest to Arab states with huge poverty, a place where rebellion foments with ease. Yemen has no oil.
And so the Middle East starts it's transformation into a new world order. Until Saudi Arabia topples and Iran controls the flow of all oil we shall sit on the sidelines and tremble. We fight a hopeless war in Afghanistan and a lost cause in Iraq and we have no strength left to fight one more fight for oil. Extremists only have to shut down the oil for us to collapse- they have no interest in making money if the alternative is to win the crusade. To win the crusade all they have to do is control the oil and now revolution has the source of the bulk of the oil surrounded in a crescent from Tunisia, to Sudan and Egypt, across the water to Yemen, and across the water again to Iran and Afghanistan and up to Iraq, Syria and Lebanon. Turkey, rejected for so long by the Europeans no doubt knows which side it's bread is buttered on, and it ain't with the West.
The crusade is lost. It's just a matter of time. Alternative energy anyone? Conservation? Reduction? We need 18 million barrels of oil daily and we produce about 5 million. Do the math especially considering that the government and the military will get first dibs. I need to refurbish my bicycle.

Thursday, January 27, 2011

Corporations As People

By Christopher Ketcham, AlterNet

This article was originally published by AlterNet on Jan. 22.

A year ago, the Supreme Court issued its bizarre Citizens United decision, allowing unlimited corporate spending in elections as a form of “free speech” for the corporate “person.” Justice John Paul Stevens, writing for the dissent, had the task of recalling the majority to planet earth and basic common sense.

“Corporations have no consciences, no beliefs, no feelings, no thoughts, no desires," wrote Stevens. “Corporations help structure and facilitate the activities of human beings, to be sure, and their ‘personhood’ often serves as a useful legal fiction. But they are not themselves members of ‘We the People’ by whom and for whom our Constitution was established.”

Fortunately, movements are afoot to reverse a century of accumulated powers and protections granted to corporations by wacky judicial decisions.

In Vermont, state Sen. Virginia Lyons on Friday presented an anti-corporate personhood resolution for passage in the Vermont Legislature. The resolution, the first of its kind, proposes “an amendment to the United States Constitution that provides that corporations are not persons under the laws of the United States.” Sources in the statehouse say it has a good chance of passing. This same body of lawmakers, after all, once voted to impeach George W. Bush, and is known for its anti-corporate legislation. Last year the Vermont Senate became the first state legislature to weigh in on the future of a nuclear power plant, voting to shut down a poison-leeching plant run by Entergy Inc. Lyons’ Senate voted 26-4 to do it, demonstrating the level of political will of the state’s politicians to stand up to corporate power.

The language in the Lyons resolution is unabashed. “The profits and institutional survival of large corporations are often in direct conflict with the essential needs and rights of human beings,” it states, noting that corporations “have used their so-called rights to successfully seek the judicial reversal of democratically enacted laws.”

Thus the unfolding of the obvious: “Democratically elected governments” are rendered “ineffective in protecting their citizens against corporate harm to the environment, health, workers, independent business, and local and regional economies.” The resolution goes on to note that “large corporations own most of America’s mass media and employ those media to loudly express the corporate political agenda and to convince Americans that the primary role of human beings is that of consumer rather than sovereign citizens with democratic rights and responsibilities.”

Denouncing this situation as an “intolerable societal reality,” the document concludes that the “only way” toward a solution is the amendment of the Constitution “to define persons as human beings.”

Constitutional lawyer David Cobb, the 2004 Green Party presidential candidate, recently traveled to Vermont to help draft the resolution. Cobb says it is an historic document. “This is the first state to introduce at the legislative level a statement of principles that corporations are not persons and do not have constitutional rights,” he told AlterNet. “This is how a movement gets started. It’s the beginning of a revolutionary action completely and totally within the legal framework.”

Such an amendment would be the 28th time we have corrected our founding document to reflect political reality and social change. In other words, we’ve done it 27 times before in answer to the call of history, and we can do it again. There is a groundswell of support: Seventy-six percent of Americans, according to a recent ABC News poll, said they opposed the Citizens United decision.

The Total Weirdness of Corporate Personhood

The corporate person is the product of some plainly weird metaphysics. This astonishing fictional “person,” accorded all the rights of a human, can split off pieces of itself to form new fictional persons, can marry many other similar persons in a process called a merger, is immortal, can change its name and identity overnight, and can aggregate gigantic streams of capital with which it somehow has the right to speak. Strangely enough, the corporate person, who has neither soul nor body, is at the same time owned by many other persons called shareholders who buy and sell its parts every day—it is owned, in fact, much the way a slave is owned.

Additionally, the many-limbed, mercurial, shape-changing god-person-as-chattel can connive to murder wretched fleshy mortal persons and not be hanged by the neck or electrocuted in a chair or go to jail for life as punishment. Instead the corporate person pays out a paltry sum and goes about his or her blithe business as if no murder was committed, no crime accomplished. The corporate person can shut down whole communities by driving out business, can spread cancers in the air and water, can destroy fisheries or lay waste to forests, and do all of this with a degree of impunity provided under the vaunted protections of the Bill of Rights. The best-known and most insidious of these rights is that which allows the corporation under the First Amendment to speak freely using money—yet another twist of metaphysics masquerading as law, and one that has not gone unnoticed by the highest jurists in the land.

The “useful legal fictions,” launched into society as creatures of commerce and ostensibly at the beck and call of their creators, have freed themselves to wreak havoc on the people they were designed to help. Mere humans are arrayed against a dangerous automaton army, the army of the fictional corporate super-persons that deploy power with real-world consequences. If corporate hegemony is rightly understood as the overarching threat to world democracy today—the threat from which all other threats derive when governments stand captured by corporatocracies—then it is the absurdist legality of corporate personhood that serves as the functional lever of that hegemony. In this epochal battle for the future of planet earth, the humans against the corporations, the survival of the humans will depend on a dramatic legal assault, with nothing less than the murder of corporate personhood as the goal.

Wednesday, January 26, 2011

An Odd New Year

Things do not seem to be working out quite as badly as the worst had predicted for 2011, yet things do not seem to be anywhere near as good as the rosy predictions of our leaders would seem to indicate. Everything seems to be a dichotomy. Consider the Stock market and we find the Dow Jones Industrial Average almost all the way back to 2008 levels, around 12,000 which looks brilliant for people holding stocks. However the fact that marekt insiders are selling at a proportion to byers in the area of 2,800 to one could be considered an indicator that things are not as keen as they might appear to be.

Unemployment is officially under ten percent and jobs are being created we are told. Yet the unofficial rate is closer to 22% a figure that beggars belief. One in seven Americans is on food stamps. It seems obvious that the country will need to create many many more jobs in order to absorb new job seekers, never mind deal with the pool of already out of work statistics. So how good is the employment situation? Not nearly as good as our leaders want us to believe.

China makes noises about wanting to take the world off the dollar standard and even though this inevitable transition away from the dollar deserves discussion, no one take sup the subject. It is interesting to note that the Chinese leadership said nothing about making their own currency the new world standard. If the wordl does come off the dollar the cost of borrowing in the US will go up, and with all the debt the US holds interest payments will suck up more and more Federal budget dollars.

Meanwhile Republicans in Congress want to abolish Social Security and Medicare making life even harder for those of us at the bottom of the economic heap. While those at the top continue down the path of profligacy and socialism for the wealthy. And they get away with it. There is no revolution in sight. No revolt even at the cutting and paring of civic life across the United States. We hear stories of street lights going out, cops losing jobs, fewer trash collections and libraries under threat of closure. No one seems to mind collectively.
It seems as though the national dialogue has fallen apart, politicians are told not to raise taxes, so they don't under threat of being fired, corporations claim to be far more efficient than government, though when offered to prove it by competing directly they demand special protections ( no Public Option in the health insurance debate, for instance), and the people see no irony in the continuing failure of the private sector to hire people even as government jobs come under threat.

2011 is not likely to be much of a year rto advance the national debate. Whether this is the year we plunge off the cliff of insolvency, or if this is just another year of political harangues and nothing to show for them. 2011 is going to be one more year in which actual economic improvement is going to be an illusion, just like all the other improvements touted as a recovery.

Saturday, January 22, 2011

President Obama Sells Out Again

From the Huffington Post. Appeasement continues in full force in the "socialist" White House.

WASHINGTON -- Friday's announcement that General Electric Chairman and CEO Jeffrey Immelt will serve as chair of the President's Council on Jobs and Competitiveness has set off a bit of alarm among unions and other labor groups already concerned about the direction of White House trade policy.

