Monday, December 31, 2012

Soak the working folks

What no one is talking about in the discussions of the nauseating fiscal cliff negotiations is that the payroll tax holiday, a full 2 percent of individual incomes below about $110,000, is being let expire.  For most households with two parents working, this will be a full 2 percent reduction in take home pay.  Since consumption tends to track disposable income with a correlation >99 percent—combined with some reflexive belt tightening—this tax increase for the majority of households will almost certainly result in a slowing of the economy.  Meanwhile, as the floor for tax increases on the rich will be raised to approximately half a million dollars, the change in rates will likely have little effect.  As a commenter at Daily Kos points out, incomes at that level are largely driven by profits and capital gains and are highly variable, so that the increased tax rate will not even be perceived, at least for a long time.

Happy New Year, everybody!

Saturday, December 29, 2012

’Animal spirits’ update

Industrial Production had a nice bounce in November, putting the probability that we are currently in recession (according to my recently developed model) at about 8 percent.


However, the essence of this model is that any six month decline in the exponential moving average adaptation level used is a 100 percent accurate indicator of being in recession.  The average made a new cyclical high in November, at 96.8, which is bullish, while the index was at 97.5.  Subsequent values of Industrial Production falling below 96.8 will increase the likelihood of recession, and a May value falling below that level will be confirmatory.

Thursday, December 20, 2012

Economy at stall speed; recession imminent

I hypothesize that “animal spirits” or confidence levels in the economy are largely a function of how things in the economy are relative to adaptation level.  In the model presented up to now I have used the psychologically sensitive unemployment variable as the basis for the calculation.  Today I am playing around with Industrial Production.  Just as stock market investors become discouraged when a stock’s price slips below a moving average, I hypothesize that much the same pertains to managers of industrial concerns (and throw in an inventory cycle for good measure).

In this case the measure of “animal spirits” would be

A = (IP – IPMEAN) / Sigma (IP)

where A is the “animal spirits” metric, IP is Industrial Production, IPMEAN is its exponential moving average over a the past several years (heavily front-end weighted compared to the unemployment model), and Sigma is its standard deviation over the same period.


The picture that emerges suggests we are just at the cusp of a new recession starting.

One of my back burner research projects is to customize a composite contraction measure using several salient macro variables. 

“Animal spirits” matter most in the contraction, when discounting is taking place below an anchor level (we discount losses more than we value gains of same size, in “utility points”).

A simple logistic model using this new “animal spirits” metric and a recent percentage change in Industrial Production produces a quite credible contemporaneous indicator of being in an NBER recession, probability of being in recession now running at about 40 percent:


I will update this new model when new data becomes available.  Here is the picture of Industrial Production and its adaptation level, showing that we’re entering the zone of loss discounting:


With one false positive in the period leading up to the 1990-1991 recession, if the exponential moving average used here is down over any six month period then the economy is in recession.  It’s not a great leading indicator, but it’s 100 percent accurate coincidentally:


As the data here is up to October 2012, we should know by April if the economy is in recession.  The adaptation level is 96.65 of Industrial Production.  An April value falling below that will be confirmatory.

Favorite Blog List Modified

As my loyal readers have probably figured out, I have a limited amount of time to devote to the site, and simply relinking great articles from other sites does not add value.  This site is non-commercial anyway.

I am revising my list of regularly read blogs to reflect my updated preferences.  I’ve removed Calculated Risk (too old fashioned) and a few others, and added New$ To Use, which still has a sell-side emphasis but better international coverage. 

Mish and Zero Hedge are still in there for their number-crunching and ascerbic analysis, both exemplars of the Austro-libertarian point of view.  John Hussman’s scrupulously intellectually honest weekly postings, usually available Monday morning, have been added.  Hussman’s point of view most closely mirrors my own, being academically trained and a total apostate from the corrupt academic economics and finance establishment (I am currently trying to earn an honest living providing credit to small businesses).  Yves Smith and cohorts at Naked Capitalism go more than far enough in expressing their, and my, disgust at the impotence of progressives in our increasingly atavistic American political culture.  Jesse maintains a nice link list, though like Yves’s, I often skip his sermons.  There are a couple of sites I visit when I have time to waste, Jim Quinn’s The Burning Platform, another puerile libertarian blog but with an occasional nice article on the fourth turning (although his support for Romney as the next Boomer generation Prophet really cut his credibility with me), and The Economic Collapse, which offers a usually well-researched fundy end times perspective on latter day America.  Here’s a recent post on the state of children in America todayThe Browser is a general interest linking site, with good links.

The news flow from these sources (I mostly follow links) is a torrent.  My contribution will be to identify using my animal spirits model when the next collapse of confidence will likely occur.  A rising unemployment rate will precede it, but the event itself will be highly nonlinear.  I am still forecasting an “official” recession to begin in mid-2013.  Mish, ECRI and Hussman all say we’re “in recession” now.

BTW, I run AdBlock on Chrome on my PC, and having recently gotten an iPad (and become a convert to the tablet *and* touch screen modalities—my next PC will be a 15 inch Mac with a touch screen, I think) and Chrome for the iPad not having an ad blocker, I have been appalled at what Zero Hedge and other sites look like unfiltered.  I read most of my blogs in Google reader, and don’t see ads when I go to the site itself.  But these folks deserve to make money. 

Happy winter solstice!

Monday, December 17, 2012

Moral Hazard R US

Forbes recently ran a story describing QEternity as basically a gigantic money laundering operation (here). The bad assets go into the Fed at pretend and extend prices in return for high-powered reserves money. The HSBC settlement proved that bankers are above the law, that too big to fail is too big to prosecute.

The financial sector of the US is poised for a fall.


Savage America, heal thyself

We Americans kill children the world around without a second thought, hundreds dead in Pakistan and Afghanistan from the President's personally ordered drone strikes, hundreds of thousands of women and children in Iraq because of the last President's fraudulent war.

But the MSM only "grieves" for our own. This is hypocrisy and misdirection on a grand scale.

Not until America repents of its greedy, violent core values will a new morning dawn in America.


Saturday, December 15, 2012

The public players are all fools

How long will our MSM political discourse be limited to witless exchanges between cartoon ideologies? The libertarians are lazy, puerile pikers who want no one to take their toys away. The evangelicals follow like sheep their war-mongering false prophets, funded by greedy rich bastards who laugh at their stupidly. The screeching leftists like Krugman and Bernanke are too brainwashed in fiddle with the dials neoclassical macroeconomics to fully realize that the problem is the distribution, stupid. How long will progressives who sense a fundamental corruption in the military-industrial-financial-fascist complex resulting in the erosion of Constitutional protections, blatant suppression of significantly disruptive opposition (Wikileaks), the lack of a single prosecution of anyone responsible for the massively fraudulent activity that led to the financial crisis and the subsequent bailout of the perpetrators--how long will rationally skeptical progressives be labeled "conspiracy theorists"?

Most of the American people probably would fall into the latter category if they were honest about their views.

At this point They already know all of our political opinions through their surveillance of all our private communications, so what is there to lose in the American people tying up the phone lines to Congress more often with expressions of our disgust with our "representatives"? What other power do we have? Are we going to continue taking this lying down?


Thoughts on the fiscal cliff

I overcame my cynicism for just one moment and emailed the President to say that I thought raising taxes on rich people is perhaps the most important thing he could do to start to bring our ruling elite--"we are gods!"--back down to Earth. Going over the cliff will precipitate a recession anyway, if any fiscal tightness is applied at all, so the President would be well-advised to take his recession early in his term.

Hope springs eternal.


