Robert Reich on Obama's Centrism

If you widen the lens, the public is being sold a big lie — that our problems owe to unions and the size of government and not to fraud and deregulation and vast concentration of wealth. Obama’s failure is that he won’t challenge this Republican narrative, and give people a story that helps them connect the dots and understand where we’re going.

- Robert Reich, UC Berkeley Professor, "Obama the Centrist Irks a Liberal Lion"

Jobs? What Stinkin' Jobs?

A week ago the US government published statistics, which state that the US economy added 162,000 jobs in March.  The conventional propagandists make the absurd claim that the recession is over and that the Gilded age can continue again without interruption.   A huge hurrah could be heard in the financial district of New York as the DJI passed the 12 thousand mark; a level it hasn't reached since June 2008.  Once again, the divide between reality and Dr. Greenspan's imaginarium of useless financial gimmickry grows even larger.  An emerging view that has now become nearly axiomatic amongst those of us in the reality-based sciences, is that the study of economics has become little more than an ideological handmaiden to political forces and is polluted to the point of uselessness.

Those economists, on the other hand, who have been constantly critical of both the Bush and Obama administrations economic dissembling and the "green-sprouts" argument, have noted their objections to the over-simplified and intellectually dishonest statements of their peers who claim that the US economy is on the mend and jobs will soon abound.

Robert Reich, Dean Baker, and Mark Thoma, to name a few, outline the situation:

• The positive news is that manufacturing has shown a brief but constant uptick in jobs over the past few months in the USA.  A total of 45,000 jobs since December 2009.  However, future growth is likely to be anemic.
• The US census bureau added at least 48,000 new jobs for the 2010 census in March.  As many as a million jobs will be added alone for this endeavor in the following months. These jobs are temporary and only provide a short-term solution to those who are chronically unemployed; however.
• Since the inception of the Great Recession, the US economy has lost 8.4 million jobs and failed to create an additional 2.7 million necessary as per population growth.  Thus, a total of at least 11 million jobs have either disappeared or failed to materialize.
• Many of the jobs that have been lost were in construction, mortgage banking, appraisal, financial and legal services associated with the bubble market, and manufacturing.  Most of these service oriented jobs will not return and in the case of manufacturing, are permanently lost as long as the Chinese retain their slave-labor policies and currency manipulation practices.
• State and local governments have shed 72,000 jobs since December, or 24,000 a month.  A trend that will accelerate as the federal stimulus program weans and state revenues continue to slump.
• The federal government's spending on last year’s domestic stimulus is still near its peak, and the Fed continues to hold down interest rates.  Without these two factors, there would be no job growth to report.
• Nominal wages fell in March for the sixth time since 1964. Dean Baker states that, "This is not a good sign for future income growth."
• Consumer debt remains high, with those who are employed saving and paying off existing debts rather than engaging in further purchases.  If there is a permanent change in consumer demand, no recovery to pre-recession levels of economic activity will occur in the near future.

The obvious question that remains is what has the US government or the Fed done to prevent the big banks, which are now bigger than they ever were and were at the center of this recession, from engaging in the same activities that led to this current economic collapse?  Nothing.

52 Weeks After the Meltdown

By law of periodical repetition, everything which has happened once must happen again and again -- and not capriciously, but at regular periods, and each thing in its own period, not another's and each obeying its own law.

- Mark Twain

We have become our own Greek tragedy, blinded by hubris and unwilling to understand that we are but permutations in time; whether it is in our genes or our empires. As a civilization we should realize, if history is to teach us anything, that this is the moment of our great undoing, for it has happened before, and we know it will happen again. Below is a summation of recent articles issued this past month discussing the fall of Lehman Brothers and the pertinacious crisis of capitalism.

The Economist
"Unnatural Selection: Wall Street and the City of London survived thanks to state support. Now they need to be weaned off it"
"The Promised Bland: One year after Lehman Brothers collapsed"
"What If?" an examination of what could have occurred if Lehman's didn't go bankrupt.

