Merwedeplein, Amsterdam
Ilargi: Miep Gies died today. She was 100 years old. Born Hermine Santrouschitz in 1909, Miep worked for Otto Frank in Amsterdam when WW2 started. She helped hide the Frank family in the "achterhuis" on the Prinsengracht, the secret room (annex) in the shadow of the Westerkerk church the family lived in for a long time, until they were betrayed.
After Anne was put on a train to the Bergen Belsen concentration camp in 1944 and died there from typhus in March 1945, Miep managed to retrieve her diary, which she handed to Anne’s father, Otto, the sole survivor from the household, in 1945, after the war had ended. In 1947 Otto had his daughter's diary published, and everything else, including now Miep Gies, is history.Now I’m not Jewish, nor was I born and bred in Amsterdam proper, but I am an Amsterdammer nonetheless, and have for as long as I can remember been aware of what happened to the Jordaan neighborhood in the city that borders on the part of the Prinsengracht where the Westerkerk and the Anne Frank House are. To this day, there are a ton of words in Amsterdam that are unique to the city, and there are a ton more in the Dutch language at large, that are all joods, jiddish, yiddish.
Every Dutch person knows that Mokum means Amsterdam. A yiddish term. Like mazzel! (good luck), bajes (prison), gabber (mate, friend), gein (fun), geteisem ('bad' people), goochem (smart), jatten (to steal), kapsones (“hot air” behavior), penose (criminals), pleite (outtahere), schlemiel (dumbass), smeris (cop), smoes (excuse), sores (trouble), stiekem (stealthily), tof (nice!).
The Dutch language would be a hell of a lot poorer if not for the centuries of Jewish culture that enriched the country, and most of all Amsterdam. Rembrandt and Vermeer, and all of their 17th century peers, would not have created what they did without the Jews. The tulip bubble, well, perhaps, but the spice trade that made the city the center of the universe would never have happened without Amsterdam’s Jordaan people. And no, rich they were not. In fact, for most of them most of the time, they were the poorest of the poor.
And it’s all still there, the culture, the songs, the humor, the words. It’s just that the people are not. They were renditioned away.
Through the ages, Holland was a refuge for Jewish people from all over Europe. In the 1940's, they were put on transport trains to camps, and 90% never came back, including Anne. The city center, and the Jordaan, may now be populated with well-to-do 21st century citizens, but if you take the time to stand still on one of the many bridges in the hood and you listen well, you can still feel the emptiness left behind by those who were forced to die like so much cattle.
And that, my friends, is my personal hinterland. That is me.
And don’t worry, I know about the Dutch part in the slave trade, and a 100,000 other despicable trades. My people are about as guilty as they come. And that is me too. But my people were also welcoming the Jews for centuries when they were cast out everywhere else.
History is a multi-pronged tool, a bird of many feathers and a beast of many moods. Nothing changed there, and nothing ever will. We are a blood-thirsty species, more, much more, than we are willing to allow. It will decide our way forward as it has our ways in the past. And we will not make it a pretty picture. We simply can't. We'll be cruel as can be. As we are.
But we will also have always another Anne Frank and another Miep Gies. One lived to be 15 years old, the other 100. Both saw, first-hand, more gratuitous violence than most of us will ever see in our lifetimes. There is some layer of comfort in there, and I hope you will forgive me for not being able to identify it off the bat. I’m just sure it's there.
Here’s Miep Gies in her own words:
I am not a hero
'More than twenty thousand Dutch people helped to hide Jews and others in need of hiding during those years. I willingly did what I could to help. My husband did as well. It was not enough.
There is nothing special about me. I have never wanted special attention. I was only willing to do what was asked of me and what seemed necessary at the time."
Buy American: "Anti-China Backlash" Coming
Recent import/export data show China replaced Germany as the world's largest exporter in 2009, and the U.S. as the world's biggest auto market. In 2010, China's surging economy is set to supplant Japan as the world's second largest. With the global economy still in trouble, especially in U.S. Europe, China's rise is spurring a "real anti-China backlash," according to Gerald Celente, director of the Trends Research Institute. "Those who have the gold rule [and] a lot of people don't want to see China rule."
In addition to U.S. tariffs on Chinese tires and rolled steel, Celente says there are already more than 200 different trade barriers erected globally, with more to come: "You're going to see ‘Not Made in China' become a slogan around the world," he predicts. (Side note: on a recent trip to San Juan, I noticed a few stores in the old part of the city promoting their lack of Chinese-made goods.) In part because of anti-China sentiment, Celente says the "buy local" movement is going to pick up steam in the coming years - and not just in the U.S. "We're going to start seeing trade barriers go up more and more and more," he says. "It's not isolationism but survivalism." Unlike most mainstream economists, Celente does not, however, believe trade barriers are necessarily bad for the global economy, saying there really isn't free trade today but the "dumping of products using cheap labor."
The Other Plot to Wreck America
by Frank RIch
There may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.’s and credit-default swaps, not so much.
What we don’t know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.
The window for change is rapidly closing. Health care, Afghanistan and the terrorism panic may have exhausted Washington’s already limited capacity for heavy lifting, especially in an election year. The White House’s chief economic hand, Lawrence Summers, has repeatedly announced that “everybody agrees that the recession is over” — which is technically true from an economist’s perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning.
It’s against this backdrop that this week’s long-awaited initial public hearings of the Financial Crisis Inquiry Commission are so critical. This is the bipartisan panel that Congress mandated last spring to investigate the still murky story of what happened in the meltdown. Phil Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation.
He wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.
Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.
As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank’s executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.
Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)’s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave.
Rubin has never apologized, let alone been held accountable. But he’s hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank’s implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.
Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill’s — some 1,600 public libraries, just for starters — but also for creating a steel empire that actually helped build America’s industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said recently, there is not “one shred of neutral evidence” that any financial innovation of the past 20 years has led to economic growth. Citi, that “innovative” banking supermarket, destroyed far more wealth than Weill can or will ever give away.
Even now — despite its near-death experience, despite the departures of Weill, Prince and Rubin — Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn’t grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for “not paying back their loans.” This from a bank that still owes taxpayers $25 billion of its $45 billion handout!
If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it’s because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi’s credit card operation. Johnson was the only Senate Democrat to vote against Congress’s recent bill policing credit card abuses.
Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.
More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities.
Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman’s Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next. If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street’s status quo largely intact. That’s the ticking-bomb scenario that truly imperils us all.
America slides deeper into depression as Wall Street revels
by Ambrose Evans-Pritchard
December was the worst month for US unemployment since the Great Recession began. The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters. Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.
The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens. Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck's Grapes of Wrath.
Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor "harsh, repugnant, shocking and repulsive". We are not far from a de facto moratorium in some areas. This is how it ended between 1932 and 1934, when half the US states declared moratoria or "Farm Holidays". Such flexibility innoculated America's democracy against the appeal of Red Unions and Coughlin Fascists. The home siezures are occurring despite frantic efforts by the Obama administration to delay the process.
This policy is entirely justified given the scale of the social crisis. But it also masks the continued rot in the housing market, allows lenders to hide losses, and stores up an ever larger overhang of unsold properties. It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next. US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. "If the 2008 and 2009 loans go bad, then we're back where we were before – in a nightmare."
David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War. Fed hawks are playing with fire by talking up about exit strategies, not for the first time. This is what they did in June 2008. We know what happened three months later. For the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever.
The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) in since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc. Professor Tim Congdon from International Monetary Research said the Fed is baking deflation into the pie later this year, and perhaps a double-dip recession. Europe is even worse.
This has not stopped an army of commentators is trying to bounce the Fed into early rate rises. They accuse Ben Bernanke of repeating the error of 2004 when the Fed waited too long. Sometimes you just want to scream. In 2004 there was no housing collapse, unemployment was 5.5pc, banks were in rude good health, and the Fed Multiplier was 1.73. How anybody can see imminent inflation in the dying embers of core PCE, just 0.1pc in November, is beyond me.
Mr Rosenberg is asked by clients why Wall Street does not seem to agree with his grim analysis. His answer is that this is the same Mr Market that bought stocks in October 1987 when they were 25pc overvalued on Shiller "10-year normalized earnings basis" – exactly as they are today – and bought them at even more overvalued prices in 2007, long after the property crash had begun, Bear Stearns funds had imploded, and credit had its August heart attack. The stock market has become a lagging indicator. Tear up the textbooks.
Main Street to Wall Street: We don't buy the rally
Edward Shook can't resist a bull market. He rode the one in the late 1990s and lost $350,000 in the dot-com collapse. Shaken but optimistic, he bought into the bull market that followed — and lost another $350,000 from his portfolio's peak when stocks fell to a 12-year low in early 2009. Now the 65-year-old roofing contractor from Raleigh, N.C., says "he's getting smart for a change." Even though the Standard & Poor's 500 has climbed 68 percent since March, Shook is largely leaving the stock market "to the crooks that run" it. He's sold shares and bought bonds instead, with no regrets.
Millions of other Americans are steering the same course. After being key players in bull runs of the past, small-time investors have not only stopped buying, they're selling. The question for the new year: If the man on the street doesn't jump back in, will stocks continue to defy gravity? So far, the market's comeback is almost entirely due to buying by professional investors at hedge funds, pension funds, banks and other institutions. "We've never seen this before — such a huge rally, and the little guy is out," says Vincent Deluard, a strategist for TrimTabs Investment Research, a Sausalito, Calif., firm that tracks mutual fund flows to get a sense of what individual investors are doing.
Mutual funds are a good proxy for such investors because more than three-quarters of fund assets are held by individuals, both directly and through retirement plans. Small investors yanked a net $14 billion from stock mutual funds from the beginning of last year through mid-December. That's on top of a net $245 billion withdrawn in 2008, according to TrimTabs. The firm says most of $592 billion taken out of money market mutual funds last year has gone into bond and bond-hybrid funds instead.
Some bulls say ordinary folks are likely to start buying again soon, given the encouraging economic news lately. Others are not so sure, and fear that if investors drag their feet much longer, stocks could flatline. According to the Federal Reserve, individuals held 80 percent of the $19 trillion in stock in U.S. companies, both private and public, at the end of September. That means they can have a big impact on the market whether they own the stock directly or through mutual funds.
There's also a third view, a decidedly bearish one that's sure to delight anyone who's ever felt taken by a pushy broker or an optimistic analyst report or cheerleading by financial journalists: Maybe, just maybe, the little guy is right to be shunning the market now, and it's the experts who are wrong. "People have been lured into two bubbles seven years apart, and for a lot of them it's over," says David Rosenberg, chief economist at Toronto money manager Gluskin Sheff. "The bulls say if the market is up this much without retail investors, just watch when they come in, but it isn't going to happen." Rosenberg says investors who have not been spooked or angered by the market are probably too poor to buy anyway.
The Investment Company Institute says 5 percent of the 24 million 401(k) investors it tracks stopped contributing to the plans through the first nine months of last year, 1.3 percentage points higher than in all of 2008. It's impossible to say how much that drop is due to disaffection with the markets or to strained household budgets. Vanguard, the big mutual fund company, says it expects a similar dropout rate in its 401(k) programs for 2009 when all the year's numbers are tallied. It notes that most investors are sticking to plan, though. Only 11 percent of its 401(k) customers shifted investments among funds in the first nine months last year, lower than the average this decade. It says the moves showed a slight shift to bonds.
Bears say a pullback, combined with a new distaste for stocks, could drag returns down for years and change the way we see stocks: more as vehicles for throwing off dividends, as they were valued in the past, than as a route to riches. If Main Street is correct in anticipating this, it will be a rare flash of prescience. In the year following the October 1987 crash, investors pulled $20 billion out of stock funds, missing a big snapback in prices, according to data from TrimTabs. Then they made the opposite mistake, putting $22 billion into the market in the year before the start of the early '90s recession and market drop.
Burned by the 2000 dot-com bust, they pulled $81 billion from stock funds in the last six months of 2002, according to TrimTabs. The S&P 500 returned 29 percent the next year. Individuals have a lot riding on the funds. Nearly half of households that own mutual funds have three-quarters or more of their financial assets tied up in them, the Investment Company Institute says. "The typical investor gets it dramatically, persistently wrong," says Larry Swedroe, director of research at Buckingham Asset Management in Clayton, Mo. "He buys high and sells low — and that's a dumb strategy."
As if that's not bad enough, Swedroe says, investors often jump in and out of the market via actively managed mutual funds. The idea is to leave stock picking to the experts. The problem is, there's no proof the professionals can consistently outperform the market, at least not ones running mutual funds. University of Maryland finance professor Russ Wermers studied 2,076 funds over 32 years through 2006 and found that actively managed stock funds underperformed passive index funds by a risk-adjusted 0.97 percentage point a year, after accounting for fees.
Swedroe thinks investors blew it by bailing out earlier this year only to miss the biggest run-up since the 1930s. TrimTabs' Deluard notes they may have compounded that mistake by piling into bonds that will drop in value should interest rates rise this year as the market expects. Mike Pickett of Stockbridge, Ga., made the switch from stocks to bonds recently. After losing $500,000 in six months, he unloaded stocks near the market low early last year. Stocks now comprise 50 percent of his portfolio, down from 80 percent. "I was panicked," says Pickett, 67, a restaurateur. Still, he says, he has no regrets. "I'm sleeping at night."
Bad timing notwithstanding, there are strong arguments for continuing to stay away from stocks. For starters, stocks are up because of unprecedented fiscal and monetary stimulus has helped push them there. What happens once it's gone? Rosenberg, the Gluskin Sheff bear, says the market could lose a third of its value once the government props are kicked away.
Jeremy Grantham, 71, the founder of Boston money manager GMO who warned that housing and stocks were widely overvalued a few years ago, thinks investors should tread carefully. According to his latest letter to clients, he thinks the S&P is fairly priced at 860, nearly a quarter below where it's trading now. Edward Shook has a scary figure of his own keeping him on the sidelines: that $700,000 he lost. "It's like investing in Bernie Madoff," he says of the stock markets. "Anyone not putting money into stocks has it right."