Monday, December 10, 2012

What a democratic solution to a banking crisis looks like

Via:  Imagine what our response would have looked like if our political system weren’t totally corrupt, but actually responded in a reasonable way the will of the people.  The Millennials wouldn’t be debt serfs looking to rent their next apartment from a hedge fund, while Wall Street “bankers” snap up their second and third vacation properties.

BTW, I actually wrote the White House today (wow, political activism!) informing the President that I was one of his progressive supporters who has been disappointed many times by his policies, but urging him not to blink on raising taxes on the rich.  Until our selfish, corrupt ruling class is made to heel at least a little bit to the needs of the bottom 80 percent, we are on the express train to neo-feudalism.

Depending on how much backbone Obama actually has and on how secure the Devil’s grip on America’s throat is, we could see very dark days ahead.  On the other hand, Obama could cave, like he usually does.  Few people want to consciously become martyrs.  In this case the forecast is for continued collapse of effective demand.  America joins Brazil as a full-fledged banana republic.

Fighting Recession the Icelandic Way

By the Editors - Sep 26, 2012

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.

This was no post-Lehman Brothers recession: It was a depression.

Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratingsrestored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

You can say that again. Iceland’s approach was the polar opposite of the U.S. and Europe, which rescued their banks and did little to aid indebted homeowners. Although lessons drawn from Iceland, with just 320,000 people and an economy based on fishing, aluminum production and tourism, might not be readily transferable to bigger countries, its rebound suggests there’s more than one way to recover from a financial meltdown.

Nothing distinguishes Iceland as much as its aid to consumers. To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.

Debt Relief

In June 2010, the nation’s Supreme Court gave debtors another break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.

These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

In addition to easing consumer debt, Iceland reduced government spending and increased revenue by raising taxes and cutting deductions that mainly benefited the well-off, a path the U.S. might profitably emulate. In fact, relief for overburdened U.S. consumers is a cause promoted by former U.S. Federal Deposit Insurance Corp. Chairman Sheila Bair in a new book published this week. Bair would have done more to aid sinking homeowners and done less for banks, but she says her efforts were blocked by Treasury Secretary Timothy Geithner and others.

It worked in Iceland. A deficit that reached 13.5 percent of gross domestic product in 2009 fell to 2.3 percent last year. The IMF predicts Iceland will have a primary surplus (excluding interest on debt) of 1.5 percent this year.

As for the banking industry, Iceland never had an option to adopt the too-big-to-fail policy that led governments in the U.S. and Europe to prop up their banks. Assets held by Iceland’s three largest lenders had swelled to nine times the size of the economy. After they defaulted on $85 billion in debt, the government seized control of them.

Initial plans to repay foreign creditors, mostly U.K. and Dutch depositors, collapsed in 2009 as street protests led to the demise of the government. Repayment of obligations to overseas creditors was either postponed or written off, leaving the reconstituted banks with much smaller domestic operations. Twice, Icelanders rejected national referendums on repaying foreign depositors, who are pressing their claims in European courts.

Holding Accountable

A new government led by Johanna Sigurdardottir embarked on a campaign to hold accountable the so-called neo-Viking bankers at the center ofIceland’s crisis. Instead of picking a prosecutor from law firms in Reykjavik, which had depended on the banks for business, the government drafted an investigator from a remote village. Although a number of bankers fled the country to avoid prosecution, the former chiefs of two of the three biggest banks have been indicted and are standing trial.

Undoing the damage caused by the crisis is a work in progress; not every Icelandic innovation would be feasible in the U.S. or Europe. Iceland’s debt stands at almost 100 percent of GDP. Many of the country’s professionals have left for Norway and Denmark amid a dearth of jobs. Iceland still must figure out how to ease constraints that barred investors from withdrawing as much as $8 billion from the country and transferring it overseas. Inflation remains stubbornly high. To counter that, and to prevent capital flight, Iceland’s central bank has increased interest rates five times in the past year. But raising interest rates makes credit more expensive, checking growth.

Iceland’s central bank on Sept. 18 released a report suggesting the country go slow with plans to enter the European Union, a process started in 2010 when the euro seemed sounder than the krona. Becoming a member won’t be easy: If the issue were put to a referendum, Icelanders would probably reject admission. And why would Iceland want to join now? Euro-member nations such as Greece and Ireland offer testimony to the risks of being yoked to a currency along with stronger economies.

Devaluation of the kind Iceland suffered is never fun. Reneging on debts leaves a legacy of violated trust. But it still looks better than recession with no obvious way out.

Saturday, December 8, 2012

What the Big Money Wants Now: Inflation

As I wrote years ago in my diagnosis of the response of the central banks to the financial crisis, their only possible response to papering over the bad debt and loading it onto the sovereigns would be to initiate the super nova of the Breton Woods II fiat fractional reserve world monetary system, in a massive race to devalue their currencies and inflate their way out of over-indebtedness. An intermediate step was ZIRP, made to order for the well-heeled and well-connected of the world. Now that they've had a chance to leverage up again with real estate the world 'round, they are just itching for the next inflation to get going. They don't want to have to wait too long for their killing. Quickest way to get an inflation going: war.

Friday, December 7, 2012

US Effective Demand

Source:  FRED  Both charts are percent change from a year ago, data to 2012Q3.


Will exports pick up the slack?


Thursday, November 29, 2012

Housing bottom?

Amid all the talk of us now hitting the housing bottom, keep in mind that housing is a purchase “on time,” and that when mortgage interest rates go up to 6 percent, housing prices will fall about 20 percent, income levels remaining constant.

I view the current bottom as local, not global, and a bear trap from an investment point of view.  It’s strictly a cash-flow play at this point, which is why the big boys with unlimited access to zero percent money are piling in.

It may take ten years for rates to go up, but during that period the potential for price appreciation is limited by highly indebted and skittish Millennials, downsizing Boomers, and a generally sluggish economy.

What if we inflate?  Interest rates adjust to inflation much more quickly than housing prices.  I think the affordability would fall quickly.  Of course, if you’re betting on a strong inflation later in the decade, as some are, the time to buy is now, as a debt-deflation is probably just as likely, this isn’t the bet it was for the sixty years up to 2005.

I just can’t get excited about the talk of a housing bottom.

Wednesday, November 28, 2012

US tax policy: Wild West vs. Sweden

Via:  Sure a flat tax or VAT is okay *if* it is accompanied by a commitment to good health care and education and social services for *everyone*.  This is the best discussion of the underlying issues I’ve seen, in that it’s clearest about the kind of *social contract* that underlies a tax system. Everyone will have to pay more to get to a good place; lowering taxes will send us into neo-feudalism, which is what the 1 percent would love.  I get very impatient with the ever-so-puerile libertarians about this….  Now if we can just get to a single-payer health care system….

November 27, 2012

Combating Inequality May Require Broader Tax


Rarely have we experienced such a confluence of arguments in favor of raising taxes on the rich. After a hard-won re-election fought mainly over taxes and spending, President Obama arguably has a mandate from voters to tap the wealthy to address our budget woes.

What’s more, raising more money from the wealthy might go a long way toward righting our lopsided economy — which delivered 93 percent of our income growth in the first two years of the economic recovery to the richest 1 percent of families, and only 7 percent to the rest of us.

Yet while raising more taxes from the winners in the globalized economy is a start, and may help us dig out of our immediate fiscal hole, it is unlikely to be enough to address our long-term needs. The experience of many other developed countries suggests that paying for a government that couldhelp the poor and the middle class cope in our brave new globalized world will require more money from the middle class itself.