Immelt has a sterling reputation within the business community, as does his company, despite the very real threat of collapse it faced during 2008's financial meltdown. But in the eyes of some labor interests, G.E. also embodies the job-outsourcing phenomenon. And Immelt's ascension to a post that has the ear of the president -- taking the place of Paul Volcker, a former Federal Reserve chairman more sympathetic to labor's interests -- has unions and their advocates worried.

"I think the challenge with Immelt, and I'm just wondering about the politics of this too, because you have the industrial heartland which is still a battleground, Pennsylvania, Ohio, Indiana, Wisconsin. They have all been devastated by manufacturing job loss, and in Jeff Immelt you have a CEO who has supported all of the policies that have led to that devastation," said Scott Paul, the executive director of the Alliance for American Manufacturing. "I think the president has a hard time convincing the American people that having an outsourcing CEO as your key adviser on jobs and competitiveness is going to be a winner for them."

The optics of the Immelt appointment aren't necessarily that clear. While the G.E. chief executive has overseen the shipping of U.S. jobs overseas, his tone and stated philosophy have shifted in recent years. "In some areas," he said during a much-remarked-upon June 2009 speech in Detroit, "we have outsourced too much."

What has followed, a G.E. spokeswoman said, has been a concerted effort to build operational roots in America, with the company "in-sourcing jobs in Kentucky, Pennsylvania, Indiana, Ohio and many other states."

In Paul's view, that effort is a charade. "They have still closed 29 factories in the states in the past two years," he said, "and they opened a few new ones and gotten good publicity for it."

A top union official, who spoke only on condition of anonymity for fear of the recriminations that might come for the White House, expressed similar sentiments.

"We are really supportive of President Obama's basic thrust of we need to be focused on jobs, and investing in America, and restoring America's manufacturing prowess," the union official said. "Jeff Immelt has been a proponent of those three ideas in the last 24 months, and I think he has been a proponent of the idea that public investment is part of that story, so we have some common ground with him. But G.E.'s corporate behavior has not been consistent with that story, and even over the past 24 months, as G.E. has said these things, their behavior has been kind of mixed."

The G.E. spokeswoman did not respond directly to Paul's assertion that 29 plants have been closed, but said, "We disagree with the uninformed characterization of Jeff as an 'outsourcing CEO.' We're creating jobs, investing heavily in innovation, bringing jobs back to the US and establishing global partnerships that will help us expand manufacturing exports."

The White House did not address concerns regarding G.E.'s corporate behavior, but an administration official clarified that Immelt would continue in his current role while serving on the advisory panel, as it is "not paid by the White House."

Some of Immelt's recent statements do offer the sense that he's struggled with issues of corporate responsibility, but the results may not soothe worried domestic labor interests. In a recent interview with Indian television, Immelt called himself a "globalist" and a "big believer" that global trade was a "win-win game." He added that "outsourcing gets a bad name" and dismissed isolationist sentiment in the United States as a byproduct of high unemployment.

"Protectionism, I think, is not the way forward, it is the way backward, and therefore we need to fight through that and we need to make a better case for globalization, because it is unstoppable at this point and I personally believe it benefits both sides," he said.

And yet, appearing before domestic audiences, he has preached the need to keep the blue-collar and white-collar elements of a company in close proximity.

"Manufacturing and technology actually have to be close to one another if you want to be competitive over the long term, this notion that you can design something in one place and make it in another place is just wrong," he said during a CNBC forum.

All of which may explain why the labor and union critics -- aside from Paul -- were a touch cautious when asked to address the appointment. For starters, it's not entirely clear who will make up the rest of the president's council. And while concern over Immelt's trade policies is sincere, so to is the belief that he can be moved. In that vein, trashing him at the onset would make little strategic sense.

"The AFL-CIO strongly supports President Obama's vision for rebuilding America's economy based on good jobs, strong manufacturing and 21st century infrastructure," said Damon Silvers, the union federation's policy director. "We are ready to work with any business leader who shares that agenda and is willing to support policies that will reverse the hollowing out of our economy."

Friday, January 21, 2011

A Call To Action

Danette of sent me this essay, a call to action:

A Liberal Dose of RealityBy John Cory, Reader Supported News

16 January 11

Reader Supported News Perspective

"It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds."
- Samuel Adams

So far there is no direct factual connection between the violence in Tucson and the toxic GOP and its subsidiary Tea Party screaming mobs, or the despicable daily spewing of hate-radio or the crazy chalkboard diagrams of the coming end times.

The false equivalency by the right wing and corporate media that the left does it too is merely a deflection intended to distract and shift focus away from them and their tactics. You can't connect the dots, they say.

A drop of ink on porous paper slowly seeps across the sheet. Multiple drops in multiple locations eventually bleed together without any external help. No one has to connect the dots; they connect themselves.

Thirty years ago Ronald Reagan said, "... government is not the solution to our problems; government is the problem."


Over the next three decades, vilification of government became a self-replicating meme. Big government fed the cash-driven paranoia machines. Politics got religion with the Moral Majority, which was neither, and Jerry Falwell made a devilish new BFF in Ronald Reagan. The Christian Right was born.

Plop. Plop.

Bogus welfare queens were created from thin air. The dismantling of Unions and the Fairness Doctrine turned news into a product for the corporations, who insisted that they owned the airwaves, not the public. The public good was tossed aside in favor of free-market profiteering without protective regulation.

Money is free speech and some of us have more freedom than others.

Plop. Plop. Plop.

With all this madness came Iran-Contra, the Savings and Loan crisis, HUD grant-fixing scandal, the Lobbyist scandals, EPA scandals and more. An estimated 130 Reagan officials were indicted and/or convicted or investigated for misconduct and/or criminal violations. But Reagan was the best president ever says the GOP.

Big government is bad. Small government, small enough to fit in a President's zipper is good. God be praised.


The Great Microphone of Anti-Democracy was created and funded under Reagan and allowed to grow and smear at will over the following decades.

Politics became reality television. The profits of fear made millionaires of the new hate-media puppets, supported extremist think tanks and generated a publishing industry dedicated to the propaganda of self-appointed "real" America; all in the name of the corporate owners of America.

And where has our liberal progressive movement been?

Pointing out their victimhood at the hands of the GOP and how the GOP is mean. Ignoring the elimination of investigative journalism. Scrambling for consultants and pundits to appear on the TV to provide "balance" while agreeing that both sides do it. Gently promoting "objective" media in a world rewarding biased punditry and outright lies.

Woe, is us! It is so unfair. Whatever can we do?

We need to get off our ass and quit pretending the bastardization of corporate media is something new, or that the hateful politics of the right wing cannot be defeated. We need to face reality and stop looking to billionaires and millionaires to fund us or rent us a megaphone to speak to the people.

We also need to disabuse ourselves of the illusion that the Democrats are on our side, or that they represent liberals and progressives let alone the concept that they represent everyday citizens. Modern Democrats are Mugwumps straddling the fence between self-enriching celebrity and GOP corporate compromise.

All of this is obviously more complicated than my simplistic presentation. But I'm a simple guy that believes in the KISS principle. Keep It Simple, Stupid.

And if we think MSBC is the anti-Fox or that it is the liberal platform needed today, then we are just dumb. Snark and shouting and satirical lists are not news reporting or analysis, just tribal entertainment for the converted and like-minded.

No, we need to walk our talk. The other side will call us names no matter what we do, so let us embrace their hatred, as FDR said. Let us be proud radicals and fierce promoters of the common good.

Unions and organizations like the NAACP and La Razza have money that could be used to invest in a non-profit internet/newspaper/broadcast network instead of being spent on lobbying politicians.

Think of it, our own news outlet that conducts investigative reporting and covers real issues. Public subscriptions for print editions and sales of apps for iPad and other devices would provide support money too. Media of, by, and for the people!

Think of putting Robert Parry, Chris Hedges, Sy Hersh, Amy Goodman, Laura Flanders, Glen Greenwald and so many other wonderful voices together in one powerful force of messaging.

We pick a half dozen or so prime issues to promote - issues that overlap compatible areas so as to serve multi-functional roles. Here's a short list off the top of my head:

End the wars in Afghanistan and Iraq. War creates graves, not jobs.

Universal Healthcare - explain why the US spends $7500 per person on healthcare while most other countries spend $3500. Is it American exceptionalism, or just plain greed?

Promote government spending on infrastructure like roads, parks, schools and bridges and playgrounds. Immigrants can earn a living and progress toward citizenship by repairing and building infrastructure and paying taxes including Social Security taxes. Jobs, immigration and saving Social Security all rolled into one.

Taxes - progressive and enforceable on all persons including corporate persons. Taxes are not evil or onerous, they are the investment in America that sustains all of us.