The NY Times
Has an entire section dedicated to the financial crisis. Some of the better reads are:
Alex Berenson "A year later, little change in Wall St."
Robert Frank "Flaw in free markets: Humans"
Paul Krugman "How Did Economists Get It So Wrong?"

The Financial Times
FT also has an extensive coverage section that details the crisis at different levels.
Niall Ferguson does his best imitation of an contrarian in,"Why a Lehman's Deal would not have saved us"
Martin Wolf "Do not learn wrong lessons from Lehman’s fall"

The Globe and Mail
A timeline of the events is described in "Lehman Brothers: one year later"
Sinclair Stewart "The day everything - and nothing - changed." The story remains the same, as it is a story of men empty of decency, moral strength, and even humanity.

Business Week
BW also has a reasonable section discussing the financial crisis one year later. Unfortunately those who need to learn most, will not be interested.

Der Spiegel (International edition) has a solid set of articles on the failures and return of American inspired Casino-Capitalism. Those who know about defeat that arises from hubris should be listened to.

Ralph Nader, who predicted this entire fiasco more than a decade ago has a commentary on the return of casino capitalism in, "Rolling the Dice Again" Ignore at your own peril.

Robert Reich, former Sectatary of Labor in the first Clinton Admin. and constant critic of unregulated laissez-faire capitalism counters in his blog, "The Continuing Disaster of Wall Street, One Year Later."

Pushing the String: Understanding the Economic Data

Throughout the month of July, I attempted to evaluate a number of the more outlandish claims that were being circulated about the global economy and where we were are all heading. I focused on the failures of economists to predict and recognize the depth of the current recession; I summarized persisting structural problems specifically in the US market here; the rapacious greed and fraudulence exhibited by the investment banks here and here; and the role that China continues to play in this global debacle here.

Over the past couple of weeks, economists and headlines have been 'richly' stating that, "The economy is starting to grow again in the current quarter, setting up a long-awaited recovery." US commerce department is stating that in the Q2 that the economy contracted at a 1% rate, compared to the 6.4% rate in the previous quarter. The improvement is claimed to be due to an "11 per cent boost in federal government spending, along with a more modest decline in exports, down 7 per cent, compared with a 30 per cent drop in the first quarter."

The major stock markets experienced gains stemming from the continuing, "Stream of earnings reports that have come in ahead of analysts' estimates." Additionally, the number of US workers filing new claims for state jobless benefits rose last week; however, they remain below peak levels reached in the spring of this year.

Experts are contending that the worst is over for the US housing market too.

By every measure, except foreclosures, the housing market has stabilized and many areas are recovering, according to a spate of data released in the past two weeks. Nationwide, home resales in June are up 9 percent from January, on a seasonally adjusted basis. Sales of new homes have climbed 17 percent during the same period. And construction, while still anemic, has risen almost 20 percent since the beginning of the year.

All this should seem wonderful news to businesses and consumers across America; but it isn't.

The Q2 corporate profits and stock market surge are not based upon consumer demand of products and services, which remains sluggish, but on companies dramatically cutting costs and most notably, payroll cuts. As Robert Reich states, "If a firm cuts its costs enough, it can show a profit even if its sales are still in the basement." In this context, the profits are momentary and not subject to replication.

June jobless rate reached 9.5%, the highest since 1983. Additionally,

the rolls of the long-term unemployed are growing, with 29% of the jobless out of work for more than 26 weeks, the most since records began in 1948. A broader measure of underemployment that includes those who want full- time positions but work part-time has almost doubled over the past two years, to 16.5%." The U.S. consumer "clearly is not going to be the consumption animal that he was for the last 10 or 20 years," Joshua Shapiro, chief U.S. economist at MFR Inc. in New York, said in a July 6 interview with Bloomberg radio.

