Wednesday, January 30, 2008


While I was considering my previous post, the Senate voted to extend warrantless wiretapping for another fifteen days. Well, so much for that criterion for a Clinton/Obama choice. Both of them assured John Edwards that ending poverty will be a central theme of their administrations. I'll believe it when I see it.

Y'know, our "democratic processes" sometimes make it totally impossible to cut through the bullshit. Then again, it may be that when you cut through the bullshit you just find more bullshit on the other side.

Life After Edwards

Like a lot of us out in the far left wing of the Democratic Party (and like a lot of white males, I'm told), I backed John Edwards. Now that he's out of the race, I have to do some fast thinking between now and Super-duper Tuesday, when it's my turn to vote in a primary.

As you may have gathered, I'm not a big fan of the Clintons -- although I have higher hopes for Hillary than I ever did for Bill. Hillary, I believe, could be quite good at moving legislation through Congress, and I rather like her wonkishness. I've always distrusted charisma, and in my recollection, JFK didn't accomplish much of anything in his 1000 days. It was Lyndon Johnson, the consummate politician, who really moved forward the cause of social justice.

I'm impressed by Ted Kennedy's endorsement of Barack Obama. Ted Kennedy has been on what I think of as the right side of the vast majority of issues over the years, but I honestly can't say I know just why Kennedy endorsed Obama. Did one or both of the Clintons do something that left Ted pissed off? Could it be that Teddy sees himself exercising more influence in an Obama Administration than he ever could in a Clinton Administration? Or does he genuinely think that Obama would be a better candidate, or a better president? I don't know.

Something that would move me towards one candidate or the other would be a commitment to filibuster the so-called "Protect America" act, the Bush/Cheney assault on the Constitution that would legalize warrantless wiretapping and give retroactive immunity to the telecom companies that cooperated in previous illegal wiretaps. So far, neither Hillary nor Barack has done so -- and agreeing to the fifteen-day extension of the law proposed by the House will not give me any satisfaction. I want to know what each of them means to do before February 5.

Tuesday, January 29, 2008

"Honest, hon, I was just tryin' to help!"

So last week, I was thinking that Hillary was moving away from Bill. Well, maybe I was just hoping. Anyway, Bill came roaring back. Big time.

Maybe Barack would have done just as well in South Carolina if Bill hadn't so completely and irresponsibly screwed up, but I don't think so. Bill Clinton is no dope -- so what happened?

Here's a thought: maybe he wanted to screw up. Not consciously, perhaps, but on some level... (My ex used to accuse me of "passive aggression." I never saw it, of course, and "no dope" is a pretty fair description of me too. It's always easier to see faults in others that you miss in yourself.)

The Clintons have been a successful political partnership for many years, but you have to bet that two such highly competitive people compete with each other too. Sadly, Bill's presidency will be best remembered for a single blowjob. What might Hillary accomplish in the office? Whatever it might be, it's bound to be better than a blowjob.

But wasn't he hurting his own "legacy" as well? Of course! But what the hell -- the things our bloated but vulnerable egos inspire us to do don't always leave us smelling like roses. My advice to Hillary is to stuff Bill in a closet somewhere until the primaries are over -- and, if she wins the primary, to keep him out of the way until after the election. (Maybe he could solve the Middle East problem in his spare time. He'd like that.)

But what if she wins? What can she do with him for four or eight years? The last thing Hillary needs is to have Bill kicking around the White House, getting both of them in trouble.

My suggestion: make him Ambassador to the United Nations. He could stay in the Greater New York area, where he could make use of his house, his offices in Harlem, and an endless supply of chubby Jewish girls. Moreover, he'd probably make a pretty good job of it.

Friday, January 25, 2008

Action on the economy! (Well, sort of.)

First, the monetary policy: the overnight rate was reduced by 75 basis points in a "surprise" action by the Fed, and another half-percent cut is expected at the next regular meeting. The main impact is that Wall Street will momentarily stop screaming, "You're our bitch, Ben, and don't you forget it!"