Financial Reform regulation to protect the people. To paraphrase George Carlin, if we're concerned about street crime - that means Wall Street too.

Labor must be protected. The right to a living wage. The right to collective bargaining to protect the powerless from the powerful. Labor is not a product - it is not enslavement for corporate enrichment.

Bring back the Draft with some modifications that expand the age groups, limit exceptions, and include private contractors being converted to active duty and subject to military pay scales. Government contracts must be severely restricted. To profit from death and bombs cannot be a government function. Conservatives should love this because it is patriotic and confirms their mantra that government does not create any jobs. Right?

Support Marriage Equality. "If you're against Gay marriage - don't marry one!" (I saw that on a button.)
Impossible? Why?

In an interview on Democracy Now! Slavoj Zizek pointed out, "Did you notice how strange the word 'impossible' functions today? When you talk about private pleasures and technology, everything is possible. But the moment you go to social changes ... practically everything that disturbs the market is impossible ... we will live forever ... whatever you want ... we will travel to the moon - that's all possible. But a small social change of more healthcare is not possible."

Corporations don't see "impossible." Conservatives did not see "impossible." Fox News and talk-radio were not built in a day, but over years.

If we don't unite and combine our forces, progressives and liberals will drown in the coming corporate GOP takeover of democracy.

In the Pennsylvania coal strikes of 1902, miners wanted to cut their work week from 7 to 6 days and cut their work day from 10-12 hours a day to 9 hours a day and raise wages.

George Baer, president of Reading Railroad, spoke for the owners in what became known as the "divine right" letter when he wrote: "... the rights and interests of the laboring man will be protected and cared for - not by the labor agitators, but by the Christian men to whom God in His infinite wisdom has given the control of the property interests of the country."

When the letter became public, support shifted to the miners as the public saw what was headed their way. An informed citizenry is the greatest fear of every corporate driven government.

It took progressives years and years to bring change and enlightenment to workers and politicians alike. People like Ida Tarbell, Eugene Debs, Emma Goldman, Sinclair Lewis, W.E.B. DuBois and so many others all fought and organized and published their cause and the cause of the everyman and the poor and the sick. And it worked; not always in big events, but in small continuous determined steps.

To quote Edward R. Murrow: "We have currently a built-in allergy to unpleasant or disturbing information. Our mass media reflect this. But unless we get up off our fat surpluses and recognize that television in the main is being used to distract, delude, amuse, and insulate us, then television and those who finance it, those who look at it, and those who work at it, may see a totally different picture too late."

An ink drop on porous paper slowly seeps across the sheet. Add another and then another, until at last they bleed together to forge their own image and shape.

"Difficulty is the excuse history never accepts." - Edward R. Murrow

Thursday, January 20, 2011

Austerity In America

From The Economic Collapse website, this essay discussing the reduction in public services. Note that at a time when the very wealthy feel no loss, poorer and formerly middle class Americans are losing all trappings of civil society. It is a commonplace these days to blame government for all social ills but as we can see here people are going to suffer with this first round of public service cuts:

The following are 22 signs that austerity has already arrived in America and that it is going to be very, very painful....

#1 The financial manager of the Detroit Public Schools, Robert Bobb, has submitted a proposal to close half of all the schools in the city. His plan envisions class sizes of up to 62 students in the remaining schools.

#2 Detroit Mayor Dave Bing wants to cut off 20 percent of the entire city from police and trash services in order to save money.

#3 Things are so tight in California that Governor Jerry Brown is requiring approximately 48,000 state workers to turn in their government-paid cell phones by June 1st.

#4 New York Governor Andrew Cuomo is proposing to completely eliminate 20 percent of state agencies.

#5 New York City Mayor Michael Bloomberg has closed 20 fire departments at night and is proposing layoffs in every single city agency.

#6 In the state of Illinois, lawmakers recently pushed through a 66 percent increase in the personal income tax rate.

#7 The town of Prichard, Alabama came up with a unique way to battle their budget woes recently. They simply stopped sending out pension checks to retired workers. Of course this is a violation of state law, but town officials insist that they just do not have the money.

#8 New Jersey Governor Chris Christie recently purposely skipped a scheduled 3.1 billion dollar payment to that state's pension system.

#9 The state of New Jersey is in such bad shape that they still are facing a $10 billion budget deficit for this year even after cutting a billion dollars from the education budget and laying off thousands of teachers.

#10 Due to a very serious budget shortfall, the city of Newark, New Jersey recently made very significant cuts to the police force. Subsequently, there has been a very substantial spike in the crime rate.

#11 The city of Camden, New Jersey is "the second most dangerous city in America", but because of a huge budget shortfall they recently felt forced to lay off half of the city police force.

#12 Philadelphia, Baltimore and Sacramento have all instituted "rolling brownouts" during which various city fire stations are shut down on a rotating basis.

#13 In Georgia, the county of Clayton recently eliminated its entire public bus system in order to save 8 million dollars.

#14 Oakland, California Police Chief Anthony Batts has announced that due to severe budget cuts there are a number of crimes that his department will simply not be able to respond to any longer. The crimes that the Oakland police will no longer be responding to include grand theft, burglary, car wrecks, identity theft and vandalism.

#15 In Connecticut, the governor is asking state legislators to approve the biggest tax increase that the state has seen in two decades.

#16 All across the United States, conditions at many state parks, recreation areas and historic sites are deplorable at best. Some states have backlogs of repair projects that are now over a billion dollars long. The following is a quote from a recent MSNBC article about these project backlogs....

More than a dozen states estimate that their backlogs are at least $100 million. Massachusetts and New York's are at least $1 billion. Hawaii officials called park conditions "deplorable" in a December report asking for $50 million per year for five years to tackle a $240 million backlog that covers parks, trails and harbors.
#17 The state of Arizona recently announced that it has decided to stop paying for many types of organ transplants for people enrolled in its Medicaid program.

#18 Not only that, but Arizona is do desperate for money that they have even sold off the state capitol building, the state supreme court building and the legislative chambers.

#19 All over the nation, asphalt roads are actually being ground up and are being replaced with gravel because it is cheaper to maintain. The state of South Dakota has transformed over 100 miles of asphalt road into gravel over the past year, and 38 out of the 83 counties in the state of Michigan have transformed at least some of their asphalt roads into gravel roads.

#20 The state of Illinois is such a financial disaster zone that it is hard to even describe. According to 60 Minutes, the state of Illinois is six months behind on their bill payments. 60 Minutes correspondent Steve Croft asked Illinois state Comptroller Dan Hynes how many people and organizations are waiting to be paid by the state, and this is how Hynes responded....

"It's fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state."
#21 The city of Chicago is in such dire straits financially that officials there are actually toying with the idea of setting up a city-owned casino as a way to raise cash.

#22 Michigan Governor Rick Snyder is desperately looking for ways to cut the budget and he says that "hundreds of jurisdictions" in his state could go bankrupt over the next few years.

But everything that you have just read is only the beginning. Budget shortfalls for our state and local governments are projected to be much worse in the years ahead.

So what is the answer? Well, our state and local governments are going to have to spend less money. That means that we are likely to see even more savage budget cutting.

In addition, our state and local politicians are going to feel intense pressure to find ways to "raise revenue". In fact, we are already starting to see this happen.

According to the National Association of State Budget Officers, over the past couple of years a total of 36 out of the 50 U.S. states have raised taxes or fees of some sort.

Wednesday, January 19, 2011

Food Crisis

From Sharon Astyk at Casaubon's Book this essay I have excerpted on food costs. Last year, in the closing months, unprocessed food commodity prices went up by a third, thus economists expect those price increases to work their way through the food chain (as it were) and appear in our markets in the next couple of months. It's just one more piece of bad economic news that indicates this down turn isn't cyclical but structural. What happens in countiures where already food is excessively dear, one can hardly imagine. It's like one of the Four Horsemen of the Apocalypse has arrived already.

The thing about food is that it is both simple and complicated - very simple, in that when people don't have enough to eat, they die. Very simple in that just because we in the west became preoccupied with our own fiscal troubles doesn't mean that hungry kids stopped being hungry. Complicated, in the sense that food system responds to a great number of events - and we can expect it to keep on responding.

Why is it back? Well, a combination of factors. First, as we've seen over the years, it is simply impossible in our fossil-fuel drenched agriculture to separate out energy and food prices - high food prices and high energy prices go together. We invited the food crisis back to dinner as we began consuming more gas and oil after the recession.

Climate change played a role - consider the role of the drought in Kenya, where 1.3 million people are presently at radically increased risk of starvation. Consider the recurrence of export restrictions, characteristic of the 2008 food crisis, which began in August with the Russia's ban on wheat exports. 11 other countries now have major exports, including India's ban on exporting pulses.