My post below by Floyd Norris, at the NY Times, clearly shows that suggestions of a housing upswing are in the making are misleading and not necessarily indicative of any long-term positive trends in the market.

The unfortunate reality is that economies and consumers are governed by irrationality, greed, and panic. The psychological determinant is also why governments constantly under-report the severity of an economic crisis. Hence, with that in mind, the announcements made in the past couple of weeks attempt to provide a glimmer of improvement to the public with the overt insinuation that they also represent indices of future prosperity. National Banks, federal governments, and investors eagerly wish that the consumer, instead of hoarding his or her cash, resumes spending; whether it is on homes, cars, or everyday consumables. These entities believe that by prodding "positive thinking" (through fact or fiction) this will instill confidence and public morale, thus leading to increased jobs and an improved economy.

While perceptions may fluctuate, flooding the market with agitprop and attempting to manufacture consent cannot change the harsh reality of this recession. Jobs will continue to be lost, the housing market will not rebound for years, and the real horrors of our leaders economic mismanagement will come to bare next year when the bailout funds disappear and interest rates increase.

Everybody hates Goldman Sachs

“Our model really never changed, we’ve said very consistently that our business model remained the same” - Goldman Sachs CFO

One fine afternoon last October, George W. Bush, in a scene for the history books, tilted over the large oak table in the White House and said to Hank Paulson, "If money isn't loosened up, this sucker is going to go down." The public was told in no uncertain terms that if the American public didn't agree to saving the reptilian army of bankers that had brought about this disaster, that we would all go down with the Titanic. The deal was made, the money transferred, and like children waiting for Santa, the public expected that the banks would begin lending and the economy would right itself. It didn't happen. Instead Goldman Sachs hoarded the cash in their vaults and then disgorged themselves of their nimiety by giving their staff the largest bonus payouts in the firm's 140-year. The company is believed to have paid 973 bankers $1m or more in 2008, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff.

What we now know is that "sucker" as Dubya put it at the time wasn't the US economy or the American public, but rather Goldman Sachs and the pirates of high-capitalism. Matt Taibbi, of Rolling Stone magazine, states that the public was hoodwinked to make a, "Political decision in the middle of an economic crisis to use the state as a crutch to prop up exactly one sector of the economy, and we chose exactly the wrong people."

Robert Reich, former secretary of labor under Bill Clinton, explains that,

Goldman's high-risk business model hasn't changed one bit from what it was before the implosion of Wall Street. Goldman is still wagering its capital and fueling giant bets with lots of borrowed money. While its rivals have pared back risks, Goldman has increased them. And its renewed success at this old game will only encourage other big banks to go back into it...

[That] Goldman has reverted to its old ways in the market suggests it has every reason to believe it can revert to its old ways in politics, should its market strategies backfire once again -- leaving the rest of us once again to pick up the pieces.

Paul Krugman further elaborates that what has been done is not in the public interest and in fact, has created the groundwork for an even greater economic catastrophe in the near future because,

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

Max Keiser, broadcaster, former broker, and options trader, has the harshest and absolute best words I've seen or read in regards to Goldman Sachs,

They are literally stealing a hundred million dollars a day. Goldman Sachs is stealing every day on the floor of the exchange. They should be in the Hague. They should be taken on financial terrorism charges. They should all be thrown in jail.

http://www.zerohedge.com/article/max-keiser-goldman-sachs-are-scum

Would Goldman Sachs still be pulling in record profits if the government didn't bailout AIG, which at the time owed Goldman nearly $20 Billion, or given the fact that the FED gave them another $10 Billion through the TARP program and undefined additional millions (billions?) from other government programs, when the company converted itself to a bank holding company? The latter number is impossible to determine, because Ben Bernanke and the Federal Reserve have refused to disclose this information to the public; the very people who made the loan to these bankrupt bankers and greedheads!