The Fed and the Crisis: A Reply to Ben Bernanke
by John B. Taylor
Federal Reserve Board Chairman Ben Bernanke spent most of his speech to the American Economic Association on Jan. 3 responding to the critique that easy monetary policy during 2002-2005 contributed to the housing boom, to excessive risk taking, and thereby to the financial crisis. Many have expressed the view that monetary policy was too easy during this period. They include editorial writers in this newspaper, former Fed policy makers such as Timothy Geithner (now the secretary of the Treasury), and academics such as business-cycle analyst Robert J. Gordon of Northwestern. But Mr. Bernanke focused most of his time on my research, especially on a well-known policy benchmark commonly known as the Taylor rule.
This rule calls for central banks to increase interest rates by a certain amount when price inflation rises and to decrease interest rates by a certain amount when the economy goes into a recession. My critique, which I presented at the annual Jackson Hole conference for central bankers in the summer of 2007, is based on the simple observation that the Fed's target for the federal-funds interest rate was well below what the Taylor rule would call for in 2002-2005. By this measure the interest rate was too low for too long, reducing borrowing costs and accelerating the housing boom. The deviation from the Taylor rule, which had characterized good monetary policy during the previous two decades, was the largest since the turbulent 1970s.
In his speech, Mr. Bernanke's main response to this critique was to propose alternatives to the standard Taylor rule—and then to use the alternatives to rationalize the Fed's policy in 2002-2005. In one alternative, which addresses what he describes as his "most significant concern regarding the use of the standard Taylor rule," he put the Fed's forecasts of future inflation into the Taylor rule rather than actual measured inflation. Because the Fed's inflation forecasts were lower than current inflation during this period, this alternative obviously gives a lower target interest rate and seems to justify the Fed's decisions at the time.
There are several problems with this procedure. First, the Fed's forecasts of inflation were too low. Inflation increased rather than decreased in 2002-2005. Second, as shown by economists Athanasios Orphanides and Volker Wieland, who previously served on the Federal Reserve Board staff, if one uses the average of private sector inflation forecasts rather than the Fed's forecasts, the interest rate would still have been judged as too low for too long.
Third, Mr. Bernanke cites no empirical evidence that his alternative to the Taylor rule improves central-bank performance. He mentions that forecasts avoid overreacting to temporary movements in inflation—but so does the simple averaging of broad price indices as in the Taylor rule. Indeed, his alternative is not well defined because one does not know whose forecasts to use. Moreover, the appropriate response to an increase in actual inflation would be different from the appropriate response to an increase in forecast inflation.
There are other questionable points. Mr. Bernanke's speech raises doubts about the Taylor rule by showing that another version of the rule would have called for very high interest rates in the first few months of 2008. But using the standard Taylor rule, with the GDP price index as the measure of inflation, interest rates would not be so high, as I testified at the House Financial Services Committee in February 2008. Mr. Bernanke also said that international evidence does not show a statistically significant relationship between policy deviations from the Taylor rule and housing booms. But his speech does not mention that research at the Organization for Economic Cooperation and Development in March 2008 did find a statistically significant relationship.
Mr. Bernanke claimed that "Economists who have investigated the issue have generally found that, based on historical relationships, only a small portion of the increase in house prices earlier this decade can be attributed to the stance of U.S. monetary policy." But two of the economists he cites—Frank Smets, director of research at the European Central Bank, and his colleague Marek Jarocinski—reported in the July/August issue of the St. Louis Fed Review that "evidence that monetary policy has significant effects on housing investment and house prices and that easy monetary policy designed to stave off perceived risks of deflation in 2002-04 has contributed to the boom in the housing market in 2004 and 2005."
These technical arguments are important, but one should not lose sight of the forest through the trees. You do not have to rely on the Taylor rule to see that monetary policy was too loose. The real interest rate during this period was persistently less than zero, thereby subsidizing borrowers. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, reported in a speech on Jan. 7 that during the past decade "real interest rates—the nominal interest rate adjusted for inflation—remained at negative levels for approximately 40 percent of the time. The last time this occurred was during the 1970s, preceding a time of turbulence."
Inflation was increasing, even excluding skyrocketing housing prices. Yet even when inflation is low, the damage of boom-bust monetary policy can be severe as Milton Friedman stressed in his strong criticism of the Fed in the 1950s and 1960s. Stepping back from the fray, an objective observer of all this evidence would have to at least admit the possibility that monetary policy was too easy and a possible contributor to the crisis. Not admitting the possibility raises concerns. One is that if such a large deviation from standard policy is rationalized away, it might happen again. Indeed, some analysts are worried now about the Fed holding interest rates too low for too long, causing another boom-bust and a shorter expansion.
Another concern is that, rather than trying to be vigilant and avoid causing bubbles, the Fed will try to burst them with interest rates. Indeed, one of the lines from Mr. Bernanke's speech most picked up by Fed watchers is that "we must remain open to using monetary policy as a supplementary tool for addressing those risks." We have very limited ability to fine tune monetary policy in such an interventionist way. Finally, there is a concern that the line of analysis in Mr. Bernanke's speech puts the full burden of preventing future bubbles on new regulation. Clearly the Fed missed excessive risks on and off the balance sheets of the banks that it supervises and regulates. That policy needs to be corrected. However, it is wishful thinking that some new and untried macro-prudential systemic risk regulation will prevent bubbles.
While I disagree with Mr. Bernanke's analysis, it is good news that the Federal Reserve Board has begun to examine its policies and publish its findings. This will help inform the Financial Crisis Inquiry Commission, which will soon begin holding public hearings on the causes of the financial and economic crisis. In the meantime I hope the Federal Reserve Board will continue with this new self-examination policy and transparently evaluate all its recent crisis-related actions, from the AIG bailout to the Mortgage Backed Security purchase program.
Mr. Taylor is professor of economics at Stanford University and a senior fellow at the Hoover Institution.
Time for Tim to go!
After a string of personal and political bungles by Treasury Secretary Tim Geithner, critics of the country's top money man are wondering what it takes to lose your job in Washington DC.
Geithner's fielding a fresh round of criticism after e-mails surfaced last week that showed he forced insurance giant AIG to keep quiet about tens of billions of dollars in payments it made to several Wall Street banks -- payment that represented full payouts funded by taxpayer cash that the banks otherwise wouldn't have received. The payouts were first revealed a year ago and were seen by many as a "back-door bailout" of Wall Street by Geithner. It was only learned last week that the Treasury chief moved to cover up the payouts.
READ THE CASE AGAINST THE SECRETARY (PDF)"We've seen an ongoing effort by Tim Geithner at the Federal Reserve and Treasury to do the public's work out of the public's view in ways that benefit the banking interest ahead of the public's," said Joshua Rosner, a managing director at Graham Fisher & Co. "It was under Tim's direction that we were given stress tests that were less than transparent and less than credible," he added.
The latest Geithner flap comes after enduring withering criticism on everything from his handling of the Troubled Asset Relief Program, to the stress test conducted on the major money center banks last year.
The damning string of mess ups stretch back 16 years and include:
* Geithner claiming he was unaware that millions in bonus payments were being made to some of the same AIG execs that presided over investing in risky derivative securities. Sen. Richard Shelby (R., Ala.) complained that Geithner was "out of the loop" on the bonus matter -- a position he should not have found himself in as a high-ranking financial official.
* Overseeing a much-maligned stress test that many view as not being "stressful" enough.
* In May 2007, as NY Federal Reserve Bank President he worked to reduce the capital required to run a bank -- helping to set the stage for the credit crisis in the first place.
* His proposal to expand a lending program that would spend as much as $1 trillion to cover the decline in the issuance of securities backed by consumer loans -- so far the program has gone through numerous iterations but hasn't actually been a blockbuster.
* The failure to pay $34,000 in federal taxes over several years early in the decade, and questions about the employment papers of a former household employee.
* A failed plan, pieced together with the New York Insurance Superintendent, to bolster bond insurer ratings. The plan never got off the ground and some insurance companies are still stuck with shoddy insurance contracts on their books.
* His first big flap, over the selling-out of taxpayers, came during the disastrous collapse of the Mexican peso in 1994-95, when the US and the International Money Fund provided a controver sial $50 billion bailout for the mess. Geithner at the time was a globe-trotting assis tant deputy Treasury secretary: He helped then-boss, Larry Summers, then the No. 2 Treasury official, engineer the US bailout.
Even back then a firestorm of protests arose from critics because the controversial bailout allowed banks and individuals to walk away with profits intact while dumping risks on taxpayers -- a scenario that sounds awfully familiar.
With the latest mess-up, the 48-year-old Brooklyn native has been asked to testify in front of Congress to defend himself against the AIG e- mails.
"I think it was a violation of the law," said Chris Wha len, senior vice president, managing director, and co- founder of Institutional Risk Analytics. "[The NY Fed] can't [impede] the non-disclosure of an SEC filer [such as AIG] and not violate the Securities Exchange Act of '34. There is no exemption for well-meaning private officials of the Federal Reserve Bank. Remember, these officials can only get to hide about the Department of Justice when they are acting as an agent in a bank supervisory capacity... I think [Geithner] has violated the law. I think he needs to be held to account."
"Everybody on the [trading] floor thinks these revelations about the Fed and AIG are outrageous. [Geithner] should be held to account for what has come out," said Barry T. Larkin, the head of sales and trading at Kabrik Trading.
At this point, some believe that Geithner, while he's receiving the support of President Obama, likely will be forced to step down in the next six months.
To be sure, Geithner still has plenty of support on Capitol Hill and in the administration.Last week, Treasury and the White House denied Geithner had anything to do with the AIG e-mails.
But as taxpayer cash continues to be spent -- unnecessarily critics believe -- to bail out those on Wall Street, will they have the power to keep Geithner in his job?
Treasury secretary could learn from Teamster Hoffa
Memo to Treasury Secretary Tim Geithner: If you want to survive another year in Washington, start channeling your inner Jimmy Hoffa. Yes, Hoffa -- James P. Hoffa, that is -- the current Teamsters boss and the one man who has stared down Goldman Sachs and the big-money crowd on Wall Street and come out a winner. While our Treasury Secretary has been busy covering the friendly tracks he laid as NY Fed Chief, in recent weeks Hoffa has showed Lloyd Blankfein and Co. who's boss -- and did so without even breaking a sweat.
The Hoffa v. Wall Street battle began back in December and received little notice, but taxpayers should pay attention to the kind of deal that can be cut when a tough cookie like Hoffa is driving the negotiations. The dispute centered around YRC, parent company of the Yellow and Roadway fleets, the nation's biggest trucker and employer of 30,000 of Hoffa's union brothers. Loaded with debt, and saddled with a CEO who spent more time on CNBC in recent years than Jim Cramer, YRC was headed for a year-end rendezvous with bankruptcy unless it could convince most of its bondholders to swap their debt for stock.
That's a tricky proposition under any circumstances, but YRC had another obstacle to face. Hundreds of millions of dollars worth of credit-default insurance on YRC debt would pay off if the company went bust, giving bondholders an incentive to see the company go Chapter 11. Hoffa understood this and decided to play hardball -- he accused Goldman, Deutsche Bank and a handful of hedge funds of trafficking in YRC's credit default insurance and raised the prospect of his 18-wheelers parked all the way from Park Avenue to Broad Street in protest. He also turned up the political heat with union-connected lawmakers in Washington.
In the end, the bullying worked like magic and by Jan. 1, fully 88 percent of bondholders agree to participate in the exchange. Bankruptcy was averted, and Goldman Sachs was eventually praised for helping YRC get "over the goal line" by buying up YRC debt in the marketplace in order to exchange the paper for stock. A triumphant Hoffa called it his "first foray into high finance." Unfortunately, Hoffa looks to have a brighter future in that area than the man who currently commands the US Treasury Department. Compare the YRC drama with the slowly evolving tale of Geithner's role in the 2008 back-door bailout of Goldman Sachs and its subsequent cover-up.
You'll see why taxpayers sense something is very wrong about this story, and rightly so. As we're now learning by the day, Goldman nearly bankrupted AIG in the fall of 2008 -- much as YRC's credit default holders almost bankrupt that company last month. The key difference is that in AIG's case, the taxpayer was left holding the bag, while Goldman and AIG live to trade another day.
But it gets worse. Not only did AIG pay off those contracts to Goldman and a dozen other banks to the tune of 100 cents on the dollar -- or a remarkable $62 billion -- Geithner's NY Fed insisted AIG cross out any reference to the full price of the payout. As e-mails released by Congress last week show, the idea was to keep the public in the dark. The final cost to taxpayers from the AIG rescue -- $182 billion, or about half of the entire US defense budget.
Imagine the bargain Hoffa would have driven home for US taxpayers had he been representing our interests the way he did that of his union brethren. Fifty cents on the dollar? You better believe that would have been at least his starting point. And why not?
Those who profited from the government bailout of AIG, led principally by Goldman Sachs, obviously think that the alphabet soup of derivatives were spun in such a fine web that no mere mortal could never grasp what was really going on. But the public is not so naive. Jimmy Hoffa, Jr. understood this and rode to the rescue of his constituents. It's too bad Geithner didn't do the same for his constituents, the US taxpayers.
Geithner Had No AIG Role, Says Official
Treasury Secretary Timothy Geithner wasn't involved in deliberations between the Federal Reserve Bank of New York and American International Group Inc. over what the insurer should disclose in regulatory filings, a top bank official said in a letter to a U.S. lawmaker. Thomas Baxter Jr., general counsel at the New York Fed, said in a Friday letter to Rep. Darrell Issa (R, Calif.), ranking Republican on the House Committee on Oversight and Government Reform, that then New York Fed President Geithner "played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those emails."
The emails in question, released by Mr. Issa's office Thursday, show that officials at the regional Fed bank told AIG not to disclose key details of their agreements to make big payouts to banks in late 2008. AIG later had to amend its regulatory filings several times and provide the information after the Securities and Exchange Commission requested more disclosure. U.S. lawmakers, particularly Republicans, have seized on Mr. Geithner's role in the matter. The Treasury has said Mr. Geithner was not involved in the disclosure decisions, and many of the released documents cover a period when he had already recused himself after being named by President Barack Obama as his treasury secretary.
Mr. Baxter said in his letter that the matters "were not brought to the attention of Mr. Geithner" because the general counsel felt it "did not warrant the attention" of the then head of the New York Fed. Mr. Issa said Mr. Baxter's letter provides an incomplete picture of the high-stakes negotiations between AIG and the New York Fed. In a statement released by his office, he said Mr. Baxter has been asked to meet with committee investigators. "This letter raises more questions on the inner-workings of the New York Fed during one of the most pivotal periods in our nation's history," Mr. Issa said.