The race against environmental degradation offered another invitation - last year the UN special envoy on the right to food observed that China's ongoing need for ever-increasing food imports is being fed by heavy topsoil loss and over development of good farmland, and of course, those problems are endemic across the developed world as well. Credit Suisse projected Asian food price inflation to hit 15% next year.

Remember, almost half the world's population spends more than half their income on food - price increases here affect families dramatically. In the US where one in seven (and it will probably shortly hit one in six) families is on food stamps (up from one in ten less than five years ago), it is very clear that food security is one of our vulnerable points, and that rising food prices will affect everyone. But for the world's most vulnerable, this is a disaster.

If 2008 is any measure, it may be a disaster for a new group of victims - those of globalization. What we saw in 2008 was that while the majority of the starving were stilll the traditional poorest people in the world - the landless or barely landed small farmers in rural districts, who lacked the land base to grow enough food to feed themselves, there was a newly emergent group of hungry. These are people who left their inadequate pieces of land to follow the jobs to the cities, and now found themselves both unable to afford food, and also unable to grow it.

The raging food riots in Tunisia are one logical outcome of rising food prices and the inability of young people to get work and buy food. We should expect more food riots - in 2008, the Egyptian government had to set its army to baking bread for its hungry people, and governments all over the world trembled because hungry people are angry people. World political stability depends on food stability - and climate and energy issues are likely to make food stability a thing of the past.

It may well also be a disaster for more of us than we think, with impacts most of us in the Global North never suspected. In 2008, I wrote an article arguing that much of the economic growth that had trickled back into the developed world over the last decade had been subsidized by profit increases for corporations made in the global south. The emergent middle class in places like China and india were feeding the world's economic growth. The folks who had new disposable income may not have consumed as much as Americans, but their cell phones and cokes and increased meat consumption and the books and paper they bought for their kids to go to school were an essential part of economic growth. I wrote:

Now it might be worth asking - where are those 175 million new starving people coming from? Before they were starving, who were they? And the answer would be that many of them were the people who left their farms in China and Vietnam and Indonesia and a host of other places to go live in the slums of various cities and work there. They were the people who were just getting by - the ones who sent a daughter to the factories and who did day labor in construction building up the economies. They lived quite close to the edge, and then, they crossed the edge when food prices began to rise. Now these were the lowest level new industrial workers - they weren't buying cell phones, but they might have bought a few things that they wouldn't have when they needed every penny for rice or bread - they sent their children, even their daughters to school, and bought clothes and pencils, they might save up for a radio for the family, and all these things, over millions of people, added up. And they produced more than they were paid for the economy as a whole - their work was more valuable than their salaries could account for, as is the way of things. But now they aren't buying those things - their kids are out of school, there is no money for radios or batteries, and there's no food - so they are working less, getting sick more, contributing less to the industrial economy, unable to make money selling things to the other people in their neighborhoods, because their neighbors have no extra money for anything either. Not only are they starving, but they've stopped adding money into the economy - and stopped spending it on anything but food.

Meanwhile, the next tier up in income were the people who had a little more than just enough - enough and a bit to send back home to their families, to get a cell phone and some jeans and buy meat a bit more often. These people worked pretty regularly at the new jobs - in factories, in building, in making the new globalized economy. And they spent money too and moved it around within their communities, and back into the global economy - the spent a little money buying coca cola, which came back this way. Now they aren't starving yet, but the rising cost of food has pushed them too - now the coca cola and the meat are gone, except for the holidays, and there won't be any more jeans. Because now the money goes for food - they have food to eat, but not enough for those other things. And so the money increasingly doesn't move around that much - because the farmer who grew the rice they are buying spent most of his money buying fertilizer. And so the money is headed mostly back to a few small companies - without a lot of stops around the neighborhood.

It is easy not to pay attention to such small things, and small people - after all, they aren't spending much money, and their wages aren't much. But they produce the stuff we need, they move money around - and hundreds of millions and billions of these small personal economies add up to quite a lot. And the money that they made went places - it took trips. The money a poor Chinese worker generated in productivity went a bit into his pocket - and some of that went back to American corporations that made things. And a lot of what he generated went into companies that invested in other things that fed our economy. And some of it went to the Chinese government that used it to buy up dollars and other things that seemed to have some value. It is perhaps not totally surprising, then, that as the Chinese worker got functionally poorer because of rising food prices, there was less money to pour back - times some millions.

And so it goes, down the ladder. The new workers, and the lubrication they provide in the global money system are being systematically impoverished, and what money they do spend goes to an increasingly narrow band of companies - instead of spreading the money around, money goes for very basic things - mostly food, and mostly basic foods. And the farmers who make the basic foods mostly send that money back to a very small number of companies - the ones that produce oil and the ones that produce fertilizer - many of them located in the same countries and places.

What is reducing the amount of productive work accomplished, and moving the money increasingly only into a few pockets? It is the high price of food.

Yesterday, Nicole Foss at The Automatic Earth wrote a piece arguing that the unified enthusiastic assertion that we are in a recovery should make us all nervous - that markets are never more certain than right before they reach a crisis point:

We are now seeing a firmly established received wisdom that recovery is underway and that the Fed has saved the day with quantitative easing. Bullishness is at an extreme. The psychology of the market is the opposite of what it was at the March 2009 bottom. This represents a large red flag, as sentiment extremes are major indicators of approaching trend changes. It takes time for a position to be widely accepted and internalized, and the greater the extent to which that has happened, the closer one is to a reversal. I think we are close to one, but it really doesn't matter whether the top is this week, next month, or even next year. It is coming soon enough that evasive action is thoroughly warranted now.

Is she right? I don't know, but I am wary of the euphoric claims that the economic crisis is over - this seems as unlikely as the claim that the food crisis was over. These things have a way of coming back, as we are seeing. Moreover, I would suggest that the very drivers of some measure of recovery are about to be torpedoed. It is hard to grow the economy when it turns out that an increasing number of people have to put all their resources back into simply getting enough to eat. We have entered the territory of the vicious circle, in which the complex intersections between food, energy, economy and environment begin to become horribly clear through repetition.


Monday, January 17, 2011

China Attacks The Dollar

From the BBC we hear that China has started openly attacking the hegemony of the US dollar as the world reserve currency. This has been expected as China has already started trading with partners, including Vietnam and Russia in local currency. When the dollar loses world reserve status our situation worsens to a dreadful degree. Happy New Year.
Chinese President Hu Jintao has said the international currency system dominated by the US dollar is a "product of the past".

Mr Hu also said China was taking steps to replace it with the yuan, its own currency, but acknowledged that would be a "fairly long process".

The remarks to two US newspapers come ahead of a state visit by the Chinese leader to Washington this week.

They reflect continuing tensions over currency issues between the two powers.

The remarks to the Washington Post and Wall Street Journal came in the form of written responses to questions. Mr Hu also reiterated criticism of a decision by the US Federal Reserve to inject $600bn into the economy, which some argue will weaken the dollar at the expense of other countries' exports.

"The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level," President Hu said.

Meanwhile, he disagreed with suggestions that letting the yuan appreciate in value would help China to combat inflation.

He said inflation, which reached 5.1% in November - its highest level in 28 months - was "on the whole moderate and controllable".

"We have the confidence, conditions and ability to stabilise the overall price level," he said.

Beijing has previously come under pressure over its currency from the US, which has accused China of manipulating the yuan to help boost Chinese exports.

On Sunday night, three Democratic senators announced they would introduce a new bill to increase penalties the US considers to be "currency manipulators".

However, the move is unlikely to receive support from senior Republicans - who recently took control of the House of Representatives.

The new House speaker, John Boehner, voted against another bill that failed last year that would have helped US companies challenge currency subsidies.

Despite criticism of the current system, Mr Hu said he believed it would be a long time before the yuan - or renminbi (RMB) - was accepted as a global currency.

"China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development," he said.

"But making the RMB an international currency will be a fairly long process."

Some economists suggest that China's growth strategy - with its focus on exports and state-led investment - may be incompatible with Mr Hu's currency ambitions.

In order for the yuan to oust the dollar as a global reserve currency, international central banks and investors would need to be able to get their hands on huge amounts of the currency.

Yet neither of the ways in which China could supply the world with more yuan is at all appealing to Beijing, according to Michael Pettis, economist at Beijing University.

He says the country could start running big trade deficits with the rest of the world - just as the US has been doing - and finance them by selling their currency to their trade partners.

Or it could allow foreign investors to pour their money into Chinese financial assets - like shares, bonds or yuan bank accounts - matched by similar Chinese investments in the rest of the world.