Many Americans may find this hard to believe, but the United States already has one of the most progressive tax systems in the developed world, according to several studies, raising proportionately more revenue from the wealthy than other advanced countries do. Taxes on American households do more to redistribute resources and reduce inequality than the tax codes of most other rich nations.

But taxation provides only half the picture of public finance. Despite the progressivity of our taxes, according to a study of public finances across the industrial countries in the Organization for Economic Cooperation and Development, we also have one of the least effective governments at combating income inequality. There is one main reason: our tax code does not raise enough money.

This paradox underscores two crucial lessons we could learn from the experience of our peers around the globe. The first is that the government’s success at combating income inequality is determined less by the progressivity of either the tax code or the benefits than by the amount of tax revenue that the government can spend on programs that benefit the middle class and the poor.

The second is that very progressive tax codes are not very effective at raising money. The corollary — suggested by Peter Lindert of the University of California, Davis in his 2004 book “Growing Public” — is that insisting on highly progressive taxes that draw most revenue from the rich may result in more inequality than if we relied on a flatter, more “regressive” tax schedule to raise money from everybody and pay for a government that could help every American family attain a decent standard of living.

Consider government aid for families. According to the O.E.C.D. study, our Temporary Assistance for Needy Families is the most progressive program of cash benefits for families among 22 advanced countries, accurately targeted to serve the poor.

But American family cash benefits are the least effective at reducing inequality. The reason is that they are so meager. The entire budget for cash assistance for families in the United States amounts to one-tenth of 1 percent of the nation’s economic output. The average across the O.E.C.D. nations is 11 times bigger. Even including tax breaks and direct government services, we spend a much smaller share of our economic output on family assistance than almost any other advanced nation.

The same pattern can be found across a range of government programs. The reason is always the same: their relatively small size. Over all, government cash benefits in the United States — including pensions, disability, unemployment insurance and the like — contribute about 10 percent to household income, on average, according to the study. The average across industrial nations is twice that.

Our budget reveals a core philosophical difference with other advanced countries. In the big-government social democracies like those of Western Europe, government is expected to guarantee a set of universal public services — from health care to child care to pensions — that are considered basic rights of citizenry. To pay for this minimum welfare package, everybody is expected to contribute proportionately into the pot.

Government in the United States has a different goal. Benefits are narrower. Social Security and Medicare follow a universal service template, but only for older Americans. Other social spending is aimed carefully to benefit the poor. Financed through a more progressive tax code, it looks more like charity than a universal right. On top of that, our philosophical stance virtually ensures a small government.

Progressive taxes make it hard to raise money because they distort people’s behavior. They encourage taxpayers to reduce their tax liability rather than to increase their pretax income. High corporate taxes encourage companies to avoid them. High taxes on capital income also encourage avoidance and capital flight. High income tax rates on top earners can discourage work and investment, too. So trying to raise a lot of money with our progressive tax code would probably not achieve the goal and could damage economic growth.

Big-government social democracies, by contrast, rely on flatter taxes to finance their public spending, like gas taxes and value-added taxes on consumption. The Nordic countries, for instance, have very low tax rates on capital income relative to income from work. And they have relativelyhigh taxes on consumption. In Denmark, consumption tax revenue amounts to about 11 percent of the nation’s economy. In the United States, sales taxes and excise taxes on cigarettes and other items amount to roughly 4 percent.

Liberal Democrats have long opposed them because they fall much more heavily on the poor, who spend a larger share of their incomes than the rich. But these taxes have one big positive feature: they are difficult to avoid and produce fewer disincentives to work or invest. That means they can be used to raise much more revenue.

Public finances are under strain today on both sides of the Atlantic, as governments struggle to cope with our long global recession and the aging of the baby boom generation. In Southern Europe, the pressure to pare back universal welfare systems is intense. In the United States, political leaders on both sides of the partisan divide have realized that even our relatively meager package of social goods cannot be sustained with our slim tax take.

But the United States has one option that most of Europe’s flailing economies do not. Its tax revenue is so low, comparatively, that it has more space to raise it. A more efficient, flatter tax schedule would allow us to do so without hindering economic activity.

Bruce Bartlett, a tax expert who served in the administrations of Ronald Reagan and George H. W. Bush, told me last week that he thought federal tax revenue could increase to 22 percent of the nation’s economic output, well above its historical average of 18.5 percent, without causing economic harm. If President Obama tries to go down this road, however, he may have to build a flatter tax code.

“We should reform the tax system, no question,” William Gale, a tax policy expert at the Brookings Institution and co-director of the nonpartisan Tax Policy Center, wrote in an e-mail. “We are going to need to move beyond the current set of tax instruments to raise the needed revenues — a VAT and or a carbon tax seem like the obvious ways to go.” And Mr. Bartlett, who writes a column for The New York Times’s Economix blog, also pointed out: “We can’t get all the revenue we need from the rich. Eventually, everyone will have to pay more.”

It’s the distribution, stupid

Infrastructure investment is what we need, let the Treasury print greenbacks to pay for it, or borrow, it doesn’t matter, that’s what we need… yada yada yada.  Gimme that old infrastructure investment.

The problem is, as I pointed out many years ago, the distribution is broken.  As the estimable Emmanuel Saez has shown, 93 percent of the total personal income gain as reported by tax returns in 2010 went to the top 1 percent of the income distribution.  Much of the gain presumably came from the Obama stimulus packages (see here for timeline).

So, the power of capital to dominate labor in capitalism (aptly named) from time to time produces concentrations of wealth and hence (rentier-style, both in terms of property and social advantage) of income generating ability.  The signature of an economy in or going into depression is a huge debt to income ratio and extreme concentration of wealth and income.  And we might add, today, a record high share of national income going to profits.

I am not a socialist, in that I don’t favor the state’s owning of the means of production.  But I am a redistributionist, in that any country, especially any rich country, that abuses its poor, is doomed to collapse.  It’s called a “failure of effective demand.”  When most people don’t have enough money, the economy collapses.

Call it judgment, if you will. 

Monday, November 26, 2012

Light posting

I’ve been sick, possibly with heartache for our unraveling republic, or possibly as my spouse points out because I was on an airplane last week with a bunch of germs my immune system wasn’t quite ready for.

But the ongoing purge of the military doesn’t inspire confidence….

Monday, November 19, 2012

Music streaming income away from musicians

Via:  Spotify and Pandora exist not to help musicians but only to make their founders rich by fleecing greedy venture capitalists and speculative investors.  Money quotes:

Damon Krukowski of Galaxie 500 and Damon & Naomi breaks down the meager royalties currently being paid out to bands by streaming services and explains what the music business' headlong quest for capital means for artists today.

"Galaxie 500's 'Tugboat' was played 7,800 times on Pandora in the first quarter of 2012, for which its three songwriters were paid a collective total of 21 cents, or seven cents each."

"When I started making records, the model of economic exchange was simple; now, it seems closer to financial speculation."

But here's the rub: Pandora and Spotify are not earning any income from their services, either. In the first quarter of 2012, Pandora-- the same company that paid Galaxie 500 a total of $1.21 for their use of "Tugboat"-- reported a net loss of more than $20 million dollars. As for Spotify, their latest annual report revealed a loss in 2011 of $56 million.

Leaving aside why these companies are bothering to chisel hundredths of a cent from already ridiculously low "royalties," or paying lobbyists to work a bill through Congress that would lower those rates even further-- let's instead ask a question they themselves might consider relevant: Why are they in business at all?

"Pandora and Spotify are doing nothing for the business of music-- except undermining the simple cottage industry of pressing ideas onto vinyl, and selling them for more than they cost to manufacture."