The House Oversight panel, chaired by Rep. Edolphus Towns (D, N.Y.), is scheduled to hold a hearing on AIG later this month, to which Messrs. Geithner and Baxter have been invited to appear. The decision by AIG and the New York Fed to pay off in full the insurer's counterparties on some $62 billion in bets on soured mortgage securities has become a popular target for lawmakers and the public outraged at the financial crisis and its aftermath. Congressional pressure forced AIG to release the names of banks that were made whole, with the biggest payouts going to French bank Societe Generale and Goldman Sachs Group Inc. The issue also represents another headache for Mr. Geithner, who is already dealing with a struggling economy and fragile financial system he inherited when taking office, as well as an effort to overhaul regulation of U.S. financial markets.
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Obama to target banks with new levy
The Obama administration, under increasing pressure from Democrats in Congress to take punitive action against banks, is readying a new levy on the finance sector that will form part of the budget to be presented in February. Government officials say the detail of the fees remains unresolved but it is aimed at addressing rising anger against the sector at a time when banks are due to announce billions of dollars in new bonuses, and ensuring that the government rescue of the system is repaid.
“The president has talked on a number of occasions about ensuring that the money that taxpayers put up to rescue our financial system is paid back in full,” said Robert Gibbs, White House spokesman, who declined to talk in detail about the plans. “We’ll have more details on budgetary stuff as we get closer to the budget being released.” The Treasury has poured cold water on attempts to introduce a financial transactions tax,, an idea backed by Gordon Brown, UK prime minister.
Tim Geithner, Treasury secretary, has said he has not seen a workable example. Bonus taxes are also not popular with the administration, but officials say the administration is looking for a political response to the demands from some Democrats in Congress, who fear for their seats in November’s mid-term elections. While details have not been finalised, officials are studying a levy that could operate along the lines of a charge already imposed by the Federal Deposit Insurance Corporation.
It would be a means of recouping any losses suffered by the government as part of its $700bn troubled asset relief programme, a principle that is already enshrined in law. However, with most banks repaying their investment, any loss could end up being minimal. A new levy could go further and attempt to recoup part of the subsidies extended to the sector via a variety of programmes. “Placing additional taxes on top of the new regulatory burdens will stifle the industry just as the economy is beginning to recover,” said Scott Talbott, head of government affairs at the Financial Services Round- table.
This has turned into a crunch week for banks, with several chief executives due to testify on Wednesday at the first public hearing of the Financial Crisis Inquiry Commission, a bipartisan inquiry established by Congress. The spotlight will be on the heads of Goldman Sachs, JPMorgan Chase, Morgan Stanley and Bank of America. Separately, Andrew Cuomo, New York attorney-general, has sent letters to the eight largest recipients of federal bail-out money asking for information about executive compensation.
TrimTabs CEO: The Government Must Be Buying Shares, Because Private Demand Just Isn't There
TrimTabs CEO Charles Biderman continued his crusade against the government's official stats and involvement in financial markets in an interview Friday with BNN. In it, he argues that the private demand -- from companies, investors, hedge funds, and pensions -- just isn't there.
TrimTabs: Here's How A Flawed Holiday Seasonal Adjustment Made The Jobs Data Look Way Better Than The Reality
Last month, when the October employment numbers came out looking good, a number of commenters rushed to slam the number, and argue why it was totally distorted. On Friday, the November numbers came out looking pretty weak, and they were still bad. And yet critics are doing the same -- arguing that however bad they looked, in reality they were much worse. TrimTabs is the market research firm that always complains about BLS methodology, and they usualy home in on the birth-death issue (the estimate for the creation of new businesses that the government uses). Here's their latest broadside.
- Job Situation Worse than BLS Reports
- TrimTabs’ Estimates more than 152,000 Jobs Lost in December, while BLS Reports Decline of 85,000
- Gigantic Seasonal Adjustments and Mysterious “Birth/Death” Adjustment Distort BLS Data
TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed more than 150,000 jobs in December. While end-of-month calendar quirks and unknown December bonus payments prevented a precise job loss estimate, there was enough data to suggest that job losses were at best 150,000 and at worst as high as 200,000.
Meanwhile, the Bureau of Labor Statistics (BLS) reported that the U.S. economy lost 85,000 jobs in December. They revised their October and November results down 123,000 jobs, resulting in a 39% labor market improvement relative to their preliminary results. We believe the BLS is underestimating current job losses due to flawed seasonal adjustments and a mysterious “birth/death” adjustment. In our opinion, the BLS is doing the public a huge disservice because while its results point to recovering economy, TrimTabs’ results point to a dangerously weak economy.
Flawed Seasonal Adjustments
Seasonal adjustments are designed to smooth out the regular ups and downs in employment over the course of a year. These adjustments assume a repetitive employment cycle and work reasonably well when the economy is growing at a steady pace year-after-year. However, when the economy turns, the seasonal adjustment methodology breaks down. In particular, the current economic downturn has persisted for almost two years and the seasonal adjustment methodology was never designed to address this type of environment.
The problem worsens during the holiday season because the BLS applies huge seasonal adjustments to account for the large number of temporary retail jobs added and then subtracted to payrolls. In the past three months, the BLS seasonal adjustments subtracted a staggering 3.5 million jobs from an adjusted job loss of 208,000. In January, when the seasonal adjustments are the largest of the year, the BLS will add anywhere from 2.0 to 2.3 million jobs to their survey results. In our opinion, applying a seasonal adjustment numbering in the millions, in order to report monthly job losses numbering in the tens of thousands, is a fool’s errand.
Mysterious Birth/Death Adjustment
The BLS applies a “birth/death” adjustment to its results that is nothing more than an educated guess about the number of jobs added or lost from business openings and business closings. In 2008 and 2009, the BLS’ “birth/death” adjustment added 904,000 and 882,000 jobs, respectively, for a total of 1.79 million. By way of comparison, in 2006 and 2007, the BLS’ “birth/death” adjustment added 964,000 and 1.13 million jobs, respectively. We find it highly unlikely that in 2008 and 2009, during the worst recession since the 1930’s, more businesses opened than closed netting 1.79 million jobs.
Several other employment related statistics support Trimtabs’ conclusion that the labor market is weaker than what the BLS is reporting:
- Real-Time tax withholding data shows that wages and salaries declined an adjusted 4.1% y-o-y. While that is better than the average 5.0% y-o-y decline over the past several months, it is still singnaling significant labor market contraction.
- The TrimTabs Online Jobs Index reported lower online job availability in December
- The Monster Employment Index declined in December
- The employment component of the ISM Non-manufacturing Index was 44.0 in December, well below 50.0 which signals employment growth.
- Household employment fell by 589,000 in December as the labor force declined by 661,000
- The unemployment rate was unchanged at 10.0% and the broadest measure of unemployment (U-6) pointed to a jobless rate of 17.3%
- The median duration of unemployment increased to 20.5 weeks in December, up from 20.2 weeks in November. At the end of December, a whopping 10.4 million people were collecting some form of unemployment insurance, up from 9.0 million at the beginning of November.
Federal Reserve Seeks to Protect U.S. Bailout Secrets
The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history. The U.S. Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc. In August, a federal judge ordered that the information be released, responding to a request by Bloomberg LP, the parent of Bloomberg News.
“This case is about the identity of the borrower,” said Matthew Collette, a lawyer for the government, in oral arguments today. “This is the equivalent of saying ‘I want all the loan applications that were submitted.’” Bloomberg argues that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money. Banks and the Fed warn that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell-off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued. The lower court agreed with Bloomberg.
“The question is at what point does the government get so involved in the life of the institution that the public has a right to know?” said Charles Davis, executive director of the National Freedom of Information Coalition at the University of Missouri in Columbia. Davis isn’t involved in the lawsuit. The ruling by the three-judge appeals panel may not come for months and is unlikely to be the final word. The loser may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court, said Anne Weismann, chief lawyer for Citizens for Responsibility and Ethics, a Washington advocacy group that supports Bloomberg’s lawsuit.
New York-based Bloomberg, majority-owned by Mayor Michael Bloomberg, sued in November 2008 after the Fed refused to name the firms it lent to or disclose the amounts or assets used as collateral under its lending programs. Most were put in place in response to the deepest financial crisis since the Great Depression. “Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Thomas Golden, an attorney for the company with Willkie Farr & Gallagher LLP, wrote in court filings. He said the Fed may be trying “to draw out the proceedings long enough so that the information Bloomberg seeks is no longer of interest.”
The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009. The lawsuit, brought under the U.S. Freedom of Information Act, or FOIA, came as President Barack Obama criticized the previous administration’s handling of the $700 billion Troubled Asset Relief Program passed by Congress in October 2008. Obama has said funds were spent by the administration of former President George W. Bush with little accountability or transparency.
FOIA requires federal agencies to make government documents available to the press and public. In her Aug. 24 ruling, U.S. District Judge Loretta Preska in New York said loan records are covered by FOIA and rejected the Fed’s claim that their disclosure might harm banks and shareholders. An exception to the statute that protects trade secrets and privileged or confidential financial data didn’t apply because there’s no proof banks would suffer, she said.
The central bank “speculates on how a borrower might enter a downward spiral of financial instability if its participation in the Federal Reserve lending programs were to be disclosed,” Preska, the chief judge of the Manhattan federal court, said in her 47-page ruling. “Conjecture, without evidence of imminent harm, simply fails to meet the board’s burden” of proof. In its appeal, the Board of Governors of the Federal Reserve System argued that disclosure of “highly sensitive” documents, including 231 pages of daily lending reports, threatens to stigmatize lenders and cause them “severe and irreparable competitive injury.”
“Confidentiality is essential to the success of the board’s statutory mission to maintain the health of the nation’s financial system and conduct monetary policy,” Assistant U.S. Attorney General Tony West and Fed lawyer Richard Ashton wrote in a legal brief to the appeals court. “The board’s ability to administer lending programs crucial to maintaining national financial and economic stability will be severely undermined” if lenders won’t come to the regional Federal Reserve Banks “for their funding needs, particularly in time of economic crisis,” they said.
Historically, the type of government documents sought in the case has been protected from public disclosure because they might reveal competitive trade secrets, Davis said. Laws governing such disclosures may be due for a change, he said, following the far-reaching U.S. bailout. “If you are in need of a bailout and turn to the federal government and say, ‘help,’ with that comes some requirements in terms of transparency,” Davis said.
The Fed is joined in its bid to overturn Preska’s order by the Clearing House Association LLC, an industry-owned group in New York that processes payments between banks. The group assailed the judge’s decision for what it said were legal errors, such as applying the wrong standard in weighing the exception to FOIA. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, Bank of America Corp., The Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., US Bancorp and Wells Fargo & Co.
Preska allowed the association to join the case so that it could directly participate in the appeal. More than a dozen other groups or companies filed amicus, or friend-of-the-court, briefs, including the American Society of News Editors and individual news organizations. The judge postponed the application of her ruling to allow the appeals court to consider the case. Also today, the same appeals court was to hear arguments in a lawsuit brought by News Corp. unit Fox News Network seeking similar documents. U.S. District Judge Alvin Hellerstein in New York sided with the Fed in that case and refused to order the agency to release the documents.
Weekly Summary and a Look Ahead
by Calculated Risk
Here are couple of graphs based on the employment report this week:
This graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost). The current employment recession is the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).
Note: The total jobs lost does not include the annual benchmark payroll revision that will be announced on February 5, 2010. The preliminary estimate is for a downward revision of 824,000 jobs - pushing the total jobs lost over 8 million.
The second graph (blue line) is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.
According to the BLS, there are a record 6.13 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 4.0% of the civilian workforce. (note: records started in 1948).
FHA's dilemma - back loans, stay solvent
Keally McBride and her husband both have good jobs and credit scores, but they would not have been able to buy their three-bedroom home in Oakland's Grand Lake area if not for Federal Housing Administration insurance that allowed them to put down just 3.5 percent. McBride and buyers like her boosted the popularity of FHA-backed mortgages to historic highs in the Bay Area and across the nation in 2009 after subprime financing evaporated and as private insurers became increasingly reluctant to cover mortgages with down payments of less than 20 percent.
But now 1 in 6 FHA borrowers nationwide is behind on payments, and the FHA's backup reserve fund is below the congressionally mandated minimum. McBride, who is in good standing on her loan, is not among them. The delinquencies have led to concerns by members of Congress and a call by FHA administrators for program changes by the end of January. As reforms are being debated, the FHA is trying to strike a delicate balance. The agency must ensure that its program remains solvent, while not making changes that are so restrictive that they knock a large number of buyers out of the market - and stymie the burgeoning housing recovery.
"The people I know who are trying to buy a home for the first time have strong salaries and credit, but they don't have the 20 percent for a down payment," said McBride, a University of San Francisco professor who sold a $300,000, six-bedroom house in Philadelphia and moved to the Bay Area in 2007. While some in Congress want a minimum 5 percent down payment for all future FHA loans - the current requirement is 3.5 percent - the FHA has not announced a down payment change.
More accountability
Without committing to specifics, the FHA says that it will hold lenders more accountable for maintaining reserves and discourage lending to buyers with subpar credit. The agency also wants to curtail so-called seller concessions, in which sellers contribute to borrowers' closing costs and other fees, which are then added to the price of the house and financed by the buyer. "Generally, the changes will require buyers to have more skin in the game," FHA Commissioner David Stevens said in an interview. "Low down payment buyers will have to show creditworthiness and the home price can't be too high compared to their income."
The FHA was created during the Great Depression to help resuscitate the housing market by insuring mortgages for working people without the savings for a large down payment, and to provide some certainty for lenders. Over the years, the FHA helped transform the United States from a nation of renters to one of homeowners. It has insured 37 million home mortgages since 1934 and currently has nearly 5.5 million insured mortgages. Nearly 78 percent of its loans go to first-time home purchasers.
In the program's current form, buyers receive loans from government-approved lenders and are required to pay an insurance premium of 1.75 percent. The program does not impose specific income or credit scores, but requires that buyers occupy their homes. The program is funded by the premiums, which go away after five years or after the remaining loan balance is 78 percent of the home's value.