What does this say about the American government or for that matter, Hank Paulson who was then secretary of commerce and former CEO of Goldman Sachs? Clearly, the primary objective of both the Democrats and the Republicans wasn't in getting Americans back to work, but instead in saving their wealthy donors/friends in high places. The banking industry and Goldman Sachs have gamed the system and the entire Bush and Obama administrations are part of this orchestrated fraud. Goldman Sachs has made fools of every tax paying American and are laughing all the way to the...

Economics and The Great Recession

Economists across the world have been grinning from ear-to-ear saying the recession is nearly over, “we’ve past the worst,” and there are clear indicators of improvement. Arguments have been bandied about that tell the greedy and the absent minded that “green-shoots” are rising, the rate of job losses has declined, there are fewer surplus’ to be seen in manufacturing circles, and consumer sentiment has improved. While these arguments all have an element of truth, taken in context with actual events that have unfolded not merely in the past eighteen months but in the past two decades of globalization, a substantially different set of conclusions can be reached.

I’ve never trusted economists and their dismal science as a whole. One of the fundamental aspects of ‘real’ science, and not the statistical bloviations of financiers, is the concrete capacity to first, adequately explain a physical phenomenon and second, to accurately predict physical events before they occur based on the prior’s explanation. Let’s first review how they did leading up to this current recession:

1. Alan Greenspan former chairman of the US Federal Reserve (1987-2006) and an adherent of Ayn Rand, in March 2007 said he saw only a one third chance that a recession could occur that same year. The US recession officially began December 2007.

2. Greenspan’s successor, Ben Bernanke, stated in July 2007, only months before the beginning of the largest economic downturn since the Great Depression of 1929, he believed that despite a host of potential economic perils the US economy would pull through 2007 and into 2008 in relatively good shape. It did not.

3. Mark Perry, professor of economics at University of Michigan-Flint, stated in his popular economics weblog Carpe Diem in October 2007, “Economic variables identified by the NBER as the most important recessionary indicators… provide no support for the notion that the U.S. economy is headed for recession.” In fact he believed, “Most current economic indicators suggest a healthy economy, expanding at the average rate of an expansionary economy.” A year later stock markets across the planet crashed.

4. Martin Feldstein, a professor of economics at Harvard and the president of the National Bureau of Economic Research (NBER), stated in November 2007 in the NY Times that, “My judgment is that when we look back at December with the data released in 2008 we will conclude that the economy is not in recession now.”

5. April 2008, Alan Greenspan was given the opportunity to re-evaluate his previous stances and provided the eager public with another kernel of his vast sagacity in the belief that a decline in “U.S. home prices will probably end well before early [2009] as the number of houses on the market diminishes, aiding an economic rebound.” As of today, “US home prices fell 6.8 percent in April from a year earlier as rising unemployment and record foreclosures kept buyers out of the market.”

6. Greg Mankiw, a Harvard University economist and another Bush-bot adviser, recently stated in the NY Times, “It is fair to say that this crisis caught most economists flat-footed. In the eyes of some people, this forecasting failure is an indictment of the profession. But that is the wrong interpretation.” I’m sorry but this isn’t the Gong Show; you’re wrong again.

The above aren’t drama queen’s like Jim Cramer or for that matter anyone affiliated with CNBC. Rather, they supposedly are the best America has to offer in understanding economics and as such, were given pedestals in government and chairs in academia to pursue policies in the public interest. As the above summation reveals, none of them came close to accurately analyzing the existing trends or predicting the evolution of the current recession. If any person in ‘real’ science were to give such glaringly inaccurate and poor predictive analysis they would be fired and dismissed as dunces and crackpots.

In the past few months, the schemers, speculators, and accumulated greedheads, have been positing the argument that we are at the end of this so-called recession. Again, I think we need to re-evaluate the terms we are using. Richard Posner, a conservative jurist and author of a recently published book “A failure of capitalism,” has called this current situation a ‘depression’ due to,

The intensity of the anxiety that it has aroused, the enormous costs that the government has incurred to try to stop the downward spiral of the economy, the possibility that those costs will bite us as the economy begins to recover and by doing so will knock the recovery off its path, and the further possibility that the recovery will be extremely protracted because of long-term changes in consumer preference.