The answer is capital, which is what Pandora and Spotify have and what they generate. These aren't record companies-- they don't make records, or anything else; apparently not even income. They exist to attract speculative capital. And for those who have a claim to ownership of that capital, they are earning millions-- in 2012, Pandora's executives sold $63 million of personal stock in the company. Or as Spotify's CEO Daniel Ek has put it, "The question of when we'll be profitable actually feels irrelevant. Our focus is all on growth. That is priority one, two, three, four and five."

Sunday, November 18, 2012

Friday, November 16, 2012

Winds of war

I will confess that I sometimes read the updates of Benjamin Fulford, a former Forbes financial journalist and self-described insider to the true power structure of the world.  He indicates that there has been an attempted putsch by the military against President Obama, in planning for years, by the right-wing “Christian” faction associated with George W. Bush and Mitt Romney.  He credits the election of Obama of at least postponing the start of World War III.

Fulford often sounds crazy, but he points out that there have been a lot of military brass who have lost their jobs recently.  With the events unfolding in Gaza the atmosphere is ripe for a false flag attack, any spark.  America is severely cracking.  Make sure to read to the bottom of the attached—it was written by a senior editor of “Veterans Today".”

Hence, a quick search turned up the following:


US military planned mutiny on the Bounty to topple Obama

By Gordon Duff

Mon Oct 29, 2012 4:41PM GMT

The Obama administration has had American military, both on domestic and foreign bases on high alert since October 1. However, there has been no known terrorist enemy threatening the US. The enemy is called “domestic” but its origins are far from American.

Today, Rear Admiral Charles M. Gaouette was “fired” from his command of one of the three carrier battle groups back to Bremerton, Washington to face an investigation.

It is impossible to adequately state how unusual this is and how serious.

The Navy was clear that the charges had nothing to do with his personal conduct, no rape or sexual misconduct, no stolen money, no drug use, the things that usually bring down careers in the Navy, that and crashing ships into each other.

Gaouette was sent back because the Secretary of Defense found him unfit for command, sent him across the world in the middle of one of the largest combat exercises in history, one both timed prior to an election and one at a critical location, near the Straits of Hormuz in the Persian

Gaouette commanded nearly one third of the Naval and air combat forces in the region.

The decision was made based on a conversation with the Secretary of Defense who, at the end of the talk, believed Gaouette was part of a group of military officers who have been under suspicion for planning a “Seven Days in May” type overthrow of the US government if President Obama is re-elected.

This is not conjecture, dozens of key officers face firing, hundreds are under investigation, all with direct ties to extremist elements in the Republican Party and the Israeli lobby.

Reports received are sourced at the highest levels of the Pentagon and indicate that the administration has been aware of these plans for months.

It is not just the Obama administration. This happened before.

The Air Force moved against the Bush administration in 2007 when it loaded up to nine nuclear weapons on a B 52 aircraft at Minot Air Force Base. We know now that up to three of those nuclear weapons are listed as “missing,” the military expression for this is “Broken Arrow.”

From Veterans Today:
Minot-Barksdale, The forgotten mutiny
In August 2007, at least six nuclear warheads were stolen from Minot Air Force Base in North Dakota. The moment they were loaded, they disappeared from America’s nuclear inventory, “location unknown,” something that is not supposed to happen. There is no possible “misinterpretation” of orders, no mistake, no “wrong label” issue. These weapons were stolen, pure and simple. Discussions of individual commanders having authority to deploy weapons, stories of accidents, confusion or political alignments within the Air Force are “red herrings.”

Nothing is more controlled, more secure, more restricted, more classified, more protected than the nuclear arsenal of the United States. However, on that fateful day in 2007, a half dozen or more, hydrogen bombs, were plucked out of a secure bunker with no paperwork, no orders, nothing.

This is the military. People are jailed for losing flashlight batteries.

They were loaded into the weapons bay of a B-52 long-range bomber for transport to places unknown, for purposes unknown. The plane had no orders, was part of no mission, operated under no legal command structure, in fact, the moment the weapons were loaded, was no longer an American plane at all. A mission, even under the most innocent possible circumstances, that would have required the knowledge of the President and his staff, certainly the Joint Chiefs of Staff and likely the National Security Council as well, seem to have authorized itself, out of “thin air.”

Though the plane later landed at Barksdale Air Force Base in Louisiana, there is no evidence supporting this as the intended destination, far from it.

The theft, hijacking, you pick the term, these are the best two so far, happened outside the command authority of the United States government, contravening all protocols for the storage, handling and deployment of nuclear weapons. The incident was also a violation of treaties requiring America to safeguard her stockpile of nuclear weapons, not just from environmental disasters but also, as with this incident, from a mutiny by members of the military and civilian branches of our government, acting outside authority, acting as civilians, an act of piracy, mutiny, an act of insurrection.

Today’s “relief of command” is a response to a similar threat.

The “Barksdale Nukes” were believed to be heading to Diego Garcia for use against Iran as part of a false flag war, one started by a naval admiral who was tasked by an extra-governmental agenda to start a war.

This was the Air Force part of a joint operation that is said to have involved 5th Fleet commander, Admiral Cosgriff who as reported to the Secretary of State by Gwyneth Todd, then Chief Political Advisor to the fleet. Todd, who has recently retold her story to the Washington Post and other media outlets, received a death threat this morning after a stalking incident against her by an FBI agent stationed at the US embassy in Canberra, Australia.

Similarly, top defense consultant John Wheeler III, who knew of these issues quite well was mysteriously murdered and his body found in a garbage heap in Delaware in late 2010. No suspects have been arrested; no real investigation has ever been made.

That was then.

Today, key members of the military more loyal to Israel and Wall Street than the United States are said to be planning a mutiny to take place after the presidential election.

Their task, upon seizing power, is to facilitate a massive terror attack inside the United States, possibly using a stolen nuclear weapon, declare martial law, move troops into Iraq and to attack Iran with aid from Saudi Arabia and the Gulf States.

Turkey is to attack Syria with aid from Israel and civil war between the Kurdish regional government and the national government in Baghdad is to begin with the US brokering a peace and re-establishing what “newly appointed President Romney” would describe as the “Status of Forces Agreement” he mentioned during the debates.

His real intent is to occupy Iraq and attack Iran. In the process, America intends on “neutralizing” the nuclear capability of Pakistan.

This is the plan, it is known, not just in the Department of Defense, but by all intelligence agencies, the plotters have all been recognized, are all under surveillance and they have not been very careful.
All information here has more than one official source.

Step one, Benghazi

Those involved in the plot, those outside the military, are those who are spreading “conspiracy theory” rumors about US complicity or malfeasance in the handling of the murder of the US ambassador to Libya, Chris Stephens.
Today, CIA Director, General Petraeus clearly stated that the CIA had received no requests for help. A month ago, the State Department also made it clear, the attack was military, well coordinated and that no forces were available capable of making a difference.

In fact, the “conspiracy theorists,” those attempting to use their wild theories in order to implement an “October Surprise” are directly aligned with those who planned and executed the attack.

This is one of the advantages of a “false flag” attack on an American diplomat by America’s own friends and allies, or those mistaken for being such, any attempt to characterize those known to be guilty, prior to an election, would be used to discredit anyone giving out actual accurate information.

This is the role of the controlled press in terror operations, providing “deception and cover.”

Thus, it was necessary to invent a non-existent “Al Qaeda cell” in Libya and to hunt down minor third party assets while the real killers, well trained special operations military from the Gulf States and “other nations” were able to escape and will remain unaccountable.

Security services of both Britain and France had reported the presence of a special operations team well in advance of 9/11 but the target was a mystery.