Change in use
Historically, the FHA program had been more popular in states with lower housing costs. That changed as part of the Economic Stimulus Act of 2008, which doubled the maximum loan the FHA insured to $729,750 in high cost areas. With subprime lending gone, FHA-backed loans suddenly boomed. San Francisco provides one illustration. In the second quarter of 2008, the FHA insured just one single-family mortgage. By the fourth quarter of 2009, that had jumped to 550.
In Alameda and Contra Costa counties, the FHA endorsed 3,313 mortgages in the fourth quarter of 2009. In the second quarter of 2008, it had backed only 38.
But with the program's heightened use came increased numbers of borrowers who failed to pay their mortgages on time. Lenders issued loans to buyers with poor credit and allowed sellers to help fund down payments in exchange for higher home prices. Said FHA Commissioner Stevens, who took over in July, "2007 and 2008 were the worst years. You had low credit quality and seller-assisted mortgages, and the market falling ... losses on those loans were much worse than they historically had been."
Insurers skittish
Some loan brokers say the FHA program only stands to expand because private insurers continue to back away due to the shaky economy and fears of foreclosures. "You almost can't get private insurance anymore," said Zach Griffin, a mortgage broker in Oakland who helped McBride get her loan. Griffin and other brokers said that FHA rule changes demanding modestly higher down payments and better credit scores will push out some buyers, but in the balance might be a good idea.
Bill Smalley, an East Bay mortgage broker who has worked almost exclusively with FHA mortgage clients since the mid-1970s, said he does not want the program to go belly-up. Smalley said the agency should consider increasing credit and down payment requirements and revising them back down again when the economy stabilizes. "The FHA loan delinquency rate is not good, so they need to do something," Smalley said. "I want this option to be available for the next generation."
McBride believes the FHA should continue to offer an alternative to traditional mortgages, which require 20 percent down. "I have a lot of friends looking specifically because the FHA is available," McBride said. "The FHA is keeping first-time buyers afloat."
Cuomo Demands Bonus Data From 8 Big Banks
Andrew M. Cuomo, New York’s attorney general, took aim at Wall Street’s looming bonuses on Monday, sending letters to eight of the nation’s biggest banks demanding information on how they structured those payouts. The letters to the banks — described on a conference call as the original recipients of federal aid — seek “extensive” information on how big the bonus pools are, how they were allocated and what clawback provisions and vesting periods are built in as checks and balances. The information is due Feb. 8.
The banks that received letters on Monday are: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Bank and Wells Fargo. “No one can disagree that transparency and disclosure is essential,” Mr. Cuomo said on a conference call with reporters. As The New York Times reported Sunday, industry executives acknowledge that the numbers being tossed around — six-, seven- and even eight-figure sums for some chief executives and top producers — will probably stun the many Americans still hurting from the financial collapse and ensuing Great Recession.
Banks have taken steps to try and mollify some of the criticisms of their pending payouts, shifting more of the bonuses to restricted stock and making them subject to clawbacks if the executives’ decisions later prove calamitous. (Goldman may take things a step further by requiring top managers to donate a portion of their paychecks to charity, The Times’s Louise Story reported on Monday.) Mr. Cuomo said that he is not opposed to bonuses as a concept, saying they can prove a useful management tool. But he argued at length that Wall Street firms should not reward themselves unfairly without recognizing the role taxpayers had in their success last year.
Last year, Mr. Cuomo’s office also demanded bonus information from big banks, publishing a report on its findings. One key difference then, however, was that banks still held money issued under the Treasury Department’s Troubled Asset Relief Program, making them subject to executive compensation limits. Even though all eight of these banks have paid back most or all of their government investments, Mr. Cuomo argued that the latest round of bonuses was still made possible because of taxpayer aid. Because of the struggling economy, he said, he found it necessary to make sure these firms were not doing anything improper in doling out these payouts.
“At the end of the day, I represent the people of the state of New York,” he said. “Taxpayers paid a terrible price for this past economic recession. Average New Yorkers are still paying the price for this economic debacle.” Mr. Cuomo said that he was also looking into the role of compensation consultants in banks’ decisions on how to structure their bonus payments.
Goldman Sachs Weighs Requirement for Charity
As it prepares to pay out big bonuses to employees, Goldman Sachs is considering expanding a program that would require executives and top managers to give a certain percentage of their earnings to charity. The move would be the latest in a series of initiatives by Goldman to soften criticism over the size of its bonuses, which are expected to be among the largest on Wall Street, bringing average pay to about $595,000 for each employee — with far higher amounts for top performers.
Goldman set aside $16.7 billion for compensation in the first nine months of 2009, and in good years, the firm dedicates about three-quarters of its compensation budget to year-end bonuses. The firm is expected to report later this month what could be record profit of about $12 billion for 2009, according to analysts’ estimates, compared with $11.7 billion in 2007. Its final compensation pool and executive bonuses will be announced then.
The firm said last month that its 30 most senior executives would be paid bonuses all in stock, but the bank placed no limit on how large those bonuses might be. While the details of the latest charity initiative are still under discussion, the firm’s executives have been looking at expanding their current charitable requirements for months and trying to understand whether such gestures would damp public anger over pay, according to a person familiar with the matter who did not want to be identified because of the delicacy of the pay issue.
The charity idea would be similar to a decades-long program at the failed investment bank Bear Stearns, which required more than 1,000 of its top workers to give 4 percent of their pay to charity each year and then checked their tax returns to ensure compliance. Assuming a similar percentage and level of participation, that would mean Goldman’s top employees would commit to giving hundreds of millions of dollars to charity, though the precise amount would depend on the level of contributions and the number of workers who are required to take part.
It could not be determined whether Goldman would create a new program for its mandated giving or run it through Goldman Sachs Gives, which oversees donor-directed charity funds for Goldman workers. That program was created in 2007, weeks before Goldman paid its chief executive, Lloyd C. Blankfein, $68 million for that year. It required Goldman’s 400 or so partners to give an undisclosed amount to charity each year on their own or through the program. Goldman declined to comment.
Amid a growing public outcry over big bonuses at Goldman and other Wall Street banks, Goldman in October said the firm itself would donate $200 million to its charitable foundation, nearly doubling its size. (The foundation is separate from GS Gives.) It also created a $500 million fund to lend to small businesses, a sector that has suffered in the tight credit environment. The plan will be overseen in part by Warren E. Buffett, who is a large Goldman investor.
Moreover, the firm — which initially was on track to pay closer to $650,000 to $700,000 on average to its workers — has scaled back planned bonuses by cutting the amount of revenue set aside for compensation, apparently in response to negative public reaction. People familiar with the matter said that Goldman was planning to further reduce the portion of revenue dedicated to compensation in the fourth quarter.
Still, these moves have done little to quell criticism of banker bonuses, and it is unclear if Goldman’s latest idea, if adopted, would alter the public mood and the feeling in Washington that big pay packages are inappropriate given the troubled economy. On Sunday, Christina D. Romer, head of the president’s top economic council, said on CNN’s “State of the Union” that it was “ridiculous” that banks planned to pay out billions in bonuses for last year. The payout, she said, “is going to offend the American people. It offends me.”
For their work in 2008, 953 Goldman employees were paid more than $1 million each; the bank accepted $10 billion in federal bailout cash, though it has since repaid the money, as have most other banks, freeing them of government limits on compensation. Goldman, like its peers, is caught between conflicting constituencies. The bank cut worker pay somewhat last year, and some employees may leave for hedge funds or private equity firms if they are not paid handsomely for their contributions to the firm’s profits. Some shareholders, however, want the bank to divert more of its money to them as dividends, though others think it should pay to keep workers happy.
In the meantime, the public has little sympathy for bankers expecting compensation to return to previous levels. The most important public relations tactic Goldman and other banks may use, headhunters said, is to instruct their employees to keep their heads down. “They’ll try to make sure their people aren’t going out and celebrating their financial wins,” said Maurice Toueg, a recruiter with Capstone Partnership.
China Is Trapped Inside A Property Bubble
by Andy Xie
When China's real estate bubble finally bursts while exports become less competitive, the consequences could be severe. The next 10 years will be more challenging than the past decade. Indeed, unless economic policies are adjusted, China's inflated real estate market could suddenly shrivel while the decade is still young. China's market share gains in global trade and foreign direct investment due to low costs and rising global demand drove the nation's success. But China is no longer the lowest of the low-cost producers, and it's unlikely to gain market share. Moreover, global demand isn't likely to rise as fast as before; expect economic development at one-third previous speeds.
The biggest risk to China's economy is the desire to maintain past economic growth rates by maximizing investments in property -- an unproductive asset. It supports short-term growth by sacrificing long-term growth as capital's average productivity declines over time. Local government performance in China is measured according to GDP and fiscal revenue. Property development can achieve high numbers for both quickly. This is why property's share in China's capital allocation is rapidly rising as prices appreciate and volumes increase. This is a politically driven bubble -- and it's already massive. Unless the trend is reversed by reforming incentives for local governments, China's property bubble could mushroom in two years from what's now a dangerous level.
The burst could happen in 2012, endangering social and political stability. The first decade of the 21st century began when an IT bubble burst. It was laced with 9-11 and SARS, and ended with a global financial crisis. It was a horrible decade. Now, much of the world has stagnated or regressed. Western prosperity mid-decade turned out to be a mirage manufactured on Wall Street. The West didn't accept the need for adjusting living standards as emerging economies caught up, which led to a delayed bubble that made the problem bigger. Now the West, particularly the United States and Britain, faces a terrible decade ahead.
Amid the horror, China has risen like no other. Its GDP in dollars has quadrupled while exports quintupled. Adjusting for dilution due to dollar's external depreciation and internal inflation, from outside looking in, China's economic strength has still more than doubled in real value. It is an unprecedented accomplishment for such a massive country. And the primary drivers of success were gains in global trade and investment market share.
Low base, reform and luck could explain China's success. When the Asian Financial Crisis hit more than a decade ago, China chose not to devalue to maintain competitiveness but lowered state sector costs. When the global economy normalized, China became more competitive. Joining the World Trade Organization was an insurance policy that maximized low-cost benefits, and China's global market share tripled. Internally, China built infrastructure for growth without inflation that could erode competitiveness. The policy mix was perfect.
Neither competitiveness nor winning share in a shrinking market can guarantee growth. But by increasing consumer debt, the United States sustained demand while losing in areas of global investment and income. The credit bubble maintained global demand while China's market share gained rapidly. It was a lucky break for China, but now it's run out. The 2008 financial crisis means the United States is likely to cut debt-financed consumption with half as much growth over the next decade, while Europe and Japan are likely to have zero growth.
Meanwhile, China over the past five years has seen rising prices for production factors such as labor, raw materials, land, environmental control and taxes. These prices had been stable previously. Now, wage costs for export factories have roughly doubled in yuan terms, as have raw material prices. Before the Asian Financial Crisis, China's wage costs were half of Southeast Asia's. Now they are twice as high. Bangladesh's wage costs are even lower. It's likely China will lose market share to these low-cost competitors.
Two of three factors for the past decade's success are gone, so China needs to depend more on improved efficiency for growth. But instead, the recent trend seems to be going the other way. Rising costs and weak demand are making manufacturing less profitable. Hence, capital investment is weak, as reflected in weak equipment import data. Most local governments seem to embrace property development as a growth savior. But shifting surplus capital into property is likely to lower future growth by decreasing average capital efficiency. This deters consumption development by increasing property expenditure expectations, and threatens financial stability by increasing loan levels, using overvalued land as collateral.
Other Asian economies such as Japan, South Korea and Taiwan failed to shed export dependency and develop domestic growth. Periodic spikes in consumption are usually due to asset inflation. Once a country loses export market share on rising costs, it stagnates because property bubbles during high growth periods deter consumption while overwhelming the middle class with housing expenses. China may be following the same path: Despite a decade of talking about promoting consumption, that share of GDP has been declining year in, year out.
Japan stagnated roughly at per capita income of US$ 40,000 over the past two decades. Hong Kong, South Korea, Singapore and Taiwan have stagnated at about US$ 20,000 for the past decade. Stagnation at such high income levels doesn't seem bad. However, China's size means its exports face challenges at much lower per capita income levels. Unless China changes its growth model, it could stagnate at a much lower level.
The overwhelming desire for getting rich quick dominates every nook, fissure and strata of Chinese society. Such desires cannot be fulfilled; the terrible logic of economics is that money must circulate. Creating bubbles can temporarily blind people to this logic, as overvalued assets substitute for money to fill psychological needs. This is why, whenever conditions permit, China seems to have asset bubbles. Bubbles exaggerate reality but are not formed out of thin air. Cheap money and strong growth are the usual ingredients for bubble-making. Both existed over the past five years. But now, China depends entirely on cheap money to support overvalued assets. Cheap money came from past exports and was warehoused in banks. Cash also came from hot money inflows due to the yuan's peg to the dollar and weak Fed dollar policy.
Neither money source is sustainable. The dollar has bottomed. The Fed will begin raising interest rates in 2010. The combination of China's strong loan and weak export growth is reducing bank liquidity, but inflation soon may force China to tighten anyway. The cheap money may not last long. China's exports are recovering from a low base – a trend that may last through 2010. But one should not confuse low base recovery with a revival of past trends.
The high export growth era is over for three reasons. China's market share in global trade is twice as big as its GDP share. The odds are low that China could continue to expand its market share. Second, the tide won't rise as fast as before. The Greenspan era saw a credit bubble supercharge western consumption, but the bubble has burst. Odds are that future trade growth will be half or less as in the past. Finally, a western employment crisis will lead to protectionism targeting China. Other developing countries may gain market share at China's expense.
One possible way to prolong the bubble is to appreciate the currency, as Japan did after the Plaza Accord, to contain inflation and attract hot money. Such a strategy will not work in China. Japan's businesses were already at the cutting edge in production technologies and had pricing power during currency appreciation. They could raise export prices to partly offset currency appreciation. Chinese companies don't have such advantages but rely on low costs to compete.
After export-led growth peaks, consumption is the alternative to sustaining growth at a lower rate. This transition would require a wholesale change in the political economy. The key is to increase middle class disposable income and lower consumption costs. No East Asian economy has made this transition.