But Mr Pettis warns that for the numbers to add up, China would need to do these things on an unprecedented scale, which is likely to be unpalatable to the authorities.

Either of these moves is likely to go with an increase in the yuan's value, making Chinese exporters less competitive.

And they may also fuel speculative asset bubbles in China - something that Beijing has been trying to clamp down on of late.

Sunday, January 16, 2011

Saving The States

This essay by Author Ellen Brown makes the point the Federal Reserve could easily bail out all the various states at minimal cost compared to the amount of money poured down the capitalist rat hole called private banking.
The Federal Reserve was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no “quantitative easing” for municipal governments.

On January 7, according to the Wall Street Journal, Federal Reserve Chairman Ben Bernanke announced that the Fed had ruled out a central bank bailout of state and local governments. "We have no expectation or intention to get involved in state and local finance," he said in testimony before the Senate Budget Committee. The states "should not expect loans from the Fed."

So much for the proposal of President Barack Obama, reported in Reuters a year ago, to have the Fed buy municipal bonds to cut the heavy borrowing costs of cash-strapped cities and states.

The credit woes of state and municipal governments are a direct result of Wall Street’s malfeasance. Their borrowing costs first shot up in 2008, when the “monoline” bond insurers lost their own credit ratings after gambling in derivatives. The Fed’s low-interest facilities could have been used to restore local government credit, just as it was used to restore the credit of the banks. But Chairman Bernanke has now vetoed that plan.

Why? It can hardly be argued that the Fed doesn’t have the money. The collective budget deficit of the states for 2011 is projected at $140 billion, a mere drop in the bucket compared to the sums the Fed managed to come up with to bail out the banks. According to data recently released, the central bank provided roughly $3.3 trillion in liquidity and $9 trillion in short-term loans and other financial arrangements to banks, multinational corporations, and foreign financial institutions following the credit crisis of 2008.

The argument may be that continuing the Fed’s controversial “quantitative easing” program (easing credit conditions by creating money with accounting entries) will drive the economy into hyperinflation. But creating $12.3 trillion for the banks – nearly 100 times the sum needed by state governments -- did not have that dire effect. Rather, the money supply is shrinking – by some estimates, at the fastest rate since the Great Depression. Creating another $140 billion would hardly affect the money supply at all.

Why didn’t the $12.3 trillion drive the economy into hyperinflation? Because, contrary to popular belief, when the Fed engages in “quantitative easing,” it is not simply printing money and giving it away. It is merely extending CREDIT, creating an overdraft on the account of the borrower to be paid back in due course. The Fed is simply replacing expensive credit from private banks (which also create the loan money on their books) with cheap credit from the central bank.

So why isn’t the Fed open to advancing this cheap credit to the states? According to Mr. Bernanke, its hands are tied. He says the Fed lang=EN-US>is limited by statute to buying municipal government debt with maturities of six months or less that is directly backed by tax or other assured revenue, a form of debt that makes up less than 2% of the overall muni market. Congress imposed that restriction, and only Congress can change it.

That may sound like he is passing the buck, but he is probably right. Bailing out state and local governments IS outside the Fed’s mandate. The Federal Reserve Act was drafted by bankers to create a banker’s bank that would serve their interests. No others need apply. The Federal Reserve is the bankers’ own private club, and its legal structure keeps all non-members out.

Earlier Central Bank Ventures into Commercial Lending

That is how the Fed is structured today, but it hasn’t always been that way. In 1934, Section 13(b) was added to the Federal Reserve Act, authorizing the Fed to “make credit available for the purpose of supplying working capital to established industrial and commercial businesses.” This long-forgotten section was implemented and remained in effect for 24 years. In a 2002 article called “Lender of More Than Last Resort” posted on the Minneapolis Fed’s website, David Fettig summarized its provisions as follows:

· [Federal] Reserve banks could make loans to any established businesses, including businesses begun that year (a change from earlier legislation that limited funds to more established enterprises).

· Reserve banks were permitted to participate [share in loans] with lending institutions, but only if the latter assumed 20 percent of the risk.

· No limitation was placed on the amount of a single loan.

· A Reserve bank could make a direct loan only to a business in its district.

Today, that venture into commercial banking sounds like a radical departure from the Fed’s given role; but at the time it evidently seemed like a reasonable alternative. Fettig notes that “the Fed was still less than 20 years old and many likely remembered the arguments put forth during the System's founding, when some advocated that the discount window should be open to all comers, not just member banks.” In Australia and other countries, the central bank was then assuming commercial as well as central bank functions.

Section 13(b) was repealed in 1958, but one state has kept its memory alive. In North Dakota, the publicly owned Bank of North Dakota (BND) acts as a “mini-Fed” for the state. Like the Federal Reserve of the 1930s and 1940s, the BND makes loans to local businesses and participates in loans made by local banks.

The BND has helped North Dakota escape the credit crisis. In 2009, when other states were teetering on bankruptcy, North Dakota sported the largest surplus it had ever had. Other states, prompted by their own budget crises to explore alternatives, are now looking to North Dakota for inspiration.

The “Unusual and Exigent Circumstances” Exception

Although Section 13(b) was repealed, the Federal Reserve Act retained enough vestiges of it in 2008 to allow the Fed to intervene to save a variety of non-bank entities from bankruptcy. The problem was that the tool was applied selectively. The recipients were major corporate players, not local businesses or local governments. Fettig writes:

Section 13(b) may be a memory, . . . but Section 13 paragraph 3 . . . is alive and well in the Federal Reserve Act. . . . [T]his amendment allows, "in unusual and exigent circumstances," a Reserve bank to advance credit to individuals, partnerships and corporations that are not depository institutions.

In 2008, the Fed bailed out investment company Bear Stearns and insurer AIG, neither of which was a bank. John Nichols reports in The Nation that Bear Stearns got almost $1 trillion in short-term loans, with interest rates as low as 0.5%. The Fed also made loans to other corporations, including GE, McDonald’s, and Verizon.

In 2010, Section 13(3) was modified by the Dodd-Frank bill, which replaced the phrase “individuals, partnerships and corporations” with the vaguer phrase “any program or facility with broad-based eligibility.” As explained in the notes to the bill:

Only Broad-Based Facilities Permitted. Section 13(3) is modified to remove the authority to extend credit to specific individuals, partnerships and corporations. Instead, the Board may authorize credit under section 13(3) only under a program or facility with “broad-based eligibility.”

What programs have “broad-based eligibility” isn’t clear from a reading of the Section, but long-term municipal bonds are evidently excluded. Mr. Bernanke said that if municipal defaults became a problem, it would be in Congress’ hands, not his.

Congress could change the law, just as it did in 1934, 1958, and 2010. It could change the law to allow the Fed to help Main Street just as it helped Wall Street. But as Senator Dick Durbin blurted out on a radio program in April 2009, Congress is owned by the banks. Changes in the law today are more likely to go the other way. Mike Whitney, writing in December 2010, noted:

So far, not one CEO or CFO of a major investment bank or financial institution has been charged, arrested, prosecuted, or convicted in what amounts to the largest incident of securities fraud in history. In the much-smaller Savings and Loan investigation, more than 1,000 people were charged and convicted. . . . [T]he system is broken and the old rules no longer apply.

The old rules no longer apply because they have been changed to suit the moneyed interests that hold Congress and the Fed captive. The law has been changed not only to keep the guilty out of jail but to preserve their exorbitant profits and bonuses at the expense of their victims.

To do this, the Federal Reserve had to take “extraordinary measures.” They were extraordinary but not illegal, because the Fed’s congressional mandate made them legal. Nobody’s permission even had to be sought. Section 13(3) of the Federal Reserve Act allows it to do what it needs to do in unusual and exigent circumstances to save its constituents.

If you’re a bank, it seems, anything goes.

So Who Will Save the States?

Highlighting the immediacy of the local government budget crisis, The Wall Street Journal quoted Meredith Whitney, a banking analyst who recently turned to analyzing state and local finances. She said on a recent broadcast of CBS's "60 Minutes" that the U.S. could see "50 to 100 sizable defaults" in 2011 among its local governments, amounting to "hundreds of billions of dollars."

If the Fed could so easily come up with 12.3 trillion dollars to save the banks, why can’t it find a few hundred billion under the mattress to save the states? Obviously it could, if Congress were inclined to put non-bank lending back into the Fed’s job description. Then why isn’t that being done? The cynical view is that the states are purposely being kept on the edge of bankruptcy, because the banks that hold Congress hostage want the interest income and the control.