The Benghazi attack required incredible coordination. What debunks conspiracy theories is that even the most amateur attacks use radio frequency jammers. They are common even to the Taliban much less to groups this sophisticated, a force now said to number at least 120 with 50 or more being trained special operations forces.
This backs up General Petraeus’ statement that no messages were received.

One incredible inconsistency in the “conspiracy media” came from Fox News. They reported that the US compound in Benghazi was relieved by a large force of friendly militia at 3am, a full hour before the lethal mortar attack is said, by Fox News, to have begun. Jennifer Griffin wrote this exclusive account for Fox News:

“They were killed by a mortar shell at 4 a.m. Libyan time, nearly seven hours after the attack on the consulate began - a window that represented more than enough time for the U.S. military to send back-up from nearby bases in Europe, according to sources familiar with Special Operations. Four mortars were fired at the annex. The first one struck outside the annex. Three more hit the annex.

A motorcade of dozens of Libyan vehicles, some mounted with 50 caliber machine guns, belonging to the February 17th Brigades, a Libyan militia which is friendly to the U.S., finally showed up at the CIA annex at approximately 3 a.m.”

Fox was so busy gloating over their misdirection that they totally missed how thoroughly they discredited themselves. Nothing written in any of the recent versions remotely depicts eyewitness reports. They made the whole thing up.

All of those who report a “hodge-podge” of conflicting calls for help through jammed communications, reminiscent of the jamming during the attack on the USS Liberty, are now potential suspects in the planning and execution of the attack itself.
Additionally, there is little possibility the attack in Benghazi could have been carried out without the presence of foreign agents within the State Department and the well-timed distraction of the Terry Jones telethon financed and supported by the CATO Institute and Republican National Committee, of which I am, sadly, a longtime member.

Israel rule

The planned overthrow and subsequent declaration of martial law is a massively financed operation with billions of dollars available. The primary impetus for this action is a belief by members of the “dispensationalist” pseudo-Christian heresy that pervades America’s military service academies that the United States should be subservient to the State of Israel.

Over the past three decades, religious extremists have taken over the Air Force Academy, Annapolis and West Point, teaching mandatory classes in obscure religious beliefs, hatred of Islam and stressing obedience to an “Apocalypse Cult” that stresses pre-emptive nuclear war in order to bring on the “end times” and destroy all life on earth.

Some find these beliefs inconsistent with oaths sworn by all members of the military:

“I, _____, having been appointed an officer in the Army of the United States, as indicated above in the grade of _____ do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign or domestic, that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservations or purpose of evasion; and that I will well and faithfully discharge the duties of the office upon which I am about to enter; So help me God." (DA Form 71, 1 August 1959, for officers.)”

Oaths, so easy to take, so convenient to break, and so it goes…



Gordon Duff is a Marine Vietnam veteran, a combat infantryman, and Senior Editor at Veterans Today. His career has included extensive experience in international banking along with such diverse areas as consulting on counter insurgency, defense technologies or acting as diplomatic representative for UN humanitarian and economic development efforts. Gordon Duff has traveled to over 80 nations. His articles are published around the world and translated into a number of languages. He is regularly on TV and radio, a popular and sometimes controversial guest. More Press TV articles by Gordon Duff

Tuesday, November 13, 2012

Throwing the baby out with the bathwater


Richard Koo doesn’t address the problem of bad debts being carried in the banking system by “extend and pretend” or by having been bought by the Fed and subsequently disappearing into that black hole of unreported charge offs.  I have taken a fair use chunk of Koo’s article but encourage readers to read the whole thing. 

I have this inkling that because all the derivative bets are off the books, the capital class, those holding financial assets, is not really aware of the risks of a general deflation, and can only see the “problem” of fiscal spending supporting “deadbeats” (the 47 percent) who are dependent on the government for basic needs.  We shall see.

Explain the disease to help US citizens

By Richard Koo

In 2008, Barack Obama told the US people the nation’s economic crisis would take a long time to overcome. In 2012, many of those voters are losing patience, because they have not been told why this recession has lasted so long or why his policies were the correct response. Here is the missing explanation – based on not only the US experience, but also that of Japan and Europe.

Today, the US private sector is saving a staggering 8 per cent of gross domestic product – at zero interest rates, when households and businesses would ordinarily be borrowing and spending money. But the US is not alone: in Ireland and Japan, the private sector is saving 9 per cent of GDP; in Spain it is saving 7 per cent of GDP; and in the UK, 5 per cent. Interest rates are at record lows in all these countries.

This is the result of the bursting of debt-financed housing bubbles, which left the private sector with huge debt overhangs – notably the underwater mortgages – giving it no choice but to pay down debt or increase savings, even at zero interest rates.

However, if someone is saving money or paying down debt, someone else must be borrowing and spending that money to keep the economy going. In a normal world, it is the role of interest rates to ensure all saved funds are borrowed and spent, with interest rates rising when there are too many borrowers and falling when there are too few.

[continues here]

Monday, November 12, 2012

Swedish vs. Japanese models

Via:  Trust Your Instincts  h/t Jesse

In imposing even “balanced austerity” and not confronting the load of bad debt that has been made to be an obligation of the US taxpayers, Obama is engaging in what Bill Black calls a “great betrayal” of progressive principles.  Here’s a nice collection of simple explanations of the Swedish vs. Japanese (and US in the 1980s) approaches to a crisis of solvency due to bad debt clogging up the banking system.  We may wait a very long time for it to be cleared by natural attrition.  Iceland is the poster child of how clearing the debt by requiring banks to mark to something like market and take their losses can liberate the private economy to start up again. 

Swedish versus Japanese Model

There are two basic models for how to deal with a bank solvency driven financial crisis.

Under the Japanese model, losses on the excesses in the financial system are only recognized as banks generate the capital to absorb them.  This is good for banks, particularly their book capital, because the model involves hiding their true condition and pursuing policies designed to boost bank earnings.  It is bad for the economy because it distorts asset prices and access to capital (for proof, look at the performance of Japan's economy).

The alternative is a Swedish model that is bad for banks and good for the economy.  It is bad for banks, particularly their book capital, because they are required to recognize the losses on the excesses in the financial system today.  It is good for the economy because it avoids the distortion in asset prices and access to funding associated with hiding the losses under the Japanese model (for proof, look at the performance of Sweden's economy).

The following are a series of posts which examine these models and their implications:

Confirmation that Japanese Model being used and losses are being hidden
RBS's Stephen Hester's confession that bank hiding losses with regulators' blessing
Just how sizable are the losses being hidden by banks?

Choosing between Japanese and Swedish models
Its not to late to adopt the Swedish model and stop the financial crisis
Response to solvency crisis:  Swedish vs Japanese model
Liam Halligan:  EU policy choice is between Swedish and Japanese models
Europe's banks are addicted to ECB's money

Proof Swedish Model Works
Iceland confirms that Swedish model for bank solvency works

Iceland shows that forcing banks to take losses works to end financial crisis

Toxic Side-Effects from Implementing Japanese Model
Repealing Disclosure Laws seems Reasonable
Greece is Heading for Hell

Problem with the Japanese model is that there is no easy exit

Is there any truth to bank earning presentations under Japanese model?
Hiding losses does not restore confidence in banking system
The policy of 'what is good for banks is good for the economy' has failed
Do nations exist for capitalism or their citizens?
What interest rate would central bank policy be set at if the Swedish model had been used?

Sunday, November 11, 2012

Ike’s mind-blowing warning

h/t  Can you imagine an age when such intellectual honesty was possible from a President?