China has been trying to promote consumption for a decade. However, consumption's share of GDP has declined annually. The reason is the policy environment has been squeezing China's nascent middle class through high property and auto prices along with high income tax rates. China's disproportionate dependency on exports and withering consumption components are results of national policies, not the peculiar characteristics of Chinese households.
A large, vibrant middle class is the foundation of a stable, modern society. China's policies rightfully care for the lower class. Yet the semi-market economy offers a few spectacular gains from arbitrage and speculation. Society is drifting toward a small, super-rich minority along with a small -- possibly less than 20 percent of the population – yet heavily burdened middle class, and a vast, low-income majority. Such an income structure cannot support a balanced economy, forcing export dependence.
China's rapid economic growth has spawned millions of white-collar jobs: managers, engineers, accountants and bankers. Such jobs should provide middle class income for buying property, cars and vacations. However, property prices have increased more rapidly than middle class income, increasing fear of the future. China's property market is creating winners and losers based on timing. All other factors – including education and experience -- have been marginalized as the economy rewards speculators. And as more play the game, the speculator ranks rise and fewer people work, perhaps contributing to a labor shortage.
In the previous decade, the West refused to acknowledge its competitiveness problem and created a bubble to hide it. I am afraid China could try the same in the next decade, and the consequences could be serious. Fear of consequences could lead many to argue for sustaining the bubble, but that worsens the problem. During a bubble period, most people think nothing will bring it down. But bubbles always burst, and the longer one is prolonged, the more severe the consequences. Oversupply or rising interest rates will bring down China's property bubble. The former brought down the U.S. bubble, and later Hong Kong's.
China's banks always seem ready to roll over credit lines for developers during market downturns. Hence, supplies tend to dry up during market downturns, preventing price adjustments. Such manipulation has created a speculative psychology that theorizes the government would never let prices fall. When speculators think prices won't fall, speculative demand lasts as long as banks have the liquidity.
The liquidity environment, however, is likely to turn against the bubble soon. The killer is inflation driven by a surge in money printing. The average lag between currency creation and inflation is 18 months in the United States. China's lag could be two years since the government uses subsidies to suppress inflation. By 2012, China could experience 1990s-like inflation. And that's when the property bubble will probably burst.
24 million Chinese men face future without brides
More than 24 million Chinese men of marrying age could find themselves without spouses in 2020, state media reported Monday, citing a study that blamed sex-specific abortions as a major factor. The study, by the government-backed Chinese Academy of Social Sciences, named the gender imbalance among newborns as the most serious demographic problem for the country's population of 1.3 billion, the Global Times said.
"Sex-specific abortions remained extremely commonplace, especially in rural areas," where the cultural preference for boys over girls is strongest, the study said, while noting the reasons for the gender imbalance were "complex." Researcher Wang Guangzhou said the skewed birth ratio could lead to difficulties for men with lower incomes in finding spouses, as well as a widening age gap between partners, according to the Global Times. Another researcher quoted by the newspaper, Wang Yuesheng, said men in poorer parts of China would be forced to accept marriages late in life or remain single for life, which could "cause a break in family lines."
"The chance of getting married will be rare if a man is more than 40 years old in the countryside. They will be more dependent on social security as they age and have fewer household resources to rely on," Wang said. The study said the key contributing factors to the phenomenon included the nation's family-planning policy, which restricts the number of children citizens may have, as well as an insufficient social security system. The situation influenced people to seek male offspring, who are preferred for their greater earning potential as adults and thus their ability to care for their elderly parents.
The Global Times said abductions and trafficking of women were "rampant" in areas with excess numbers of men, citing the National Population and Family Planning Commission. Illegal marriages and forced prostitution were also problems in those areas, it said. Authorities put the normal male-female ratio at between 103-107 males for every 100 females. But in 2005, the last year for which data were made available, there were 119 boys for every 100 girls, the newspaper said. However, the study said that in some areas the male-female ratio was as high as 130 males for every 100 females, a report by the Mirror Evening newspaper said. The report said the study urged the government to relax the so-called "one-child" policy and study the possibility of encouraging "cross-country marriages."
China first implemented its population control policy in 1979, generally limiting families to one child, with some exceptions for rural farmers, ethnic minorities and other groups. It has said the policy has averted 400 million births. Researchers said the gender imbalance problem cropped up in the late 1980s when the use of ultrasound technology became more prevalent. This allowed women to easily determine the sex of their foetuses, leading to an increased number of sex-selective abortions.
A Recession of Fear
by Bill Bonner
Uh oh… The wind chill is 50 below in North Dakota. And the storm is headed our way. What happened to global warming? This report from colleague Chris Hunter in Ireland, where we have our Family Office: “Ireland is under snow – lots of it. The media have dubbed it the ‘Big Chill.’ It hasn’t been colder since 1962. I stupidly tried to drive to a nearby village yesterday evening in said snow and got my car stuck in a ditch. “I’m now holed up in a friend’s house waiting for an opportunity to rescue my car and get back to the office…”
Fierce storms are approaching the financial markets too. But almost nobody sees them coming. “We’re now in a period of wealth destruction,” says George Soros. “It is going to be very hard to preserve your wealth in these circumstances.” It is astonishing. But after the biggest financial crisis in the history of the planet, few people are concerned about wealth destruction; like James Cramer, they’re just interested in “getting back to even.” At least, that’s the sense we get by talking to people in America…and from looking inside our own feelings. Are we worried? Yes…when we think about it. That is, we know we SHOULD be worried. But we don’t feel particularly worried.
We recall how we felt after Lehman Bros. went broke. We checked our bank balances. We looked at our portfolios. We counted our gold. We took inventory in our wine cellar, wondering if we had enough liquid assets to survive a long, deep depression in the style to which we wanted to remain accustomed. We ranted and raved. Household and business spending were curtailed. Trips were cancelled. We ordered the children to stop getting pizzas delivered to the door; henceforth, if they wanted a pizza they’d have to walk down the street and get it themselves.
We deliberately tried to create an atmosphere of alarm. We knew trouble was coming…and we wanted to prepare everyone around us. It was a “WorldWide Financial Meltdown,” we told everyone. A WWFM, for short. This provided a useful shorthand. ‘Hey Dad, I need a new coat…my old one’s too small,’ Edward said last December. ‘Forget it! Remember the WWFM!’ Now, it’s more than a year later. Edward went out and bought one of those fashionable “Canada” brand jackets last month. We told him he could…and then gasped when we found out how expensive they are.
The fear has receded, not just from the economy…but from our own souls. We no longer feel it. Afraid? Why? We already faced death…and survived. Everything will be all right now. We count the months until we are even again. And yet…when we look at the reasons for the fear last fall – they’re still there. The stock market has not been corrected. It could easily get cut in half in the next six months. (We’re leaving our ‘Crash Alert’ flying over the building with the gold balls…until stocks reach bargain prices.)
The bond market could crash any time. The US is borrowing more money than ever before – trillions more. With such a huge increase in supply, demand…and prices…it should crack, sooner or later. Higher bond yields would send the whole economy into a much deeper depression. Even our gold holdings could lose 20%-30% of their value. And gold stocks? They could get killed in the next stock market downswing. Despite a truly monumental (albeit imbecilic) effort to revive the economy…the latest figures show the weakest post-recession recovery ever. Jobs are missing. Consumer credit is shrinking. Inflation is going negative. There is no real recovery…it’s a mirage created by government spending.
Monetary policy is useless (banks won’t lend; consumers won’t borrow). And fiscal policy, while apparently more effective, destroys wealth; it doesn’t add to it. The more the government increases spending, to offset the correction, the more the economy becomes addicted to it. It’s like trying to cure an alcoholic by introducing him to heroin. Take away the government spending – as Japan tried to do – and the economy collapses into a deeper depression. Not only that, but the budget deficit actually grows!
In other words, the feds spend money they don’t have trying to fight a correction. This creates huge budget deficits, but it makes it look like the economy is recovering. So they slack off. Then, they discover that their fiscal stimulus didn’t really create any genuine economic activity. Take away the fiscal stimulus and the economy collapses again…reducing tax receipts and widening the deficit. In effect, the cure became a disease of its own! Now they can’t cut government spending. The economy depends on it. Instead, they’re locked into a debt spiral…more and more deficits…higher and higher debt…down, down, down, until…
…until the whole thing finally crashes.
Japan faced this problem in the ’90s. It eased off its stimulus program…and the economy collapsed. Now, it’s become hooked on government spending. Where does it lead? We repeat this prescient note from The Telegraph, which we sent you yesterday: “This is the year when Tokyo finds it can no longer borrow at 1pc from a captive bond market, and when it must foot the bill for all those fiscal packages that seemed such a good idea at the time…
“Once the dam breaks, debt service costs will tear the budget to pieces. The Bank of Japan will pull the emergency lever on QE [quantitative easing...aka ‘printing money’]. The country will flip from deflation to incipient hyperinflation…” But we’re not worried. Somehow it will all work out. Americans are still trying to get even. They still believe that the stock market will recover – fully. They still think the Fed is in control…and that our economists know what they are doing. They are delusional, in other words.
States Saw Third Consecutive Double-Digit Drop in Tax Collections During Third Quarter of 2009
Rockefeller Institute
Tax collections nationwide declined by 10.9 percent during the third quarter of 2009, the third consecutive quarter during which tax revenues fell by double-digit percentages, according to the latest report from the Rockefeller Institute of Government. Combining current data with comparable historical figures from the U.S. Census Bureau, the Institute reported that the first three quarters of 2009 marked the largest decline in state tax collections at least since 1963.
Western states saw especially sharp declines in tax collections during the third quarter, while revenues fell by more modest levels in the Southeast, New England, Mid-Atlantic, and Plains regions. For the fourth quarter of 2009, early data showed continuing declines, although the negative trend of the past year appeared to be moderating. For 38 early-reporting states, personal income taxes fell by 6.5 percent during October and November while sales tax collections declined by 5.5 percent.
“While the recession may be over for the national economy, it is far from over for the finances of state governments, and many states are still uncertain as to when expect a return to positive revenue growth,” said report authors Lucy Dadayan, a senior policy analyst at the Rockefeller Institute, and Donald J. Boyd, a senior fellow at the Institute. “Such improved news may begin in the early part of calendar year 2010. However, even if tax collections in the coming year move up from 2009 levels, the depth of the decline over the past two years will almost certainly leave state revenues significantly lower than those of any of the past several years.”
During the third quarter of 2009, personal income tax revenues for the states declined by 11.8 percent, when compared with the same period a year earlier. Personal income taxes represent one of the three major sources of revenue for the states. The other two, sales taxes and corporate income taxes, fell by 8.9 percent and 22.6 percent, respectively. Overall, 48 states saw tax collections fall during the third quarter of 2009, with 22 states experiencing a double-digit percentage decline. During the previous quarter, 36 states saw a double-digit decline, suggesting some moderation during the most recent quarter.
Local taxes have been more stable than state taxes, showing continued but moderating growth in recent quarters. Overall local tax revenue nationwide rose by a modest 0.7 percent during the third quarter of 2009.
Faulty assumptions blamed for California's state budget mess
Plummeting tax revenue and the rising cost of social programs have played their part in the budget mess facing California. But there's another major factor - the faulty assumptions the state's leaders have made in passing previous years' spending plans.
Nearly a third of the $20 billion deficit that Gov. Arnold Schwarzenegger proposed addressing with deep cuts to services Friday consists of reductions approved in the current budget that didn't pan out, and expected revenue that never came in. And the governor's new plan counts on the state receiving billions of additional dollars from sources that are problematic at best. "Obviously we're in a recession, but don't blame it for this new budget problem - we already assumed a big drop in revenues," said Michael Cohen, deputy analyst for the state Legislative Analyst's Office. "In reality, it's much more because the assumptions built into the budget turned out not to be realistic at all."
Among those assumptions was the sale of a portion of the State Compensation Insurance Fund for about $1 billion, which has been held up by a lawsuit. Other legal action has blocked reductions in Medi-Cal and other social programs. Some cuts in prison spending that the governor requested never made it through the Legislature. This year, Schwarzenegger is figuring on receiving $6.9 billion from the federal government, which he says the state is owed or deserves as a matter of fairness.
He has also based his budget proposal on reaping hundreds of millions from an offshore oil drilling scheme that still needs approval, hundreds of millions in cuts rejected by voters in May that will have to go on the ballot again, and $811 million in decreased spending on prisoner health care. That cut would have to be approved by a receiver who was installed by the federal courts to oversee prison medical care, specifically because the state wasn't doing enough to keep sick inmates from dying. The governor did, however, propose a host of cuts - including eliminating three major programs for the poor - if California fails to obtain the money from the federal government.
H.D. Palmer, spokesman for the state Department of Finance, said the administration cannot be expected to account for all the forces out of its control - such as court rulings - when putting together a spending plan. "There are no guarantees except for one: If you don't put your best effort into it, you're not going to succeed," Palmer said. "You can't build a budget assuming you're going to be challenged and lose on every piece."
The biggest item on Schwarzenegger's wish list - the nearly $7 billion in federal money - would take a considerable push by California's congressional delegation. But instead of backing the governor, the state's Democratic senators, Dianne Feinstein and Barbara Boxer, were dubious about the request Friday. On Saturday, House Speaker Nancy Pelosi, D-San Francisco, joined in, saying the federal government already has directed more than $80 billion to California through its $787 billion stimulus package and other initiatives since President Obama took office. "The idea that any state can say, 'This is my shortfall, pick up the tab,' is not one that would work well in Washington, as you can imagine," Pelosi said during an appearance in San Francisco.
Some lawmakers steeped in the recent history of state budgeting said Schwarzenegger has a track record of making unrealistic assumptions. "We've seen from this governor before that he doesn't want to put the tough decisions on the table - he wants to shove the responsibility on either the federal government or the Legislature," said Assemblywoman Noreen Evans, D-Santa Rosa, who chairs the Assembly Budget Committee.
Because the governor refused to consider taxes during the last budget talks, "the Legislature basically had a gun to its head, and we had to agree to compromise to things we were skeptical of," Evans said. "The things we were skeptical of are things that failed and led us to the current budget deficit." But the Legislature has also contributed to the problem. Last year, the Senate passed a plan to cut $520 million from prison spending, but the Assembly balked at provisions allowing some inmates to complete their sentences on the outside. Lawmakers approved a plan to cut $300 million instead.