Let’s look at the outcome of the past six months for America:
1. The June 2009 US employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000
2. Unemployment has risen from 7.2% to 9.5%
3. Underemployment rate has risen from 14.8% to 16.8%
4. Aggregate number of hours worked per week has dropped precipitously
5. There has been more than 6 Million jobs lost since the start of the crisis
6. The DJIA remains 42% below its 2007 peak of 14,200
7. Personal savings of those with jobs has risen to 6.9%

The UK, the Eurozone, Japan, and all emerging markets are in worst shape than the USA. The UK output is expected to decline by 4.3% in 2009. The ECB announced in June that it expected Eurozone GDP to decline by as much as 5.1 percent this year. Eastern Europe is still a brewing concern with its capacity to further undermine major Western European economies and financial sectors. Japan faces historic levels of unemployment and continuous month-to-month declines in exports. The numbers offered by the Chinese simply don’t add up and their vaunted domestic middle-class population is not in any position to become uber-consumers. Unlike previous recessions and regionalized meltdowns, the rancid fruit borne by the collusion of national governments and international finance industries now encumbers the entire globe and all industries.

Despite these obvious facts, the OECD has declared “green sprouts” are rearing, the worst is behind us all, and in 2010 the 30-country organization will see 0.7% growth. The IMF, as of yesterday, boosted its 2010 global growth forecast to 2.5 per cent. Ben Bernanke back in February assured congress that, “there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.” Given the track record of these “experts,” does anyone really believe them?

Nouriel Roubini, one of the few economists who got it right, has stated that the U.S. recession will last at least two years and could drag on as long as the one that plagued Japan in the 1990s. Joseph Stigiltz who has done an excellent job of analyzing the roots of this current calamity states the little spoken but obvious fact:

So the real risk, I think, is that things will be even worse [than] before the crisis. The reason I say that is the way that we have gone about rescuing the banks and restructuring our financial sector has resulted in the too-big-to-fail banks becoming even bigger.

The best argument I have discerned is that there will not be a sustained recovery or minmally a return to the previous norm! One has to consider the fact that we have seen a fundamental and systemic failure of capitalism across the globe and neither the American nor any other nation’s economy will simply revert to “business-as-usual.” For the past decade, the American consumer, who represents 70% of the US economy, was sopping up an inordinate level of consumables from China, Japan, and the rest of the world. They built it and the Yanks bought it. Now that has stopped.

Americans are losing their jobs at record levels, they are seeing whole domestic industries disintegrate with no chance of those jobs returning, health care costs are increasing, and the value of their homes are collapsing. US Housing prices as of April 2009, have witnessed an 18% year-over-year drop and a reduction of 32.6% from their peak three years ago (S&P/Case-Shiller index). Currently, ten percent of homeowners have mortgages that are valued more than their homes are actually worth. Foreclosures increased 18% in May 2009 and thus remain unabated. The US banking industry, on the other hand, has an additional $1.8-trillion exposure to commercial real estate and faces potential losses of approximately $200-billion. The implication is that commercial real estate, "Is headed for a crash that could eclipse even the devastating slump of the early 1990s." The American consumer has wisely started to save again; however, this new propensity towards frugality during a severe recession reduces the likelihood that a recovery will occur anytime soon or can be maintained.

Robert Reich states, “This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.” Therefore, the growth and consumption that occurred during the roaring nineties and the dismal decade of the zeroes will not be repeated. A new equilibrium will have to be established with diminished expectations, reduced (if any) growth rates, and an end to the culture of excess that has permeated government, business, and individual want.

As John Connor says in Terminator Salvation, "If we stay the course, we are dead! We are all dead!"