Next comes the fiscal policy: the House and the Administration agreed to "compromise" on an "economic stimulus" bill. Certain Democratic members of the Senate will bloviate on the need for an extension of unemployment insurance before they take their seats and vote for "the best package we could get." Certain Republicans will bloviate on the intolerable expansion of the federal deficit, then vote to further expand that deficit with continued funding of the Iraq fiasco.

Neither the monetary policy nor the fiscal policy will bail our economy out of the mess its in, and the best we can hope is that they do nothing at all rather than make things worse. Let's begin by looking at monetary policy, and save the fiscal policy for another day.

Who controls the money supply?

Traditionally, a cut in the overnight rate ripples through credit markets and leads to generally lower interest rates, expanding the money supply by making it easier to borrow. Businesses and individuals use easier credit to buy more goods and services, which stimulates the economy. Sadly, these are not traditional times. Because of government's growing failure to regulate financial markets, the Federal Reserve lost control of the money supply.

The origin of the current credit crisis is not that it was too hard to get credit, but too easy. We're all familiar with the subprime mortgage fiasco -- banks extended credit to people who had no chance of making their mortgage payments once their adjustable rates reset at higher levels, then repackaged those flawed mortgages as supposedly "safe" securities which were sold to investors. The banks took their profits, the investors were left with the bad paper, and the increased demand for housing over-inflated its price -- the "housing bubble." Many who actually could afford their first mortgages borrowed against the inflated values of their homes with second mortgages and home equity lines of credit. When the bubble began to burst, and housing prices fell, some found they owed more than their homes were worth.

Less a focus of the media, but obvious to anybody who wasn't asleep, standards for other sorts of loans also declined rapidly. Our mailboxes were filled with "pre-approved" credit card applications, and auto loan offers bragged, "Bad credit? No credit? No problem!" While it's true that the 2005 change in the bankruptcy law gave the banks more protection from defaults on credit card debt, you still can't get blood from a stone. More and more families, including many who hold conventional mortgages or none at all, have debts they cannot pay.

Financial institutions like Citigroup and Merrill-Lynch have been "writing down" billions of dollars in debts they never will collect. So far, the losses come from subprime mortgages they were unable to securitize before the housing bubble burst, but we can expect even more write-downs from credit card defaults and other debts. A write-down represents a loss of liquidity. Every write-down means there is less money to lend.

Citigroup, for one, has been raising new capital by selling preferred stock to foreign investors, including sovereign wealth funds. Preferred stock is not voting stock, but it pays a guaranteed dividend. We don't know how much Citigroup will be paying for its bailout funds, but no matter how far the Fed cuts the overnight rate, interest rates at Citi will have to be high enough to cover its new expenses.

Also, no matter how far the Fed cuts rates, banks will not go back to the kinds of lending practices that caused their current problems. Quite probably they will be extremely conservative for a while, and credit will remain tight. New mortgages are being written for those with good credit, but primarily to refinance existing mortgages at lower, fixed rates -- not to buy refrigerators, second homes, and Hummers.

The recession is here, and it won't be going away very soon. Our central bank and our government, by failing to regulate the financial industry, relinquished control of the money supply to a self-serving, greed-driven corporate culture. We'll see if those elected next November have the strength of character to restore the regulation necessary to avoid this kind of market failure in the future -- no matter how much of their campaign funds came from Wall Street.

Tuesday, January 22, 2008

And in this corner...

So, is that a foot in his mouth? Yup. Here's what he actually said:

"I don’t want to present myself as some sort of singular figure. I think part of what’s different are the times. I do think that, for example, the 1980 election was different.

"I think Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not, and in a way that Bill Clinton did not. He put us on a fundamentally different path because the country was ready for it.

"I think they felt like with all the excesses of the 1960s and 1970s, and government had grown and grown, but there wasn’t much sense of accountability in terms of how it was operating. I think people, he just tapped into what people were already feeling -- which was we want clarity, we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing."