Almost every issue is a wedge issue

Sometimes you have a great notion.  Today I’m having one about how we think about things.  It’s that almost every issue in the modern discourse is a wedge issue, or can profitably be used as one.  That “profitably” is a hint as to the exception, by the way.  And then if you can link issues in voters’ minds, you can create a web of divisive issues.

Let’s start with “economics.”  Every school of economics is bullshit being used by some interest group to further their own advantage.

How about “freedom”?  Same thing.  I’m rich, I want to be free.

How about “socialism”?  We already have socialism for Wall Street.  The government redistributes the money from hard working folks to Wall Street when their big derivative bets don’t pay off the way they hoped.  The government rewrites rules and regulations that even people like me with a Ph.D. in economics have trouble understanding, but which rewrites almost universally have the effect of letting the financial institutions skim a heftier slice out of our hides.

How about “capitalism”?  Sure, we got capitalism, crony capitalism.  See the last point.

I’m not going to belabor the point.  I could dredge up more buzzwords (“abortion,” “family values,” “gun rights,” “welfare,” and so on) but I won’t.  I won’t even touch “democracy,” which has gotten to be a big joke.

The one issue that really matters now is the distribution of wealth, and derivatively, the distribution of income.  America is still a rich country but the rich always seem to have an excuse for letting the poor get poorer.  “You can’t fix that because [raising taxes is linked to being pro-abortion] [raising taxes is not freedom] [that’s socialism]!” 

We may not have free markets—they are horribly concentrated and monopolistic in too many cases—but we do have enough capitalism that those who own stuff (or act as if they did by manipulating the stock price to their own advantage—I’m referring to our non-owner, stock option loaded American management gangsta class) largely get to call the shots for those who don’t own the means of production or get to act as if they did, i.e., labor, working folks.

Until this imbalance is righted the situation is not going to get better.  The greatest danger lying ahead is a global neofeudalism.

Will “socialism” destroy us?  Hardly.  I have pointed to the Scandinavian countries as working models of how a greater degree of social justice can produce a more prosperous nation.  And anyway, it’s not socialism because the state doesn’t own the means of production.

So long as Americans are so easily divided the raw economics of the ownership class’s interests and its power over the politicians will determine our course.

The first tiny step toward equity is a more progressive tax system. 

So if Obama has any backbone he will let us go over the fiscal cliff, and then cut taxes for the 98 percent. 

If not, if he compromises without effecting any significant increase in the progressivity of the tax system, then will in truth be a Manchurian candidate, a total sycophant, good little Barry whose mother worked for the Foundation and knew how to be nice around rich people.

He who oppresses the poor shows contempt for their Maker,
but whoever is kind to the needy honors God.

When calamity comes, the wicked are brought down,
but even in death the righteous have a refuge.

Wisdom reposes in the heart of the discerning
and even among fools she lets herself be known.

Righteousness exalts a nation,
but sin is a disgrace to any people.


Reference:  Michael Hudson, Obama Wins for whom?

A couple of recent article from Der Spiegel about how Germans see America now (the Germans, having some history of their own to deal with, don’t mince words):

Americans Don't Want The Truth In US Election, He Who Lies Wins

Destroyed by Total Capitalism America Has Already Lost Tuesday's Election

P.S.  Mish has declared that California will fail because they’ve enacted tax reform.  I’ll take the other side of that bet.  California is a very dynamic state; and being a state, and not a country with the ability to print money, they have to balance their budget over the long term.  Is it an accident that so much technological innovation has come out of California, with its (formerly?) great educational system? 

I still expect the global fiat money debt dilemma to be “resolved” in some sort of monetary catastrophe, with possibly multiple “bang points,” including deflation and (possibly hyper-) inflation. 

Thursday, November 8, 2012

Dig that Coppock bounce!

The most famous of long-term momentum oscillators has just made one of its biggest bounces in history!  While the Coppock guide is a bottom indicator, almost always signaling long-term upward momentum when it turns up from a negative reading, it has only had bounces like this one a few times before, and they have always preceded big bear markets.

Remember:  This is research, not investment advice.  You invest at your own risk, unlike the Wall Street banks, who also invest at your risk (if you are a US taxpayer).


Today’s most depressing blog posts

We are doomed.  The historical dynamic will not be reversed.


Obama Wins, the System is Broken

[…] There is a reluctance to recognize how large the gap between Obama’s persona and his mode of operation is, and there is a similar failure to appreciate what most of his compromises are about. Like Br’er Rabbit’s pleas not to be thrown in the briar patch, concessions for Obama are typically a vehicle to get him where he wanted to go anyhow.

More at The Real News

This is the money quote from this interview:

JAY: So what does the U.S. economy look like in four years? Whoever is the presidential nominee for the Democrats, it seems the plate gets set for a far-right candidate of the Republican Party to say, look, you had eight years and couldn’t do it.

JOHNSON: It looks like Brazil before Lula. It looks like it’s heading in that direction—in other words, favelas. You know, Lula’s made some strides in reversing—Lula and his successor, excuse me, have made some strides in reversing the inequality and alleviating poverty and invigorating education there. They were in a deep ditch of violent inequality of income and wealth, and they’ve made some positive strides. We’re going in the other direction as—faster than they turned things around.


See also:

Obama and progressives: what will liberals do with their big election victory? – Glenn Greenwald in The Guardian

Wednesday, November 7, 2012

Obama’s political economic calculus

One of the best pieces of advice anyone can give a new President or reelected President in an economy that experiences a recession on average once every four or five years—keeping in mind that the long cycles of recent decades plausibly represent a period doubling characteristic of a phase transition to chaos—is, “Take your recession early in your term.”

Ronald Reagan did this, taking credit for Jimmy Carter’s ending the ‘Seventies inflation by appointing Paul Volcker in 1978.  Jimmy’s problem was that he didn’t understand how our monetary system works until after bringing a bunch experts to Camp David and learning about it midterm.  He followed his principles, ultimately whipped inflation, and lost the election.  Paul Volcker was a monetarist who did what he said he was going to do, and tightened credit, the source of credit-money in a fiat fractional reserve monetary system.

Obama won the election by brilliant data mining and positioning in swing states, and because Romney was such an unappealing personality.

Obama was lucky.

Like Carter, he didn’t understand the problems that confronted him in his first term—a corrupt and fraudulent Wall Street, excessively leveraged and coddled by the Treasury and the Fed when their bad derivative bets blew up.  Franklin Roosevelt had a better understanding and a stiffer backbone in his dealings with the bankers.  Heads rolled.  Obama let hundreds of billions of dollars of bad debt be piled onto the Treasury’s sovereign debt.

Obama does understand that America’s middle class is being hollowed out.  His solution is to raise marginal tax rates on high income people, in part.  In my view, this is a terribly important part, as I believe a sickness of self-regard (“we are gods”) has entered the American elites and nothing would benefit the polity more than taking some of the starch out of their shirts and bringing them back down to Earth with the rest of us working folk. 

I would love to see the payroll tax rate lowered and the ceiling removed, for example.  Imagine that!  Or the Bush-Obama tax cuts on the over-250 thousand dollars brackets removed.  Or better, those rates increased to Reagan levels around 50 percent.

There should be a wealth tax, and a financial transactions tax (the high frequency traders are already imposing such a tax and pocketing the proceeds).

But the larger problem is the debt that was largely created because it was so easy to do so after Nixon removed the dollar’s tether to gold 41 years ago.  Only monetary reform will address some of the root causes of American inequality at this point, a preponderance of which originates in the financial sector.