In other instances, the Legislature has waited months before approving cuts, shrinking the savings. Legal challenges to reductions that lawmakers have approved force the state to spend at higher levels while the litigation winds through the courts. Assemblyman Jim Nielsen, R-Gerber (Tehama County), vice chairman of the Assembly Budget Committee, said he would take a keen interest in making sure any cuts are as "litigation-proof as possible." He described budgeting, and the potential for savings never being realized, as the process of "hope and hard choices."
"There is a lot of hope here (in Schwarzenegger's proposal), but there is some cause for hope," Nielsen said. In particular, he's optimistic the state will get at least half of what it is seeking from Washington. Still, the budget year already is shaping up to be brutal, both politically and for Californians who rely on social services. Cohen, of the Legislative Analyst's Office, said the state has a meager supply of options for dealing with the deficit. "If you want solutions that are both politically viable and have no legal risk, it's a pretty short list," he said. "We've done most of those already."
It’s up to you, NY
In the competition for being the worst-governed US state, New York is a strong contender. Poor governance is nothing new in the Empire State – New York City’s Tammany Hall has long been a byword for political corruption. Nor is it geographically unique – right across the Hudson, New Jersey is often derided as one of the country’s most corrupt states. But New York’s recent woes cast a particularly harsh light on the problems that weigh on US governance at all levels of government.
In his State of the State address last Wednesday David Paterson, New York governor, berated stone-faced state legislators in scathing terms: “addiction to spending, power, and approval” threatens the state and breeds “scorn of the people we represent”. He is right. Addicted to tax receipts from Wall Street profits and a property bubble, the state government has dug itself into an ever deeper hole. From 2005 to 2009 spending not funded by federal money rose by 30 per cent. Last year an estimated $20bn two-year deficit was closed with federal stimulus funds and one-off measures, but state finances continue to sink: for lack of funds, Mr Paterson has delayed disbursement to schools and local governments. The only choice is to bring spending and revenue in line.
In place of responsibility, some politicians demonstrate narcissism on a staggering scale. Last year the senate fell hostage to two Democratic senators – one fined for breaching campaign finance rules, the other convicted of injuring his girlfriend – whose brief defection undid their party’s majority. This is not the bipartisanship we need: for five weeks both parties claimed to be in power, in a spectacle of lock-outs and simultaneous sessions presided over by rival pretenders fighting for the gavel. Worse than its incompetence is Albany’s endemic abuse of power, highlighted recently by long-time senate leader Joseph Bruno’s conviction on corruption charges. Gerrymandering and scandalous campaign finance rules have allowed a self-serving culture to fester.
New York is an especially egregious instance of a wider problem of uncompetitive electoral districts and overly cosy relationships with campaign donors. In the states and in Washington the result is too little concern for the common good. The positive side of the US political system is its remarkable ability to renew itself. In deep crises, voters have supported those who could push big changes through. One hopes the same will happen in New York. If voters can make it there, they can make it anywhere.
Black Swans Abound as Year of Tiger Shows Teeth
If many of us could have turned around the moment we entered 2010 and made obscene gestures at 2009, we would have. After the wreckage of the past 12 months, 2010 has to be a good year, right? Good for governments staving off financial chaos, good for households struggling to stay afloat, good for investors wondering which rules of economics and markets still apply. It really is hard to see this year outdoing the last one in the doom-and-gloom department. Yet the Year of the Tiger might live up to its name and be a fierce one. Here are five reasons why it may come with its share of sharp teeth and "Black Swans."
1. The bill for 2009 is coming due. Look no further than Japan, which has little to show for the hundreds of billions of dollars it's throwing at the economy. Deflation is intensifying, unemployment is worsening, the ranks of the working poor are growing and Prime Minister Yukio Hatoyama is anything but focused on these fast-mounting challenges. Now, he faces the hangover from the 2009 borrowing binge. His 2010 budget won't rein in deficits that threaten Japan's Aa2 rating at Moody's Investors Service. The plot thickens when you add a shrinking population and tax base.
That's why the cost of a five-year contract to protect $10 million of Japan's sovereign bonds has climbed to $68,650 from $37,000 in August, when Hatoyama's Democratic Party of Japan won power. Japan is hardly alone. Governments are pouring untold trillions of dollars into economies financed with fresh bond issuance. The debt glut is as unprecedented as it is unsustainable. Expect credit-rating companies and investors to be sniffing around for potential debt crises, be they in China, Greece, Japan or Vietnam.
2. Global demand remains elusive. Singapore, where gross domestic product shrank in the final three months of 2009 — the first time in three quarters — tells the story. It's on the front lines of global trade and the annualized 6.8 percent drop in growth last quarter is an ominous sign. China's almost 10 percent growth is helping commodity exporters such as Australia. Not so for the rest of Asia as it tries to fill the void left by a hobbled $14 trillion U.S. economy. An undervalued currency greatly limits the spillover benefits of China's stimulus efforts.
Skepticism is being voiced by leading economists on different ends of the ideological spectrum. Conservative Martin Feldstein, of Harvard University, and liberal Joseph Stiglitz, of Columbia University, say growth may falter as stimulus wanes. Just ask Singapore how U.S. frugality is working out for Asia.
3. Trade tensions will explode. Expect China's peg to the dollar to become even more of an issue as unemployment rates rise from Washington to Berlin. The recent breakdown of climate-change talks in Copenhagen dispels any optimism about multilateral cooperation. It's beggar-thy-neighbor time as global growth limps along, and no one plays the game better than China. On Jan. 1, a free-trade agreement between China and Southeast Asia came into force. It consolidated a sixfold surge in economic activity over the past decade between countries representing a quarter of the world's population. Yet countries such as Indonesia are already concerned about lowering their guard against Asia's rising superpower. Expect fireworks.
4. Central bankers will be on the ropes. They must find exit strategies for their monetary largess as asset bubbles inflate. Tap on the brakes too much and markets might crash. Apply them too timidly and inflation may accelerate. India is one case of monetary policy being behind the curve. Officials from Seoul to Hanoi also face balancing acts. Central-bank independence is a concern. It's impossible politically to put rates back to reasonable levels anytime soon. They must try, though, and those efforts will make for a volatile year in Asian markets.
5. Black-Swan risks abound. Umar Farouk Abdulmutallab's attempt to blow up a plane over Detroit on Christmas Day is a reminder that terrorism can shake markets anytime. The assassination of a major world leader also would be an unexpected event with great impact. Sovereign defaults can't be ruled out, and troubles in small economies such as Iceland or Dubai have a way of spanning the globe. A huge dollar rally or yen plunge could upset so- called carry trades and bring down a couple of hedge funds. A crash in gold or oil prices would do the same.
Perhaps Japan will get its act together and recover for real. Or maybe things will go the other way: a debt crisis in Japan, the U.S. or the U.K. Markets are hardly discounting hyperinflation, hyperdeflation, a global pension crisis, a collapse of North Korea's repressive regime, social unrest in China or Iran, major earthquakes in Tokyo or California, or Somali pirates getting their hands on more than oil. And, more basically, what if optimism that we dodged another Great Depression is hubris and markets tank anew? Treating the symptoms of the financial crisis isn't the same as removing the causes. We have seen how the impossible has a way of becoming possible these last two years. The one ahead may hold its own surprises as the Chinese zodiac's tiger roars.
Learning From Europe
by Paul Krugman
As health care reform nears the finish line, there is much wailing and rending of garments among conservatives. And I’m not just talking about the tea partiers. Even calmer conservatives have been issuing dire warnings that Obamacare will turn America into a European-style social democracy. And everyone knows that Europe has lost all its economic dynamism.
Strange to say, however, what everyone knows isn’t true. Europe has its economic troubles; who doesn’t? But the story you hear all the time — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works.
Actually, Europe’s economic success should be obvious even without statistics. For those Americans who have visited Paris: did it look poor and backward? What about Frankfurt or London? You should always bear in mind that when the question is which to believe — official economic statistics or your own lying eyes — the eyes have it. In any case, the statistics confirm what the eyes see.
It’s true that the U.S. economy has grown faster than that of Europe for the past generation. Since 1980 — when our politics took a sharp turn to the right, while Europe’s didn’t — America’s real G.D.P. has grown, on average, 3 percent per year. Meanwhile, the E.U. 15 — the bloc of 15 countries that were members of the European Union before it was enlarged to include a number of former Communist nations — has grown only 2.2 percent a year. America rules!
Or maybe not. All this really says is that we’ve had faster population growth. Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15: 1.95 percent a year here; 1.83 percent there. What about technology? In the late 1990s you could argue that the revolution in information technology was passing Europe by. But Europe has since caught up in many ways. Broadband, in particular, is just about as widespread in Europe as it is in the United States, and it’s much faster and cheaper.
And what about jobs? Here America arguably does better: European unemployment rates are usually substantially higher than the rate here, and the employed fraction of the population lower. But if your vision is of millions of prime-working-age adults sitting idle, living on the dole, think again. In 2008, 80 percent of adults aged 25 to 54 in the E.U. 15 were employed (and 83 percent in France). That’s about the same as in the United States. Europeans are less likely than we are to work when young or old, but is that entirely a bad thing? And Europeans are quite productive, too: they work fewer hours, but output per hour in France and Germany is close to U.S. levels.
The point isn’t that Europe is utopia. Like the United States, it’s having trouble grappling with the current financial crisis. Like the United States, Europe’s big nations face serious long-run fiscal issues — and like some individual U.S. states, some European countries are teetering on the edge of fiscal crisis. (Sacramento is now the Athens of America — in a bad way.) But taking the longer view, the European economy works; it grows; it’s as dynamic, all in all, as our own.
So why do we get such a different picture from many pundits? Because according to the prevailing economic dogma in this country — and I’m talking here about many Democrats as well as essentially all Republicans — European-style social democracy should be an utter disaster. And people tend to see what they want to see. After all, while reports of Europe’s economic demise are greatly exaggerated, reports of its high taxes and generous benefits aren’t. Taxes in major European nations range from 36 to 44 percent of G.D.P., compared with 28 in the United States. Universal health care is, well, universal. Social expenditure is vastly higher than it is here.
So if there were anything to the economic assumptions that dominate U.S. public discussion — above all, the belief that even modestly higher taxes on the rich and benefits for the less well off would drastically undermine incentives to work, invest and innovate — Europe would be the stagnant, decaying economy of legend. But it isn’t. Europe is often held up as a cautionary tale, a demonstration that if you try to make the economy less brutal, to take better care of your fellow citizens when they’re down on their luck, you end up killing economic progress. But what European experience actually demonstrates is the opposite: social justice and progress can go hand in hand.
Census Jobs May Jump-Start U.S. Employment Rebound in 2010
The 2010 census couldn’t have come at a better time for the U.S. economy. The government will hire about 1.2 million temporary workers in the first half of the year to administer the decennial population count, possibly providing a bridge to gains in private employment later in the year. The surge will probably dwarf any hiring by private employers early in 2010 as companies delay adding staff until they are convinced the economic recovery will be sustained. Money earned by the clipboard-toting workers going door-to-door to verify the government population survey is likely to be spent, giving the economy an extra lift.
“It’s a short-term stimulus program in which the government’s injecting money into the economy through additional paychecks,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who projects that 2.5 million more Americans will be working at the end of the year. “This will support consumer income during those months.” Payrolls unexpectedly fell 85,000 last month, a Labor Department report showed today, and revisions showed they increased by 4,000 in November, the first gain in almost two years. Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 4,000 workers after adding 62,000 the previous month.
The economy will add 1.1 million jobs by the end of the year, according to the consensus estimate in a survey last month by Blue Chip Economic Indicators. “We have the strongest increases in the second half of the year,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, referring to the firm’s forecast for hiring to grow by 800,000 this year. Economists’ payroll estimates for the year exclude the census numbers since the jobs created are temporary, with most disappearing by the end of the third quarter and the rest gone by December.
The stimulus bill President Barack Obama signed in February and additional funding by Congress provided enough money to hire 1.4 million Americans in total for the census, almost three times as many as in 2000. About 160,000 were already employed last year to do preliminary work. The Census Bureau anticipates hiring about 181,000 workers from January through March and about 971,000 in the following three months.
The economy may add about 700,000 jobs in May alone, mostly because of the census, Gault said. Even Maki’s more optimistic assessment of the employment outlook means the U.S. may take years to recover the 7.2 million jobs lost since the recession began in December 2007. “The bulk of these employees are from the low end of the income distribution; they are cash-constrained,” said Neal Soss, chief economist at Credit Suisse in New York who forecasts the economy will add a little more than 1 million jobs this year. “Having a paycheck is allowing them to spend in a way that they wouldn’t otherwise.”
Hiring for the census may also help lower the unemployment rate early this year, economists said, though the influence will be less than in payrolls. For example, some of the people hired may have other part-time jobs, limiting the impact on joblessness. By the end of the year the jobless rate will fall to 9.7 percent, according to the median estimate of economists surveyed by Bloomberg News. The unemployment in December held at 10 percent. Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, is among those optimistic about the outlook for jobs early in the year with or without the help from the census.
“We think it’s going to ramp up pretty quickly,” he said. Kasman forecasts the economy will create more than 2 million jobs this year. Other economists anticipate a labor market weakness will persist through the next six months, even taking into account the census hiring. “The labor market will effectively be stalled through the first half of 2010,” said James Shugg, a senior economist at Westpac Banking Corp. in London.
2009: The Year of the Great Vampire Squid
The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
- Matt Taibbi, “Inside the Great American Bubble Machine”
The Great Vampire Squid
For years, it was hard for many of us to fathom the psychopathic nature of our financial elites, or to expand the meaning of Matt Tabbi’s marvelous description of Goldman Sachs, the great vampire squid. Squid seems a fitting name for the financial cartel that drives what I have traditionally called the Tapeworm. There were some who saw the danger immediately and tried to warn us, like Sir James Goldsmith. There were some, like myself, who tried to prevent the housing bubble and find alternatives to investing our life savings in it. While those efforts did not stop the squid, they certainly made it clear that the squid take down of the planet was, indeed, part of a plan. That’s all documented now.