Whatever the reason, Congress is standing down while the nation is sinking. Congress must summon the courage to take needed action; and that action is not to impose “austerity” by cutting services, at a time when an already-squeezed populace most needs them. Rather, it is to create the jobs that will generate real productivity. To do this, Congress would not even have to go through the Federal Reserve. It could issue its own debt-free money and spend it on repairing and modernizing our decaying infrastructure, among other needed works. Congress’ task will become easier if the people stand with them in demanding action, but Congress is now so gridlocked that change may still be long in coming.

In the meantime, the states could take matters in their own hands and set up their own state-owned banks, on the model of the Bank of North Dakota. They could then have their own very-low-interest credit lines, just as the Wall Street banks do. Rather than spending or selling off valuable public assets, or hoarding them in massive rainy day funds made necessary by the lack of ready credit, states could LEVERAGE their assets into a very strong and abundant local credit system, following the accepted business practices of the Wall Street banks themselves.

Friday, January 14, 2011

Ending The Empire

This essay by Nathan Diebenow of Raw Story talks unambiguously about cutting on of the three untouchable legs supporting the US Empire. Social Security and Medicare spending are coming in for a shellacking to deprive us of social welfare support, scare us and keep us compliant. I suppose it's only fair someone speaks up about wasting billions killing people in places we cannot even name.

The Obama administration's $78 billion cut to US defense spending is a mere "pin-prick" to a behemoth military-industrial complex that must drastically shrink for the good of the republic, a former Reagan administration budget director recently told Raw Story. "It amounts to a failed opportunity to recognize that we are now at a historical inflection point at which the time has arrived for a classic post-war demobilization of the entire military establishment," David Stockman said in an exclusive interview.

"The Cold War is long over," he continued. "The wars of occupation are almost over and were complete failures -- Afghanistan and Iraq. The American empire is done. There are no real seriously armed enemies left in the world that can possibly justify an $800 billion national defense and security establishment, including Homeland Security." Short of that, he suggested, the United States has "reached the point of no return" with its artificial creation of wealth, and will eventually face a sharp economic decline.

Stockman last fall criticized the extension of the Bush tax cuts while the federal government continued to borrow money abroad to pay for its public welfare and warfare programs. His solution to deficit spending -- a huge across-the-board tax increase -- is contrary to the current anti-tax ideology shared among tea party activists as well as fiscal conservatives in the Republican Party.

Stockman, who was appointed by President Ronald Reagan in 1981 to run the Office of Management and Budget, offered two models for the US military's compulsory demobilization: the one after World War I in 1920 and the one after World War II in 1946. Calling today's military spending running at 5.4 percent of GDP "simply an absurd level that begs for radical contraction and surgery," he said that a "reasonable target" to shrink the defense establishment would be 3 percent of GDP by 2015.

What budget cuts?
Republicans, who were elected to a majority in the House of Representatives on promises to cut government spending, promised to cut $100 billion from the budget in their first year. Relatively few have proposed significant decreases in defense spending, and GOP leadership has outright dismissed the possibility. Some prominent members of the House GOP caucus have even suggested the sum of their austerity measures could fall to only $30 billion, if that.

Republicans in Congress have instead championed their success in extending President George W. Bush's tax cuts for the wealthiest Americans. The Congressional Research Service reported that extending debased tax rates to the wealthy will add an additional $5.08 trillion to the US deficit over the next 10 years. The Bush-era tax rates that Republicans had set to expire were continued for another two years in a legislative compromise that cleared the way for a series of Democratic legislative victories in Congress. President Obama vowed to press the issue again in 2012.

Among their first actions as the House majority, Republicans also pushed for a repeal of President Obama's health care reform laws, even as the Senate's Democratic majority vowed to block the measure. Repeal of the laws would cost an additional $230 billion, according to the Congressional Budget Office (PDF), and would likely drive the number of uninsured Americans to over 54 million by 2019. But with the US national debt ballooning past $14 trillion in recent days, even a debasement of the military-industrial complex might be too little, too late.

Some analysts have warned the next debt crisis could be municipal bonds, where a $2 trillion market bubble currently exists. One, who correctly predicted the Citigroup credit crunch, even suggested that over 100 US cities may default in the process. But very few, if anyone, in Congress, the National Security Council, the State or Defense Departments have even dared to publicly raise the prospect of reducing the military establishment and its spending to offset the national debt, Stockman said.

"Unless you have a profound change in foreign policy, you're not going to have the possibility of a radical change in defense spending. The later follows from the former," he said. "This is a profound disappointment that there's not even a debate -- a serious debate about dramatic change in our imperialist foreign policy and war-making establishment in this administration -- allegedly the most left-wing administration that we've had in modern time." "I don't have much hope that what needs to be done will be done until it's finally forced on us by a world bond market crisis, which will happen sooner or later," Stockman added.

The 'Ponzi scheme' of 'artificial prosperity'
Stockman, who described himself as a libertarian during a recent interview with, told Raw Story that the economy got into this mess because of the public and private sectors' addiction to "guns and butter Keynesianism," an economic policy that amounts to a Ponzi scheme that has ballooned since 1990. "If we see what's going on carefully, we've reached the final unmasking of the Keynesian illusion, that Keynesianism is really nothing but borrowing, stealing from the future to induce consumption today," he said. "There are no multipliers. Every one of these programs we've had from 'cash for clunkers' to housing purchase credits have disappeared as soon as they expired and simple shifted activities in time by a few months."

Stockman explained that before 1980, it took about $1.50 of new borrowing -- public or private -- to generate $1 of GDP growth. By the mid-1990s, it was $2.50 or $3 of borrowing for a $1 of GDP growth. By 2007, before the big collapse and meltdown finally came, $7 of public and private debt was added to the national balance sheet in order to get $1 of GDP growth. "When you get to the point of $7 of borrowing to get $1 of income, you're obviously on an unsustainable path and pretty close to hitting the wall, which more or less we have," he said.

"So the addicts in Washington are now unfortunately terrified to stop all this borrowing whether it's for guns or butter for fear of the economy will collapse.... That's why we're just at the beginning of solving this massive financial collapse we had in 2008 and not in the process of healthy recovery as some of the pals in the White House or on Capitol Hill or on Wall Street would have you believe."

America's "massive debt-created, artificial prosperity" is unprecedented in history, he continued. The dependence on consumption supported by public and private borrowing, not income, is a new stage for Western Europe as well. A global public debt crisis was inevitable and likely unstoppable, given the political conditions, Stockman added. "We've reached a point of no return. The size of the government. The massive size of the deficits and the national debt that has been created. The precedents that have been established for bailouts and intervention in every sector of the economy. The K Street lobbying system which totally dominates the Congress. All of these are very unhealthy developments.

"And I'm not sure how they are going to be reversed or eliminated," he concluded. "It may be a permanent way of life. Then, if it is, it'll be both a corruption of democracy and a serious weakening of the private capitalistic economy."

Thursday, January 13, 2011

Extend And Pretend.

This article was sent to me by a reader from the website and I rate it quite excellent not only because I share the conclusions but because it explains our national predicament in a way that is clear, easy to understand and compeltely logical. The original articelk goes on to suggest that the author can help a reader to invest in ways to avoid the coming catastrophe. Check the website for that, if you still have money you can afford to leave with strangers for promises of future profits. My friends tell me I am an omen of unmitigated gloom and doom with no cause: they insist this is just a downturn in the business cycle and it will in due course right itself. I disagree but am learning to keep my own counsel. In this pages I would just like to leave a record of my deep unease, but I am always aware of the weight of politics in these matters. Economies are not motivated just by economics- the will and wishes of the leadership count for so much more, and here in the US we appear to be led by people who know and understand that they have lost control and are simply hoping everyone else crashes before we do. They call it extend and pretend. Here's how it's done:

The real US unemployment rate is not 9.8% but between 25% and 30%. That is a depression level of job losses - so why doesn't it look like a depression for many people? How can so large of a statistical discrepancy exist, and how is it that holiday shopping malls are so crowded in a depression?

The true devastation is hidden by essentially placing the job losses inside three different "boxes": the official unemployment box, the true full unemployment box, and most importantly, the staggering and persistent private sector job loss box that has been temporarily covered over by a fantastic level of governmental deficit spending. The "recovering and out of the recession" cover story is only plausible when nobody connects the dots and adds all the boxes together.

We will add together the three boxes herein - using US government statistics for all three - and convincingly show that the US economy is in far worse condition than what is presented by the government or by the mainstream media. No, we have not emerged from "recession" and there will be no "double dip" - because the first "dip" was straight down to a depression-level economy in 2008/2009, and we haven't come back up.