Glass-Steagall needs to be reinstated.  Was it an accident that America went from the ‘Thirties to the Oh-Oh decade without a major financial crisis?  The derivatives markets need to be made transparent and regulated (such a move is likely to reveal a house or horrors, however, showing many big banks to be effectively insolvent).  The big banks need to be downsized “by fiat” or required to maintain capital ratios such that they do it by themselves.  Perpetrators of fraud need to be prosecuted. 

And perhaps the Fed needs to buy up a bunch of federal debt and forgive it before the Fed itself is shut down.  The failure of fiat, fractional reserve banking is writ large across the entire Western world.  It will be a miracle if the BRICs don’t also emulate us in this regard.  But they may benefit by leapfrogging in this area as in others.

What to replace the Fed?  Something not owned by the banks at a minimum, something owned by the American people.  Ron Paul and Andrew Jackson get this right.  The American people accurately perceived the self-dealing of Wall Street via the Fed in the crisis.  Those with the expertise and access to see and understand it up close have been nauseated by the level of corruption that Obama did not “begrudge.”  This has been his major failing.  There was a moment when he could have marshaled support from both the far right and the far left and explained to the American people why reform was needed.  He sold out.  (He may have considered health care a more important priority in a nation about to collapse, a point of view I have sympathy with.  See the Wilkinson video below.)

If gridlock wins in Obama’s second term—because Obama is a consummate politician and may not attempt anything that he deems impossible—or may he, in a second term?—it will be because our system is broken, and the absolute failure and gut-wrenching Crisis apparently required in America to forge a new national identity and social contract (and this is per The Fourth Turning, which has been so durably prophetic lo these past couple of decades)—it will be because that Crisis has not yet come to a head, and Americans remain divided and willing to go down with their parties “on principle” instead of compromising.

I’d also like to see “economic policy” replaced with “social policy.”  What I mean by that is democratic capitalism within the following constraints: 

First, workfare and health benefits for the economically displaced (i.e., unemployed; health care is available for everyone). 

Second, a tax system sufficiently progressive to produce a more “optimal” after-tax distribution of income, consumption and wealth.  Here I am relying of the results of Wilkinson et al. that I take to be the most sweeping condemnation of the narrow, money-based approach to welfare adopted by economists.  Can we pull off an enlightened Scandinavian-type democratic capitalism (not really socialist, because the state doesn’t own the means of production, just influences the distribution of product)?  I hope so.  The Scandinavian countries have recently been ranked as the most prosperous in the world.

It may take the next generation to get us there.  It was nice to see youth breaking for Obama.

Capitalism is great, but it needs to function within a moral framework providing social justice while not encouraging dependency.  Libertarianism and traditional Republicanism leave that to the market, and markets fail to provide it.  Ultimately increasing inequality will cause aggregate demand to collapse as most people simply don’t have enough money.  We’re halfway there.  We may have to go all the way for everyone to get the point.  We may not have to wait that long to get there.  And then we will see as well to what purpose the President puts all the sinister powers he and George W. Bush accrued that have so eroded the Constitutional rights of the American people.  To what means, and to what ends? 

It may all be determined in the Crisis to come.

Monday, November 5, 2012

W socialist, O capitalist in first term


The left side of the chart shows the first Bush years. The right is Obama's.

The red line represents the trajectory of private sector jobs, while the blue and green lines represent the trajectory of state and local government jobs. All are set at 100 to the beginning, just for the sake of normalizing each number to the same point.

As you can see, under Bush's first term, private sector jobs never got to their start point, while public sector jobs soared.

Under Obama private sector jobs have now easily surpassed the level they were when he started, while public sector employment is way down, with no comeback having yet commenced.


Read more:

Social Security, just the facts

Via:   It is so difficult to get past the relentless propaganda.  Best line:

“Alan Simpson, the loud-mouthed, factually-challenged, -one who would reduce your future Social Security to a range of 9 to 15 K per year, calls people like me “Greedy Geezers”, then turns to you and tells you to resent me because I am going to receive something he wants to take away from you.”

You may have heard that Social Security is funded through about 2030.  The plutocrats and their henchmen, including Obama, desperately seek your neofeudalization.

Must watch:

Friday, November 2, 2012

The Obama record

Yes, I know the principled arguments for voting for a third party candidate if you live in a non-swing state (and I already have, writing in for Ron Paul, the only candidate who got the gestalt of decaying overweening military-industrial crony capitalist country-hollowing empire, or was brave enough to say it), but if you live in a swing state and vote for Romney, the blood of the next American civil war will be on your hands.  Romney is not a conservative, he is a vampire, ready to to suck the blood out America for the benefit of his capitalist class.


Whitney TOOLSON - Why I Am Voting for Obama

Wednesday, October 31, 2012

‘The devil has my the people by the throat.’

There is a great scene in “Casablanca” in which Rick talks to an émigré couple about getting out of town.  Because it’s so good, I’m reproducing it below.  The title quote reminds me of America today.

The greed and disinterest in one’s fellow human being, especially if poor or disadvantaged, that Romney and the Republicans embody is the greatest risk to America today.

A businessman doesn’t understand the feedbacks of an entire economy.  He lives in a detached world, concerned only with his income statement and balance sheet.  Austerity in extremis will kill the economy.

The devil has a large portion of the American people by the throat.  If Romney is elected and the Republicans do what they’ve said they will do—cutting taxes even more on the wealthiest, increasing military spending and starting new wars, gutting support for research, education, social services—America will become like Brazil.

We will become a full fledged banana republic.  The social class and income of the parents will largely determine that of the child.  The sliver of very wealthy families at the top will own most of everything, including the house your children will live in, and they will groom their children to positions of quasi-royalty.  Like Tagg Romney, who makes a million dollars a year of capital income in the business his father set up for him.  The rentier class will live in a world apart from their countrymen.

Obama is weak and pathetic, but he understands this, and may do something to mitigate the damage caused by the epoch of deleveraging and increasing inequality that we’re living through.

If Romney wins, the devil may have America by the throat.

Annina: We come from Bulgaria. Oh, things are very bad there, Monsieur. The devil has the people by the throat. So, Jan and I we - we do not want our children to grow up in such a country.
Rick: So you decided to go to America.
Annina: Yes. But we have not much money and...traveling is so expensive and difficult. It was much more than we thought to get here. And then Captain Renault sees us, and he is so kind. He wants to help us.
Rick: Yes, I'll bet.
Annina: He tells me you can give us an exit visa, but, but we have no money.
Rick: Does he know that?
Annina: Oh yes.
Rick: And he's still willing to give you a visa?
Annina: Yes, monsieur.
Rick: And you want to know...
Annina: Will he keep his word?
Rick: He always has.
Annina: Oh! Monsieur. You are a man. If someone loved you very much, so that your happiness was the only thing that she wanted in the world, but she did a bad thing to make certain of it, could you forgive her?
Rick: Nobody ever loved me that much.
Annina: And he never knew. And the girl kept this bad thing locked in her heart. That would be all right, wouldn't it?
Rick: You want my advice.
Annina: Oh yes, please.
Rick: Go back to Bulgaria.
Annina: Oh, but if you knew what it means to us to leave Europe, to get to America. Oh, but if Jan should find out. He is such a boy. In many ways, I am so much older than he is.
Rick: Yes, well, everybody in Casablanca has problems. Yours may work out.

Sunday, October 28, 2012

The Economist catches on

Via:  The Economist’s special report on inequality

Although inequality has been on the rise for three decades, its political prominence is newer. During the go-go years before the financial crisis, growing disparities were hardly at the top of politicians’ to-do list. One reason was that asset bubbles and cheap credit eased life for everyone. Financiers were growing fabulously wealthy in the early 2000s, but others could also borrow ever more against the value of their home.