Now, political candidates say some pretty stupid and self-destructive things from time to time, but this wasn't just a momentary lapse -- he went on and on and on. What was he thinking? Granted, he wasn't endorsing Reaganomics -- but what was all that crap about "dynamism" and "optimism" and "entrepreneurship?" We need policy, not feel-good pap, which is Obama's stock in trade.

In the meanwhile, it's starting to sound like the current economic crisis is moving Hillary a bit to the left -- which is to say, further from Bill. In the early years of the Clinton Administration, I always had a strong suspicion that Hillary was considerably more liberal than her husband. Maybe I was right. I hope so.

Anyway, I think it's time to push Bill off into the background. Push him far enough away, and she might be able to pick up some support from those of us planning to vote for John Edwards -- or, more important, from the delegates Edwards will be sending to the Democratic convention.

Most of America, these days, is too young to remember when conventions actually picked Presidential candidates. Wouldn't it be something if both parties wound up picking their candidates at their conventions this time around? How about some real negotiation over the party platforms, and candidates who actually run on those platforms instead of on the advice of public relations firms.

It's starting to look like politics out there. Wow!

Wednesday, January 16, 2008

The politics of stagflation

Yesterday we heard that the Producer Price Index (PPI), which measures inflation at the wholesale level, was up 6.3% for 2007. Today, we learned that the Consumer Price Index (CPI). which measures retail prices, was up 4.1% -- the largest increase since 1990, and up quite a bit from last year's 2.5%.

Driving those increases were sharp increases in commodity prices -- crude oil, of course, but also corn, soybeans, cattle, copper, uranium, and other raw materials needed for production. The increases are demand driven. Developing countries, especially China and India, are now in the market for products previously hogged up by the United States and Western Europe. As the Chinese and Indian economies continue to grow, competition -- and prices -- can only increase.

There are those, in government and the business community, whose rose-colored glasses seem to be affixed to their heads with nails driven through their frontal lobes. A few still say we can dodge the recession that already has started; others claim that a recession in the United States will halt the growth of commodity prices.

Sorry, but it ain't gonna happen. We're in for a rough ride.

When prices are going up and incomes are going down, both consumers and businesses suffer. In last few recessions, people maintained their standards of living by using credit. This time around, though, credit is tight. Lots of people already carry more debt than they can pay back, and banks finally are raising their lending standards to where they should have been all along.

As I explained a couple of posts ago, when you have inflation and recession at the same time, it's called stagflation -- and interest rate cuts by the Fed won't solve the problem. Lower interest rates, combined with our weak dollar, will just make it harder to attract the foreign capital we'll need to get the economy going again.

So if the Fed can't save us, who can?

Oh, crap. Looks like it's gonna have to be Congress. Oh, crap, crap, crap! But what, you ask, can Congress do?

A really great start would be removing the tariff on imported ethanol, currently 54 cents a gallon. Brazilian ethanol, made from sugar cane, would be cheaper than our own, which is made primarily from corn. There would be some impact on gasoline prices, but even more impact on the price of food.

Corn used for ethanol can't be used to feed animals, so meat, egg, and dairy prices have gone up sharply. As more agricultural land is used to grow corn for ethanol, there is less available to grow wheat and other grains, pushing food prices even higher. Also, let's not forget the cost of the corn sweeteners that add empty calories to so much of what we eat.

While it's eliminating the ethanol tariff, Congress also could switch the $2.5 billion subsidy paid for production of corn-based ethanol to more cost-efficient forms of alternative energy. Once food and energy prices drop, consumers will have more money to spend in other sectors of the economy. Wouldn't that be great?

It won't happen, of course, because the agribusiness lobby is just too strong, and some of our elected representatives are just too dependent on agribusiness money. Instead, we'll get a few tax cuts and a few spending programs, all targeted at recession rather than inflation, and all more cosmetic than functional.

And we'll all just tighten our belts and try to ride it out.