Creating artificial "free money" on a massive scale that artificially boosts short-term employment is how you segment depression level unemployment into the separate boxes and hide what is really happening. It is this radical strategy that most distinguishes the current downturn from the 1970s and 1930s. The ultimate source of most of the current "free money" that hides the depression is the government risking the impoverishment of US savers and investors for potentially decades to come, with the worst of the damage concentrated on retirees and Boomers.

To have a chance of defending your hoped-for future lifestyle, there is simply no substitute for seeing the truth clearly. For it is only when we see through the lies with clarity that we can distinguish the false opportunity of manipulated markets from the real opportunities that can be found in unexpected places.
The graph above is our starting point and first "box". It is the "headline" rate of unemployment in the US that is featured in newspaper articles and discussed on the cable business news. As of November 2010 the official US unemployment rate was 9.8%. While that's deeply painful, and unemployment rates since 2008 have been the highest seen since the end of the Great Depression (with the exception of the 10.8% peak in 1982), 9.8% is not a depression level unemployment rate.As economists and political decision makers know quite well, the "official" unemployment rate is not the full rate of US unemployment. The "official" rate is technically known as the U3 rate of unemployment, and it is a politically advantageous partial accounting for the unemployed. The U.S. Bureau of Labor Statistics calculates unemployment 6 different ways, U1-U6, and it is only in the U6 statistic that all the categories of unemployment are added together.

The two biggest differences between the U3 official rate of unemployment and the U6 full rate of unemployment are in the treatment of the long-term unemployed and involuntary part-time workers. If you've been out of work for a long time, you badly want a job, but you know from your long search that nobody in your area is hiring; you already have applications on file at every reasonable prospect, and you haven't filled out a new application recently - then from an official perspective (U3), you are not only no longer unemployed, you just became a non-person altogether. Alternatively, if you have a master's degree in engineering, lost your job, and are working 15 hours a week (the most you can get) in a convenience store at minimum wage to keep a little money coming in, then from an official (U3) perspective you would be fully employed. In contrast, U6 is the most inclusive measure of unemployment, as it includes both the long-term unemployed and the involuntary part-time categories. Thus, individuals in each of the situations described above would be included in the U6 measure.

The green bar segment in the graph above illustrates what happens when we look at the full, U6 measure of unemployment as reported by the U.S. Bureau of Labor Statistics for November of 2010. Our unemployment rate almost doubles, as we go from 9.8% to 17% of the civilian work force being unemployed. The real unemployed go from one in ten workers, to one in six workers. The difference between a just-under-10% unemployment rate and a close to 20% rate of unemployment is the difference between recession and depression.

Unfortunately, there is more in the mix than simple unemployment statistics, and when we look inside the "third box" in the next section, we will see that the economic situation is not a mild depression, but rather a full blown major depression.

(To try to prevent a flood of corrective e-mails from readers, let me state that the challenge I set for myself in writing this article was to illustrate what was happening using only official US government numbers. Meaning, in my opinion, using unreliable and deliberately misleading numbers that have been subjected to increasing degrees of political manipulation over the decades. I have been writing articles for years that have discussed increasing government manipulation of inflation statistics, and am well aware of the work of John Williams and others in trying to independently determine genuine inflation and unemployment rates. I personally believe that the real inflation and unemployment rates are substantively higher that what is being reported to us, and that the real U6 measure is likely 20% or above.

That said, I wanted to separate the concept of the three boxes from the concepts of statistical manipulation, so there were no distractions for a reader who was skeptical about manipulations, i.e. whether the US government would abuse the fine print of economic statistics to mislead its citizens for political purposes. If you have no trouble accepting that the government manipulates statistics for political advantage, then understand that the situation is significantly worse than what is illustrated herein.)

The Gaping Hole In The Economy
To see what a real depression looks like, take a long look at the graph below, which shows what happened to the US economy between 2007 and 2009. As shown with the blue bars and the chart below the graph, the size of the US private sector economy plunged by $1.3 trillion - and it hasn't come back.Yet, we don't see the full extent of this plunge around us on the streets or in the headlines. Indeed, despite this ongoing, gaping hole in the US economy, the official story is that the US isn't even in a recession. What happened to all of the job losses from this rapid and persistent collapse of a large section of the US private economy? The answers can be found in the red and yellow bars above, representing Federal government spending and state and local government spending. Federal spending rose by $700 billion, and state and local government spending rose by $300 billion. (With the state and local spending being funded by Federal government transfers that have been netted out, so it is really almost all growth in Federal spending.) The private economy plummeted by $1.3 trillion while the government economy soared by $1 trillion, and we were left with what looks like a much more manageable $300 billion shrinkage, the kind of economic change that might be associated with a 9.8% official unemployment rate. In other words, a little over 75% of the collapse in the private economy was (and is) being covered by increased government spending. As shown in the graph above, there has been a radical shift in the composition of the US economy with the government share of the economy leaping from 35% to 43%. This is perhaps the most rapid and greatest change in the fundamental nature of the US economy since World War II - yet there has been remarkably little discussion of the full consequences.

The US government has fantastically increased its spending relative to the overall economy, but the government's sources of revenues haven't increased. The target of this spending has been the "Third Box" - the covering over of real, persistent and massive private sector job losses through creating what are effectively artificial short-term jobs, originally paid for by ramping up the deficit at a fantastic rate, with the covering over now being funded by the creation of new money from thin air.
What happens if we add the real, full U6 unemployment rate of 17% to the hole in the private economy that is currently being covered by the government's spending money it doesn't have? The simplest approach is to say that 9% of the US economy is manufactured money that's funding government deficits, and if we didn't create artificial money to fund artificial jobs, then that 9% of the economy implodes. If 9% of the economy abruptly disappears, there goes 9% of the jobs as well, so the unemployment rate would immediately jump by another 9%. There are a staggering number of simplifications involved in this approach, but it's not a bad approximation for illustration and discussion purposes within a short article.

Add 17% and 9%, from two different US government sources, and we have 26% real unemployment right there. That is, if the Federal Reserve were not manufacturing money out of the nothingness to fund government spending without limits - at grave peril to all savers and investors - then it would be fair to say that the US would be at a 26% unemployment rate. This is slightly higher than the peak 25% unemployment rate in 1933, during the worst part of the US Great Depression.

Unfortunately, it is likely worse than even that. There is a multiplier effect when it comes to employment, and if we drop 9% of the economy, the support jobs that are created to serve the people who make up that 9% go away as well. We also need to allow for more government manipulation of inflation statistics, which creates a little greater economic loss picture, and in total, arguably, if we look at the real private sector right now, and we set aside jobs funded by monetization, we're at a real unemployment rate of over 30%. And if we were to end the deficits and the assault on the value of the US dollar, and the US government only spends what it could take in - we would be at that 30%+ level almost instantaneously.

Hiding The Depression Through Impoverishing Boomers, Retirees & Other Savers

Many people, looking at what has just been presented, would see this as being a major reason to keep that deficit spending right up there and maybe even get more aggressive about it. This is indeed the position of many politicians and pundits, as well as a number of mainstream economists. Unfortunately, there is a double problem with this approach: there's no indication that it's working other than as a short term band-aid, and the cost of the "band-aid" risks wiping out the value of money, savings and investment on a nationwide basis.

Fundamentally, we haven't seen the benefits to the private sector of the economy that pays for everything else, including the real US standard of living. Oh, there are a lot of claims floating around that the private economy is rebounding fast, and in some individual sectors, that is true. But there is an elementary reasonableness check that we can use to see if this is true for the nation as a whole.

The total economy is the sum of the private and public sectors. If the private sector were indeed recovering rapidly, and recapturing much of the lost "real" private jobs (not dependent on government spending), while government spending didn't change, then the overall size of the economy should be soaring when we add private and public sectors together. That isn't happening, however. Now, if government stimulus efforts were truly working and this was leading to snowballing growth in the private economy, which then allowed the government "Keynesian" stimulus to be gradually withdrawn, then the size of the economy would remain roughly the same, while government deficits and the government share of the economy would be falling rapidly, dollar for dollar with the rise of the private economy. But that isn't happening either. The deficits are larger than ever, and the government share of the economy isn't shrinking.

If we pull away all of the massive government spending that has funded the "Third Box" of containing unemployment, then as the walls fall down and the Third Box collapses, all the newly unemployed flow over to the 1st and 2nd boxes, true comparability with the 1970s and 1930s is restored, and we have an obvious depression-era level of unemployment all around us. So with two years of extraordinary government deficits representing almost 10% of the US economy per year - we still haven't solved the problem, and we get the same dismal outcome if the emergency measures were to be withdrawn.