That changed after the crash. The bank rescues shone a spotlight on the unfairness of a system in which affluent bankers were bailed out whereas ordinary folk lost their houses and jobs. And in today’s sluggish economies, more inequality often means that people at the bottom and even in the middle of the income distribution are falling behind not just in relative but also in absolute terms.

In search of true progressivism.

Friday, October 26, 2012

Wall Street is the welfare queen

Via:  today’s must read, The Dark Age of Money, an impassioned recitative of how “capitalism” and “free markets” have been transformed into “monetary fascism”—worldwide.

All Bow to the Welfare Queen

Total governmental transfers and assumed liabilities related to U.S. financial institutions since 2008 exceed the entire history of all social welfare programs for all free world economies collectively since Bismarck (do the numbers, its true).

Thursday, October 25, 2012

Debt, the big picture

Via: Felix Salmon

CEOs’ self-serving deficit manifesto

Felix Salmon

OCT 25, 2012 13:26 UTC


The WSJ has what it calls “CEOs Deficit Manifesto ” — a copy of the letter, signed by 80-something US CEOs, urging action on the debt and deficit. It’s not a particularly impressive document. It starts like this:

Policy makers should acknowledge that our growing debt is a serious threat to the economic well-being and security of the United States.

It is urgent and essential that we put in place a plan to fix America’s debt.


This is ridiculous. There are lots of serious threats out there to the economic well-being and security of the United States, and the national debt is simply not one of them. Nor is it growing. The chart on the right, from Rex Nutting, shows what’s actually going on: total US debt to GDP was rising alarmingly until the crisis, but it has been falling impressively since then. In fact, this is the first time in over half a century that US debt to GDP has been going down rather than up.

So when the CEOs talk about “our growing debt”, what they mean is just the debt owed by the Federal government. And when the Federal government borrows money, that doesn’t even come close to making up for the fact that the CEOs themselves are not borrowing money.

In fairness, here is the picture of *federal* debt to GDP:


I am in favor of redistributive social policy in an era when the market system fails to provide a living for people who desire work and can’t find it.  The Benign Brodwicz program has always been, “poverty level workfare and health care for the unemployed.”  The conservatives will say such government spending doesn’t “produce” anything, but in first round of spending after the transfer all that money goes into the spending stream for consumer goods that are some business’s revenue.  My story is that with sufficient redistribution (requiring work in exchange for benefits; to some extent as FDR recognized the government will have to act in loco parentis) the constipation of aggregate demand we now face—falling incomes for the majority, exploding incomes for those at the top of the socioeconomic pecking order—can be unblocked.

The rich, however, seem to be willing to create a separate country for themselves within a South American-style society in which the people in the barrios are simply ignored. 

But this is self-serving only in the narrowest sense, and in the short run.  See the recent post on the evidence for the societal benefits of greater equality.

The current mantra is, “You first, after me.”  Social Darwinism is back.  The self-regarding CEOs don’t like freeloaders, and want to cut them off, but their CAPEX spending plans reveal what they think that will do to the economy.

If Mitt wins, one hopes the old “moderate Mitt” will come out and move slowly. 

There’s no better welfare state than the Mormon church, with its income guarantee for unemployed members.  Perhaps Mitt’s secret plan is to get everyone to convert to Mormonism….

Wednesday, October 24, 2012

The spirit level: a primer

Via:  Check out the graphs.  This work was largely done by an epidemiologist.  Economics with its obsession with monetary measures looks pretty pathetic in this light.  Social welfare theory—not.

The Evidence in Detail

The evidence in detail:
Physical Health

People in more equal societies live longer, a smaller proportion of children die in infancy and self-rated health is better. Find out more.

Mental Health

People in more equal societies are far less likely to experience mental illness. Find out more.

Drug Abuse

People in more equal societies are less likely to use illegal drugs. Find out more.


Children do better at school in more equal societies. Find out more.


Unequal societies are harsher, they imprison a higher proportion of people. Find out more.


Obesity is less common in more equal societies. Find out more.

Social Mobility

There is more social mobility in more equal societies. Find out more.

Trust and Community Life

Communities are more cohesive and people trust each other more in more equal societies.Find out more.


Homicide rates are lower and children experience less violence in more equal societies. Find out more.

Teenage Births

Teenage motherhood is less common in more equal societies. Find out more.

Child Well-being

Unicef measures of child well-being are better in more equal societies. Find out more.

Equality not Growth

Further economic growth will not improve our health or well-being. For a better quality of life we need greater income equality. Find out more.

Rich and Poor Countries

More equal societies spend a higher proportion their income on overseas aid and perform better on the Global Peace Index. Find out more.

Equality and Global Warming

Inequality fuels status competition, individualism and consumerism. It makes it harder to gain public support for policies to reduce global warming. Find out more.

The definition of insanity

Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein

Obama missed the opportunity to make the point that doing what George W. Bush did—cutting taxes, mostly for the rich, and increasing military spending—is exactly what busted the budget in the last decade and started down the path of trillion dollar deficits.

“The last president cut taxes for the rich and increased military spending, and did we get jobs?  Where are the jobs?  NO, we got financial crisis and a mini-depression that I inherited.  So why would doing the same thing again work this time?”

Oh, he tried to make the point, but he lacked the emotional force required to counter an attack dog like Romney.

The national spirit level has sunk to new depths in recent weeks.  The Republicans appear to have successfully scapegoated Obama. 

The American social contract is broken.

Tuesday, October 23, 2012

Stock market demographics

Via:  San Francisco Fed  h/t

To examine the historical relationship between demographic trends and stock prices, we consider a statistical model in which the equity price/earnings (P/E) ratio depends on a measure of age distribution (for another example, see Geanakoplos et al. 2004). We construct the P/E ratio based on the year-end level of the Standard & Poor’s 500 Index adjusted for inflation and average inflation-adjusted earnings over the past 12 months. We measure age distribution using the ratio of the middle-age cohort, age 40–49, to the old-age cohort, age 60–69. We call this the M/O ratio.

Projected P/E ratio from demographic trends

Okay, in addition the current younger generation is saddled with record levels of student loan debt, the economy isn’t generating many good paying jobs, and we’re in a post credit crisis sucky cyclical recovery.

By these lights the bear market could go another ten years.

MMT hits the IMF

Via:  Telegraph  Ambrose Evans-Pritchard.  Article contains link to IMF study.  Recognition seems to be growing that it was a mistake to pile a bunch of private bad debt onto nation states’ sovereign debts.  Should have thought of that before.

One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time. It could be done cleanly and painlessly, by legislative command, far more quickly than anybody imagined.

The conjuring trick is to replace our system of private bank-created money -- roughly 97pc of the money supply -- with state-created money. We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666.

Specifically, it means an assault on "fractional reserve banking". If lenders are forced to put up 100pc reserve backing for deposits, they lose the exorbitant privilege of creating money out of thin air.

The nation regains sovereign control over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the rest. That at least is the argument.

Some readers may already have seen the IMF study, by Jaromir Benes and Michael Kumhof, which came out in August and has begun to acquire a cult following around the world.

Entitled "The Chicago Plan Revisited", it revives the scheme first put forward by professors Henry Simons and Irving Fisher in 1936 during the ferment of creative thinking in the late Depression.

Irving Fisher thought credit cycles led to an unhealthy concentration of wealth. He saw it with his own eyes in the early 1930s as creditors foreclosed on destitute farmers, seizing their land or buying it for a pittance at the bottom of the cycle.

The farmers found a way of defending themselves in the end. They muscled together at "one dollar auctions", buying each other's property back for almost nothing. Any carpet-bagger who tried to bid higher was beaten to a pulp.

Continues here.