Monday, January 14, 2008

On regulation of the financial sector

Imagine my delight to discover that the article I meant to write today already had been written by Al Meyerhoff and published in today's Los Angeles Times! It's a must-read, so stop wasting your time here and go straight to:
Financial forces run amok

Back already? Well, perhaps you'd like to know which Presidential candidates are, as Meyerhoff put it, "lining up at the Wall Street trough." A great way to do that is by trying out a new feature at the website:

Saturday, January 12, 2008

What's worse than a recession?

Yes, depression is worse, but not an immediate concern. We still have plenty to worry about, though.

Back in the seventies, we ran into an economic situation that broke the rules. It was so unprecedented that economists had to make up a new name for it: stagflation. Briefly, stagflation is what you get when the economy isn't growing and unemployment is up (recession), but prices continue to rise (inflation). It's the worst of both sides of the business cycle, rolled into one.

Economists still debate the specific mechanics of what happened, but all agree that rapidly increasing fuel prices played a major role. Higher energy costs are reflected not only in the prices of gasoline and heating oil, but in the price of food and virtually every other consumer good. It takes energy to produce and transport a product, and at least part of the costs of production must be passed along to the consumer.

If income had kept pace with price increases back then, inflation would have been the only problem, but that's not what happened. Faced with increased fuel costs while trying to remain competitive, many producers responded by cutting labor costs. As workers were laid off, demand dropped, putting more pressure on business.

According to classic economic theory, when demand drops, prices should drop as well -- but thanks to unprecedented cooperation among the OPEC states, fuel prices continued to rise. Producers in the United States responded in the only way they could: they pushed up product prices while continuing to lay off workers. Demand for goods and services continued to fall, but prices kept rising. High unemployment put downward pressure on wages, decreasing demand even more. Times were hard.

What saved us was the collapse of oil prices in 1982. Our slowing economy decreased demand for oil, and the OPEC oil cartel couldn't keep its act together. Various member states began selling more than their quotas to maintain their incomes; competition returned to the oil business, and the price of crude fell to less than half of what it was at its peak. The Reagan Administration claimed credit, of course.

There are clear similarities between 1973 and 2008. Adjusted for inflation, today's oil prices are higher than they were at their peak in 1982, and the dollar is weaker than it has been at any time since the 1970s. The sub-prime mortgage crisis and the immense increase in federal borrowing to finance high-end tax cuts and the war in Iraq have sharply reduced the availability of credit. Less credit means less demand for goods and services, which leads to less demand for labor, and higher unemployment. There is no indication that oil prices will drop sharply any time soon.

Fed Chairman Ben Bernanke, under considerable pressure from Wall Street, tells us to expect further cuts in the discount rate, but the threat of stagflation puts the Fed into a double-bind -- cutting interest rates can make the coming recession less onerous, but create inflationary pressures. Cutting interest rates also will put further downward pressure on the dollar, making all imports -- including oil -- more expensive.

It's also unlikely that rate cuts will be increase demand as much as they may have done before the credit crunch. Burned in the sub-prime meltdown, financial institutions are hesitant to offer consumer credit as readily as in the past, and consumers who can qualify are beginning to pay down their debt rather than make new purchases.

In other words, cutting rates might do more harm than good -- except, of course, for hedge fund managers and other financial services executives, who earn annual bonuses based on how well the market does. Rate cuts do tend to send stock prices higher, and we can't expect the richest individuals in the country to get by on just their seven-figure salaries, can we?

Thursday, January 10, 2008

Wednesday, January 9, 2008

Too much goddamned money

Back during the first term of the Reagan Administration, I remember a conversation I had with a physicist who recently had immigrated from Communist Poland. He was enjoying a much higher standard of living over here, and was very happy to be living in the United States. "Back in Poland," he observed, "the government owns all the big businesses."

"Here," I replied, "the big businesses own the government."

It was still an overstatement back then. The Reagan Revolution was in its infancy, and although Reaganauts were happily slashing government's regulatory powers (anybody remember the savings and loan crisis?) and school lunches*, it would be another 25 years before the revolution was complete. (Yes, this includes participation by the Clinton Administration.)

Today, we are told, voters are clamoring for change. More than anything, they want government that is more responsive to their wants and needs. Let's have a look at one example.