The Squid Shifts the Money
I often tell the story of my meeting with a group of pension fund leaders in 1997 in which the President of the CalPERs pension fund— the largest in the country—said, “You don’t understand. It’s too late. They have given up on the country. They are moving all the money out in the fall (of 1997). They are moving it to Asia.” Sure enough, in the fall of 1997 trillions of dollars began to shift out of North America and into the emerging markets, including Asia and China. This included over $4 trillion that went missing from the US government, which I have referred to for years as “the missing money.”
My back-of-the-envelope estimate was that approximately $10 trillion was moved out legally and illegally between that fall of 1997 and 9-11. Given the implications to US pension funds and retirement savings, I have said for years that perhaps the most important question of our generation is where did the money go and how do we get it back? To the squid’s credit, shifting investment from places with aging populations to places with younger, more dynamic populations makes sense. Problem is that oftentimes the money left by sneaky means, leaving many high and dry to the benefit of the few engineering the moves. Equity owned by the many disappeared out the back door, and turned up in Asia owned by the few.
It is likely that not all the money went to Asia. There are, of course, offshore accounts for all those involved indicated by the extraordinary growth of private banking and offshore havens. It would appear that significant funds went to the black budget, including the high tech weaponry capable of providing enforcement of investment terms and conditions in foreign lands without a friendly legal infrastructure. There are also questions about space investment and whether corporations are not just mining the natural resources around the globe but on other globes as well.
Squid Crime Pays
The criminality of this massive capital shift was extensive. If there was any doubt of the profound and growing influence of narco dollars, the European Union’s lawsuit against RJR (under the ownership and control of leveraged buyout firm KKR) for global money laundering in partnership with the Russian mafia, Latin American drug cartels and Saddam Hussein’s family told the tale. Economic warfare tactics were used to drain money from those we most feared, such as Russia.
The squid would justify its actions by saying that consensus in a democracy for forward thinking investment moves was not possible. The reality was that global “pumps and dumps” produced phenomenal returns. The “strong dollar policy,” made possible by the suppression of the gold price, lifted the value of the dollar while convenient “credit crisis” ensured that equity positions could be bought up cheap on the other side of the globe. The genetic reengineering of the seed supply and the industrialization of agriculture would permit central control of the most politically powerful market in the world - one that would support a global digital currency in the way that oil and gas have supported the U.S. dollar.
The US Housing and Derivatives Bubble
However, the most important source of capital was the theft of U.S. retirement savings through the engineering of the U.S. housing and debt bubbles. This involved issuing trillions of securities and derivatives, secured by shoddy or non-existent collateral, representing fraudulent inducement on a massive scale. In the process, the great vampire squid sold trillions in fraudulently overvalued securities to US investors and pension funds as well as retail and institutional investors around the world.
The Squid Hits the Fan
In 2008, global investors finally realized that they had been stuck with fraudulently issued securities by the great vampire squid. The nature of the collateral fraud and questionable practices in the US mortgage and derivatives markets had been understood. However, millions of investors assumed the squid could be counted on to maintain the global ponzi scheme. By early 2009, the squid was facing a global financial bloodbath that could potentially cook its members into little bits of calamari. Those stuck with bum paper were threatening to pull their money out of the squid and worse.
The squid panicked.
Best Investment Performance of 2009: $1 Billion to Elect Obama
Riding to the rescue was Barack Obama. Based on what was clearly extensive domestic and global profiling, the great vampire squid spent approximately $1 billion (and likely more covertly) to get Obama elected in November 2008 and adored globally. The squid’s returns make this the single best performing investment of 2009 and the decade, if not the last century.Bloomberg recently announced that gold was the best performing investment for the decade. They failed to mention that gold’s near 300% rise of the decade could not compare to the exponential multiplication achieved in a much shorter period by the squid’s financing their Presidential candidate into the White House. Electing a Harvard lawyer who inspired the hopes and dreams of those who had been most brutally drained by the housing bubble and drug wars clearly was a stroke of financial genius. While gold had passed the $1,200 per oz. level before the end of the 2009, its performance still did not compare to the $10,000 plus per oz. the squid was realizing on the opium flowing from the fields in Afghanistan.
This is not in any way to diminish the importance of the squid’s investment in governmental and private intelligence agencies. However, at times like this, you can’t kill everyone. Although, we admit there were moments in 2009 when it started to look like someone was trying. From the Revolutionary War through 2009, the U.S. government accumulated $12 trillion in debt. And then, in one year, President elect and President Obama restored to office the very people who had engineered the fraud. With the squid’s preferred team in place in the White House, at the US Treasury and at the Department of Defense, President Obama led the gifting and lending of an additional $12 Trillion to the great vampire squid.
Let me underscore the enormity of this number again. An amount equivalent to all the debt we had accumulated in 252 years and numerous wars we gave or lent to the squid in one year. And so it was that the banks of Europe were relieved of their fraudulent paper while the Federal Reserve balance sheet ballooned with toxic assets. No doubt in profound gratitude and appreciation for President Obama’s extraordinary political achievement, a grateful Europe bestowed upon him the Nobel Peace Prize. In the meantime, with strong support from the Federal Reserve and U.S Treasury, the great vampire squid was able to engineer extraordinary profits on high-risk speculative investments by an amount sufficient to “pay back” bailout loans, fund dividends to shareholders and pay their leaders huge and hideous year-end bonuses.
The Squid to Main Street: “Drop Dead!”
Capital it would seem is available only for squid speculation. The real economy is a source of capital for the squid. It is no longer a use of capital. Hence, drain on communities and the failure to reinvest in serious innovation and long term U.S. growth accelerated during 2009. The political reality is that the U.S. government is deeply dependent on the squid to finance growing deficits, engineer global economic warfare and manage markets in the precious metals, oil, commodities and financial markets. So with U.S. unemployment over 10% (says the government) or 20% (says John Williams at www.shadowstats.com, a far more reliable source) and significant unemployment around the globe, the great vampire squid couldn’t care less what the man in the street thinks. As Dick Cheney said about deficits, “they don’t matter.”
The Squid Bottom Line
In 2009, the great vampire squid finished engineering the single greatest financial shift in the history of the planet. It took two decades and constituted a financial coup d’ etat. Even our hero Congresswoman Kaptur said so. The year finished with the field commanders within the squid congratulating themselves and paying themselves richly for a “job well done.” Without a doubt, 2009 was the year of the great vampire squid.
Cerberus Capital: Literally Blood-Sucking the Poor to Make Their Billions
Wall Street vampires. Lately, a lot of Americans, including myself, have used the bloodsucking monsters as a metaphor to describe the Wall Street billionaires who rule us, and who are ruining us. Like so many awful stories of the past few years, it turns out that these Wall Street vampire-billionaires really exist, literally. Like all vampires, they live in remote castles, and they feed themselves by luring poor, desperate humans into their dens, hooking them into blood-pumping machines and sucking out their plasma for mind-boggling profits.
Cerberus Capital, one of Wall Street’s most notoriously ruthless leveraged-buyout firms (or “private equity firms” in PC-speak), recently made a $1.8 billion killing on its human plasma investment, a company called Talecris. Talecris was purchased for a mere $82.5 million just four years earlier, meaning Cerberus made 23 times its investment on human plasma.
This was accomplished by the most savage, heartless means possible: by paying peanuts to impoverished human plasma donors, who increasingly come from Mexican border towns to blood-pumping stations set up on the American side, jacking up the price of plasma by restricting supply (a lawsuit filed by the Federal Trade Commission accused Cerberus Plasma Holdings of “operat[ing] as an oligopoly”), and then selling the refined products to the most desperately ill—patients suffering from hemophilia, severe burns, multiple sclerosis and autoimmune deficiencies.
The products cost so much—one, IVIG (intravenous immunoglobulin) cost twice the price of gold as of last summer—that American health insurance companies have been dropping or denying their policyholders in increasing numbers, endangering untold numbers of people. Tomas Asher, chairman of a company that trades in plasma, described the business this way: "It's like selling hog bellies or wheat or beef. It gets sold all over."
Profiting from ruined American lives is nothing new to Cerberus. (The company takes its name from the legendary three-headed attack dog of Greek legend who guards the gates of Hell, making sure no condemned soul ever escapes. How appropriate.) Cerberus is the same shady fund that bought Chrysler and GMAC in 2007 and drove them into the ground, blamed everything on unions (even after firing 30,000 Chrysler employees), and dumped the companies onto American taxpayers—but only after lining up tens of billions in taxpayer-funded bailout funds.
Cerberus is led by some of the most aggressive "free market" Republicans of our time. The chairman of Cerberus is former Treasury Secretary John Snow, who oversaw the destruction of America’s economy while serving under Bush from 2003 to 2006, bragging during his tenure, "We are the envy of the world." Snow bragged again in 2007 after Cerberus acquired Chrysler, "Over 25 years ago, when Chrysler faced bankruptcy, it turned to the United States government for assistance. Today, Chrysler again faces new financial challenges. But it is private investment stepping in to inject much-needed support." A year later, Snow was running around Washington begging and screaming for government handouts.
Joining Snow as international chairman for Cerberus is former Republican Vice President Dan Quayle, the pampered imbecile who couldn’t spell “potato” correctly. Two more perfect vampires couldn’t have been invented than Quayle and Snow for the America of the Bush Era—peanut-brained, sleazy jerks.
The top vampire in Cerberus is the fund’s founder, billionaire Stephen Feinberg, a major Republican Party campaign donor with a hardcore fetish for Harleys and big guns. Supposedly Feinberg was very uncomfortable with taking all those socialism-esque billions from American taxpayers. The New York Times described him as "a longtime free-market enthusiast and a Republican who never envisioned himself needing the government for help.”
What Feinberg did envision was callously taking control of Chrysler, stripping it down and making a killing off of it, as he coldly noted in an early 2008 memo to his investors: “We do not need to be heroes to earn a good return on the investment in Chrysler," he wrote. "We do not need to transition the car industry or even to return Chrysler to a much stronger relative position in the U.S. car market in order to be successful." After Feinberg siphoned away billions of taxpayer dollars to pay off his bad investments, he told reporters, "From the day we bought it, we worked hard to improve it." Patriotism, not profit, he bleated: “I love this country. I feel it’s been great to me. I had a great chance."
To understand how Cerberus has profited from human blood and misery, here's some background: the United States is one of just a handful of nations around the world where companies can legally pay humans for their blood and then sell it for a profit. Human plasma is a particularly valuable component of human blood—it’s harder to extract, and can be used to manufacture all sorts of expensive therapeutic products. The market for human plasma products has swelled from just $2 billion in 1988 to over $12 billion per year, and according to a recent Morgan Stanley report, it’s a fast-growing business.
Despite all the billions that Wall Street’s vampires earn from plasma, the hapless humans whose veins they milk make barely a pittance—$30 dollars or so for spending an hour hooked up to a pumping machine that sucks the blood, sifts out the valuable plasma through a cold-filtering process and reverse-pumps the debased, icy blood back into the plasma donor's veins.
It’s such a miserable way to make cash that Cerberus and its fellow oligopolists have resorted to setting up plasma-sucking franchises along the U.S.-Mexico border, which have mushroomed like Starbucks Coffee did in the '90s. In the latter part of 2009 alone, Cerberus-owned Talecris opened four new plasma-milking factories, plastering the Mexican side of the border with advertisements promising easy cash, and parking special plasma-farm buses on the American side of the border to haul their human cargo to those milking dens not within walking distance of the Rio Grande.
Last summer, a newspaper reporter followed an unemployed 46-year-old Mexican manager from his border town to the pumping station in Brownsville, Texas, which has the highest poverty rate of any city in America:
"After entering the United States, Castillo didn’t have to walk far to sell his plasma. A few hundred feet up International Boulevard from the border, the IBR Plasma building sits on Washington Street, across from a Duty Free shop. The plasma centre still looks very much like the bulk second-hand clothing store it used to be, though long white vertical blinds now hide what goes on behind its windows. Inside, the waiting room is divided into two sections marked by sheets of paper taped to the wall: one for 'new donors' and another for 'return donors.' This was Castillo’s first visit, which meant he could make $30—about 400 Mexican pesos. Signs in Spanish and English offered an additional $10 to those who recruited other donors.
"Castillo lay in the big soft chair, he said, while they inserted the needle and his blood started pumping out. It was cycled into a machine that spun the red cells from the liquid, as if squeezing whey from curds. The whey, the watery plasma, was stored in a big plastic bag, while the red blood cells were periodically reinjected into his arm. While he laid there, he later told me, he wondered about what his plasma was really worth—and where it would end up. Castillo is an educated man with a degree in business administration; before coming to Brownsville he had done some research and found, among other things, that in Mexico donating plasma for money is illegal—as is the case in much of the rest of the world."
You might think that America would be ashamed of being the world’s top vampire nation. But actually, to the faux-market freaks like Cerberus Capital’s honchos, it just means locking in profits and locking out competition. Thomas Hecht, who heads a plasma products distribution company in Montreal, quipped: "The U.S. is the OPEC of the plasma business. You know what that stands for: the Organization of Plasma Exporting Countries."
But Cerberus is more than just about sucking people’s blood and government handouts. Stephen Feinberg also loves killing deer. In fact he loves shooting deer so much that, like the old Gillette commercial, he bought America’s guns 'n’ ammo industry. Two years ago, Cerberus bought Remington, America’s oldest firearms manufacturer, and since then they’ve snapped up companies making everything from bullets to silencers, which they’re combining into a new firearms monolith called Freedom Group. The free-marketeers at Cerberus are all about freedom.
Luckily for Cerberus, weapons are “flying off the store shelves,” thanks to all the paranoia about Obama "socialism," fed by all the bailout money that rightwing billionaires like Cerberus have looted. Sales have also been boosted by the wars in Iraq and Afghanistan—in other words, more government handouts for the billionaires, now that they own the guns ‘n’ ammo business. It’s all going so well that Cerberus is planning a huge IPO this year for Freedom Group, which should net another massive payout.
So Cerberus profits on both ends: from the bailouts, and from the backlash against bailouts; from the wars against Muslim terrorists, and from the paranoia back home about an alleged socialist-Muslim-terrorist president. Either way, the vampires have us where they want us.