The problem with this seemingly endless supply of "free money" is that there truly is no such thing as free money, as responsible economists have understood for many centuries. If you could just create trillions out thin air and pass it around to politically favored special interests like it was candy - common sense would indicate that every government in the world would be doing it as a matter of official policy. If governments could skip the unpleasantness of having to pay for spending through taxation, and instead just spend free money at will with no devastating side effects - then every government on the planet would have been doing this exact program for centuries. The fact that responsible governments don't do this is a very simple reality check on the irresponsibility of the Federal Reserve and the US government's attempts to hide the true state of the economy through deficit spending that is funded by the reckless creation of vast amounts of new money.

In pursuing this process however, we have passed the point where it is reasonable for the free market to support the US government's endless spending - at least, at current interest rate levels. So the federal government, in a move that has the convenient side effect of dropping the value of the US dollar and making the US economy more competitive (at great cost for older Americans), is currently manufacturing about thousand dollars per month, per American household, directly out of the nothingness and injecting it into the US economy to try to cover this gap. As I cover in detail in my article "Bullets In The Back: How Boomers & Retirees Will Become Bailout, Stimulus & Currency War Casualties", the direct cost of this strategy of masking the hole in the real economy for a few years is the annihilation of the value of decades of earnings for tens of millions of good hard-working Americans, who have done nothing wrong.

Cover-Ups & The Perils Of Artificial Employment
The current economic situation in the United States is a fantastic one. The "respectable" mainstream economists, politicians and journalists not only failed to see this coming - but would have ridiculed the very idea that something like this could happen. Yet, here we are. The US government is covering up a gaping hole in the private economy by having the Federal Reserve manufacture money out of thin air at a rate of over $100 billion a month, so that Congress can pass that money out to favored political interests on a congressional district basis. Thirteen percent of the US private sector economy collapsed in a matter of months - and it hasn't come back. This is covered over by the Federal Reserve creating about as much new money every six months, as total US physical dollars in circulation after 230 years (roughly $700 billion). The possibility is raised by rating agencies and the International Monetary Fund of the US government defaulting on its soaring debts. (Though payment by inflation is far more likely than actual default.)

Yet, these same mainstream economists, politicians and journalists insist there is nothing extraordinary going on, that this is just another economic rebound from yet another recession. There is support for this viewpoint, not just in carefully selected official economic statistics, but in the real world bottom line of holiday shopping and sales. Depressions evoke images of bread lines, not circling the mall and following other shoppers out to their cars, hoping to snag a parking spot. So, from the perspective of the average American (at least the purported five of six who are still employed) this doesn't look like a depression at all.

Creating a plausible surface that is different from the fundamental underlying reality requires splitting this extraordinary state of affairs into separate boxes, and stating that by definition the boxes are independent of one another. There are "lies, damn lies & statistics", and statistical manipulation allows the widespread reporting to the minority of the population who reads the paper and watches the news, that unemployment is still just under 10%. Sure, the well informed know better - but what percentage of the general population understands the difference between the U3 and U6 measures of unemployment, and why the true rate is closer to 20%?

However, the very heart of the intellectual deception is to take the fantastic and unprecedented, government actions we have never seen before in our lives, and use these actions on a massive scale to create a third box: the artificially employed. By definition, any reasonable person knows that an employed person is not an unemployed person, so this split into the third box, would seem eminently rational and even a very good idea, almost unassailable from a conventional perspective.

Until we remove the fantastic and unprecedented. Without the step of using the massive and direct creation of money to support government deficits to artificially create jobs - the third box of artificial employment collapses. We go from 1 in 10 workers unemployed (1st box), to 1 in 6 (2nd box) to 1 in 4 (3rd box), and it is straight-up depression level unemployment in a matter of weeks or months.

The current government approach is a lose-lose proposition that temporarily covers up failure at the cost of impoverishing tens of millions of Americans over the long term, particularly retirees and Boomers. The danger is that the value of the dollar plummets, wiping out the value of a lifetime of savings and investment for most of the nation, but the hole in the economy will still be there, the "third box" will still collapse, and unemployment will still surge.

We go from having jobs and savings, to temporarily covering up job losses by setting in motion a process that destroys the value of savings, and then we end with having neither jobs nor savings.

It is only real fundamental growth and real fundamental change that will bring the US private economy out of that hole. The worst of the current policy is that it provides political cover for extending failed policies, which gives little incentive for finding the desperately needed alternative policies that might actually work. It has been more than two years - and the hole in the economy is still there. The distribution of borrowed and/or manufactured money by the leaderships of both major US parties to politically favored special interest groups on a congressional district basis - is demonstrably not growing the real economy.

Wednesday, January 12, 2011

Social Disintegration

I am very fond of Ambrose Evans-Pritchard of Britain's right wing Daily Telegraph newspaper. He frequently goes against the current of main stream thinking and backs his opinions with numbers. His analysis here bodes no good for many Americans.

The US is drifting from a financial crisis to a deeper and more insidious social crisis. Self-congratulation by the US authorities that they have this time avoided a repeat of the 1930s is premature.

There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America’s poorer half rose just 1.2pc. Tiffany’s, Nordstrom, and Saks Fifth Avenue are booming. Sales of Cadillac cars have jumped 35pc, while Porsche’s US sales are up 29pc. Cartier and Louis Vuitton have helped boost the luxury goods stock index by almost 50pc since October. Yet Best Buy, Target, and Walmart have languished.

Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs. Yet surely Ben Bernanke’s `trickle down’ strategy risks corroding America’s ethic of solidarity long before it does much to help America’s poor.

The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards – not stamps -- currently worth about $140 a month under President Obama’s stimulus package. The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.

Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell from 9.7pc to 9.4pc was that so many people dropped out of the system altogether. The actual number of jobs contracted by 260,000 to 153,690,000. The "labour participation rate" for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).

"Corporate America is in a V-shaped recovery," said Robert Reich, a former labour secretary. "That’s great news for investors whose savings are mainly in stocks and bonds, and for executives and Wall Street traders. But most American workers are trapped in an L-shaped recovery." It is no surprise that America’s armed dissident movement has resurfaced.

For a glimpse into this sub-culture, read Time Magazine’s "Locked and Loaded: The Secret World of Extreme Militias". Time’s reporters went underground with the 300-strong `Ohio Defence Force’, an eclectic posse of citizens who spend weekends with M16 assault rifles and an M60 machine gun training to defend their constitutional rights by guerrilla warfare. As it happens, I spent some time with militia groups across the US at the tail end of the recession in the early 1990s. While the rallying cry then was gun control and encroachments on freedom, the movement was at root a primordial scream by blue-collar Americans left behind in the new global dispensation. That grievance is surely worse today.

The long-term unemployed (more than six months) have reached 42pc of the total, twice the peak of the early 1990s. Nothing like this has been seen since the World War Two. The Gini Coefficient used to measure income inequality has risen from the mid-30s to 46.8 over the last quarter century, touching the same extremes reached in the Roaring Twenties just before the Slump. It has also been ratcheting up in Britain and Europe.

Raghuram Rajan, the IMF’s former chief economist, argues that the subprime debt build-up was an attempt – "whether carefully planned or the path of least resistance" – to disguise stagnating incomes and to buy off the poor. "The inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly," he said.

Bank failures in the Depression were in part caused by expansion of credit to struggling farmers in response to the US Populist movement. Extreme inequalities are toxic for societies, but there is also a body of scholarship suggesting that they cause depressions as well by upsetting the economic balance. They create a bias towards asset bubbles and overinvestment, while holding down consumption, until the system becomes top-heavy and tips over, as happened in the 1930s.

The switch from brawn to brain in the internet age has obviously pushed up the Gini count, but so has globalization. Multinationals are exploiting "labour arbitrage" by moving plant to low-wage countries, playing off workers in China and the West against each other. The profit share of corporations is at record highs across in America and Europe. More subtly, Asia’s mercantilist powers have flooded the world with excess capacity, holding down their currencies to lock in trade surpluses. The effect is to create a black hole in the global system.

Yes, we can still hope that this is a passing phase until rising wages in Asia restore balance to East and West, but what it if it proves to be permanent, a structural incompatibility of the Confucian model with our own Ricardian trade doctrine? There is no easy solution to creeping depression in America and swathes of the Old World. A Keynesian `New Deal’ of borrowing on the bond markets to build roads, bridges, solar farms, or nuclear power stations to soak up the army of unemployed is not a credible option in our new age of sovereign debt jitters. The fiscal card is played out.

So we limp on, with very large numbers of people in the West trapped on the wrong side of globalization, and nobody doing much about it. Would Franklin Roosevelt have tolerated such a lamentable state of affairs, or would he have ripped up and reshaped the global system until it answered the needs of his citizens?