According to a CBS News poll conducted in September, a majority of Americans support a single-payer system of national health insurance. Nevertheless, no viable Democratic candidate (sorry, Dennis) has proposed single-payer as a solution to our health care problems. And why not? Isn't this a democracy?

Nope. Sorry, but it isn't.

If you'd had a few competent teachers, you would know that the USofA is a republic. From time to time in our history, it is a democratic republic, in that those who govern are genuinely representative of the people. At other times, it is a plutocratic republic: those who govern represent monied interests. The plutocrats ruled during the Gilded Age, when Mark Twain remarked that we had "the best Congress money can buy." They rule again today.

The blatant abuse of power by Bush/Cheney is just the icing on the cake. The Reagan Revolution, which delivered this country into the hands of the plutocrats, was complete before George W. Bush was sworn in. What we experienced over the past seven years was just the first unabashed use of that power, with emphasis on the transfer of more and more wealth to the super-rich.

As ordinary Americans, our biggest problem is that some people just have too much goddamned money. They use it to buy political power, and they use that power to accumulate even more money -- at the expense of ordinary Americans.

The only hope for those of us in the "lower classes" is the fact that the plutocrats are not a unified block. Now that the poor have been drained dry and the middle classes are buried in debt, they are beginning to turn on each other.

John Edwards has positioned himself as a doughty David fighting the Goliath of corporate power. This makes sense, because Edwards and his most generous contributors are tort lawyers, who earned their own fortunes by suing corporations. As corporate interests become more and more powerful, they pay for legislation ("tort reform") that makes it harder for tort lawyers to sue, and much harder for them to win large settlements.

Understandably, the Edwards campaign has not received much play in the corporate media, and his chances of winning the presidential nomination are slight (although still far better than those of Dennis Kucinich, the real populist and people's representative to whom I apologized above.) Personally, I don't care what motivates the Edwards campaign -- I still see him as the best chance to undo some of the damage done over the past few decades.

Both Clinton and Obama are running to the alleged "center," and both their campaign staffs are full of neo-liberals from the Bill Clinton White House. Frankly, I don't see much difference between them. Right now, I suppose I'm hoping for a minor miracle -- but I'm not holding my breath.

If you'd like to explore who's paying for whom, try

Change? They want change?

No shit!

Things always change, of course -- that's the nature of, well, things. Sadly, they often are inclined to change for the worse. At this point in our history, things are as bad as they've been for quite some time, and it appears they'll get worse before they get better. That, of course, is not the kind of change people are demanding. People want things to get "better." The question is, how?

The leading Republican candidates for president don't seem to have an answer to that question. They all seem to think what's needed is more of the same; more tax cuts, more war, more restrictions on civil liberties. As for the leading Democratic candidates, well...

Hillary Clinton says, "Just trust me. My experience as First Lady means I understand the change you want even better than you do, and I promise to deliver. It'll be just like when Bill was President. You'll be back to drinking lattes and making paper fortunes in no time flat!"

Uh huh. She'll just "change" things back to the way they were before Dubya (I miss you, Molly Ivins) and all your dreams will come true. But what if you're like me, and the Clinton Administration made you nostalgic for the liberalism of the Nixon Administration? And by the way, just what's the chance of Hillary voluntarily giving up those new authoritarian powers Bush/Cheney usurped for the presidency? (I'd put it just shy of 0.03%.)

Barack Obama, darling of the very young and the incurably romantic, wants us to believe he'll be able to successfully put an end to red/blue animosities. In a new spirit of hope, he promises, we'll all do what's best for America.

Could anybody elected to the United States Senate be innocent enough actually to believe that? Do you believe that? If you do, please forgive my expression of awed incredulity. Try to remember that while you're holding hands in a circle and singing Kumbaya, it's really easy to pick your pockets.

Both Clinton and Obama are very well funded, though, so they must be doing something right. To figure out what that might be, we'll have to follow the money -- but I'll save that (and John Edwards) for another day.