The Future of Phosphorous
I spent a couple of days this week at Arizona State University, a hotbed of science involving emerging technologies and sustainability. Among the scientists I met was James Elser, a biologist who runs the School of Life Sciences. We chatted about space and the origins of life for a while, and then he handed me a two-page white paper that addresses his current obsession: phosphorous. We’re wasting it and need to figure out soon how to recycle it, lest famine or worse ensues, he said. Phosphorous, Elser told me, “is the biggest problem you’ve never heard of.”
P, as it is known on the periodic table, is a nutrient essential to plant and animal life. Unlike nitrogen and oxygen, however, it is not copiously available from the atmosphere. It’s in the Earth and it’s finite. How finite, nobody knows—unlike fossil fuels, governments don’t keep careful track of supply and demand, he said. This information gap, at the least, is perverse. From Elser’s white paper: “Plants, and indeed all living things, depend on P for the construction and turnover of DNA, RNA, ATP, and cell membranes. Failing sufficient P, plants, animals and humans die. The key concept: P is unsubstitutable in agriculture and in human life.”
As Elser put it as we talked, this issue “only matters if you want your grandchildren to have bones.” Phosphorous consumption is increasing because of its use in fertilizer. Almost all of the world’s mined phosphate rock lies in five countries—China, Morocco, the United States, Jordan, and South Africa. At projected rates of consumption, there might be enough to last a century, or perhaps only for two more decades.
There are potential solutions involving the recycling of agricultural, animal, and human waste. Price signals as scarcity arrives will probably lead to market-driven recycling. But a price-driven response will also likely be bumpy and play havoc with global food supply. Some sort of price signaling may already have started: in 2008, fertilizer prices spiked about seven hundred per cent, touching off a global food crisis. Compared to, say, climate or peak oil or terrorism, Elser’s case that this is a relatively neglected issue implicating the human condition seems pretty convincing.
Spring food crisis may trigger economic collapse
You have maybe two months to stock up on the necessities of life before food prices rise dramatically, potentially prompting a food panic, widespread famine, and quite possibly the long-expected collapse of the U.S. economy.Farmers across America and in many other parts of the world are calling 2009 the worst harvest they’ve ever seen in their lives, owing largely to extended bouts of bad weather. At the same time the U.S. Department of Agriculture is officially forecasting bumper crops, while close to three-fourths of the country’s farmland is in areas declared eligible for federal disaster assistance due to failed crops.
A popular farmers’ Web site is chock full of stories of entire crops of soybeans rejected for moisture damage, long delays in harvesting corn only to find out the corn is moldy, damaged or too light to be used as animal feed or even ethanol, and farmers unsure if they’ll even have a farm for another year due to the losses they’ve taken.
Most agricultural products are purchased in futures, which are promises to deliver a quantity of a commodity at a future date. Futures carry many risks, prominent among them the possibility that the commodity simply won’t be available at the promised delivery date. While futures prices are set by the market, some of the information used to set the prices comes from the USDA’s World Agricultural Supply and Demand Estimates reports. The unrealistic 2009 bumper crop predictions in its recent reports, which may have seemed reasonable months ago before 2009’s long string of bad weather but which USDA has failed to revise, drove futures prices artificially low.
But grain futures prices have already risen well above the USDA’s latest projections as the corn harvest threatens to drag on into March in some areas of the country, thanks to an unusually wet 2009 and unprecedented fall flooding in the Midwest.
The good news is that even with 2009 being the worst harvest in human memory, there will still be plenty of food in the U.S. to feed everyone in the U.S. The bad news — if you’re in the U.S. — is that the food won’t be used to feed everyone in the U.S.
It seems China has finally figured out what to do with all the U.S. dollars it’s holding. You’ll recall that the Federal Reserve took some pretty extreme measures over the last two years, ostensibly to save the U.S. economy. In fact, those measures have set us up the bomb. For decades China has been buying U.S. debt and financing Americans’ credit addiction as well as the government’s massive spending on millions of projects it has no business being involved in. But, it seems, they’ve had enough of the dollar and are about to pull the plug.
In the meantime, China has been using those dollars to buy every morsel of American food it can get its hands on. Combined with 2009’s bad weather and the USDA’s ridiculous numbers, this prompted a late August soybean shortage which is expected to continue through 2010.
The U.S. has a very good reason to fudge the numbers on crop estimates. If it published realistic numbers, and crop futures prices rose sharply, three things would likely happen: Wall Street would take massive losses, inflation fears would cause investors to dump bonds, frustrating the government’s attempts to finance its incredible expanding debt, and most importantly, China, whose currency is tied closely to the U.S. dollar, would allow it to appreciate. That alone would likely send the U.S. dollar into freefall; all three would mean utter economic collapse.
Of course, you can’t fool the market for long; as noted above, futures prices are already well above the USDA’s numbers. All they really managed to do with their numbers game was buy the U.S. dollar another year of life.
One market analyst believes that the 2010 food shortage will be the catalyst which not only brings about the collapse of the U.S. economy, but takes down Great Britain and Japan with it.
While a food crisis was unavoidable to some extent because of the abnormal weather and financial crisis, the total panic which will soon grip world agricultural markets is a creation of the USDA and its fictitious production estimates. If not for the USDA’s interference, food prices would have risen in the first half of 2009 in anticipation of the 2009/10 shortage. The United States Department of Agriculture has caused incalculable damage to the world economy by encouraging overconsumption of rapidly diminishing food supplies.
Once the 2010 Food Crisis starts, confidence in the US government will be shattered as a result of the USDA’s faulty estimates. The starvation and misery caused by higher food prices will also create a lot of anger . . . — Market Skeptics
In this scenario, rural banks will begin failing rapidly, especially in the Midwest, and the inevitable bailouts will drive up U.S. debt further. These bailouts, combined with the Chinese allowing the yuan to appreciate, will erode confidence in the U.S. dollar to the point that foreign banks and investors begin dumping U.S. debt at fire sale prices. At that point the Federal Reserve will have no choice but to print money, leading directly to hyperinflation.
I shouldn’t have to tell you what hyperinflation will look like, but in case you need a reminder, it will likely make the Great Depression look like a minor recession. Tens of millions of people who have never known want in their entire lives are going to be shocked to wake up broke and hungry, with no idea what happened or why it happened to them. The government will almost certainly be unable to fulfill its promises of food stamps, social security and other such welfare programs. Food riots are likely and people will almost certainly die when the government attempts to put them down.
Worst of all, almost nobody will assign blame where it truly belongs: central banks and fiat currency.
Market Skeptics and many other foreign investors I’ve seen quoted widely in foreign media but virtually never in the U.S., recommend investing in agriculture, except derivatives, and in precious metals. I also recommend you invest in as much nonperishable food as you can lay hands on in the next two months, at least a year’s supply if you can manage it. If there’s no collapse, you can eat it, and if there is, you’ll at least have something to eat. And when you read a headline such as “Yuan allowed to rise versus dollar,” it’s time to head for the hills.
72 comments:
I took my family traveling in 2005-2006, biking and backpacking in Europe, Asia and New Zealand for months, Mom, Dad and 4 teenagers. We sold the house and cars, and blew the money.
We visited Ann Frank's house, Dachau, the Budapest Ghetto, and also the Tuol Sleng Prison Torture Memorial in Phnom Penh, Cambodia.
The lesson is that this is what ordinary people do to each other in this situation. None of the "monsters" began as anything but ordinary, and most of them were also consumed in the carnage. This happens when one group of people sees another as subhuman, or a threat, or a prisoner, or a slave, and then it is almost automatic.
The Russians killed and raped German civilians. Sadly, the Americans under Eisenhower killed Germans, even civilians in concentration camps,as did the French. The European Israelis are doing the same thing to the natives of their "promised land", the Palestinians, today.
The lesson is, that this ugliness is nascent in all of us. This is the main lesson to take to heart. As long as it seems like somebody bad did this, you miss the point, and you could be tricked to do it to them.
Ilargi, I think that this is your best...and most honest post. And this is your blindspot. That you don't think you have any blindspots. If you don't have any blindspots, then no one has any blindspots and what a world that would be! Could be. I don't doubt it. Do you? Ilargi?
who is buying the most recent reported increase in chinese exports?
do the chinese also fudge their official economic data?
re miep
who among us will hide hispanics in our attics when the lashing out against immigrants escalates to rounding them up en masse?
John said...
"The lesson is, that this ugliness is nascent in all of us. This is the main lesson to take to heart. As long as it seems like somebody bad did this, you miss the point, and you could be tricked to do it to them."
When you cut to the chase, the perps are still butchering helpless men, women, and children. Not every soul on this planet can be bullshitted into committing these crimes. It takes an intense level of stupidity and cruelty. But admittedly, it is in ample supply.
Ilargi,
This is one that makes you try and look inward a bit,if that is possible,with all of the programing that each of us carries as a unseen burden,a blinder, that keeps away all those thoughts about who and what we really are "As A People".
Its true the dutch have as bloody history as any,with your religious wars that showed how savage and cruel a people could be.
I cringe every time I seen the term
"American exceptionalism"
Our short history is a dark and bloody as any on the planet.I only really learned about it along about the time I grew my hair down to my ass,and started studying our TRUE history,from novels such as "The jungle",and made a point of seeking out the history that only a scholars "know".
Made friends with more than a few native Americans... Really listened to a few of the black folks I have met in my travels..and then married a latina whose grandfather was a teen during the overthrow of the dictator....
When you hear with your heart the story's of all those who seem forgotten by our mass media,except as bit players... you see the part of "Amerika" TPTB don't want anyone to dwell on,or speak of ...they want these people not to exist in our contentiousness,then you start to see the real America,drugged,and propagandized,and terrified of the approaching future where they will be living the same life they have seen the poor in other counties live.
We are broke,the car blew up,the charge cards overdrawn,the kids won't speak to us,and the mortgage is due...
The terrifying fact is that it is everyone now.......that saying about a recession being when your neighbor is laid off,a depression is when you are, has deadly new twist.What is it, when everyone you know is laid off,and out of work.?....
I know the rage is there...but it is sublimated now,added to by a growing fear and revulsion of what we have become,a people ruled by the greediest and meanest among us.To "Get to the top"now,in our society requires being born in the right bed,and being willing to stab,hack,and claw yourself to the top of organizations designed to reward the most sociopatic,greedy evil SOB with more money than can be spent in 20 lifetimes.We have allowed the establishment a ruthless plutocracy that will never give back its power over our lives...our only hope I see is knowing the greed and fear that rules our rulers has no bounds...but the earth ,and natural resources do.The blind ambition and looting of our country is coming to an end,because they consider us used up,burned out...worthless...they need a young hungry nation to continue the great plan of total subjugation of all of mankind to their rule....They are not "Americans"they claim world citzenship...as well they might as they rule most countries with a rod of gold.
I think the coming Phase-change of this country will have a lot of "unintended consequence",that are hidden to all...but one will be the complete disintegration of the old order,and ways of control.I hope I live to see the day when America reverts back to the norm,of a modest people who stay home,and mind their own business,and tell "the world" to
"go away,we dont want any"
snuffy
Snuffy
wow, that is an amazingly powerful contribution sir, worthy of a post in itself.
hat tip to you.
Z.
snuffy again
I am indeed revulsed at what we, as a society in the UK, have become.
I fear the ugliness of whatever happens next might sicken us all to the core of our very being.
Z.
Regarding anti-Chinese sentiment...our local paper ran a story yesterday about Chinese trinket manufacturers switching from lead to...tah-dah...cadmium in their mass-produced dollar store crap. So, you know, the populace is in the process of being whipped into a frenzy.
Aren't heavy metal concentrations in cheap children's jewelry roughly proportional to heavy metals in the tons of e-waste we dump on China? Here's one story:
http://news.cnet.com/8301-11128_3-9919304-54.html
OTOH, some parents are totally clueless. My kids come back from birthday parties with take-away bags full of lip gloss and God knows what else. No one has a clue where that stuff is mixed. For all we know its pure Yellow River water...gathered right downstream from the tannery.
If you think that reading economic forecasts, predictions and outlook is a waste of time then here is a good place to waste time.
It is put together by LEO KOLIVAKIS
MONTREAL, QUEBEC, CANADA.
He therefore, covers Canadian news.
http://pensionpulse.blogspot.com/2010/01/more-predictions-for-2010.html
Thanks for the nice post about Ms Gies. I think she made a cameo appearance in the wonderful movie Freedom Writers staring Hillary Swank. I have Dutch ancestry as well and lived for a while not far from Ms Frank's old digs and visited her place often and reread the diary.
Hello all, it is my first time posting here,
Been reading this blog for several months very insightful and civilized commentary as well.
Ilargi, this is your finest thread I have read so far, truly insightful.
The reason I’m writing here now is due the very disturbing and hateful comment by John.
“The European Israelis are doing the same thing to the natives of their "promised land", the Palestinians, today.”
1)There is no such thing as a ‘Palestinian people’; they are Arabs from neighboring countries who are being used by their cruel and greedy rulers as pawns.
2)Not 1, not 5, not 10, not 15, but over 20 some Arab countries on thousands and thousands of square miles of the richest mineral reserve land on our planet, but that’s not good enough.. They want that tiny peice of desert land the few surviving Jews call home.
3)It defies logic why Jordan does not absorb its citizens of the West bank and Egypt its citizens from Gaza and end the brutality of their own brethren.
4)The inventor of modern terrorism – Arafat- relied on and garnered his moral support from what he called ‘the international community’ ill-informed people like John.
5)What gives the Dutch, the British, the Russians, the French the Americans etc. a right to claim a peice our planet as theirs? Big guns? – Yup, However; no people nor nation or race has a right to draw lines define separation borders so long as the ancient Hebrew tribe is struggling on their fathers soil.
6)Lets do the right thing and return the American continent to its natives, it is the year 2010 and the British are still occupying Scotland and Ireland, aren’t the French still in Africa?
7)During WWII Europe’s crime against humanity reached a new level for mankind but one could argue that a society that promotes its offspring to blow their guts up is pushing the limits of evil to an even higher level.
8)The fact that Ilargi wrote what he did shows there is hope and there still is good force out there as well.
Ilargi--
1) Please do not be sparing in your use of the delete button if the comment section begins discussing Israel/Palestine. I find comments about diet to be MUCH more civil.
2) I read a quote, perhaps here on TAE attributed to the Dutch after WWII--"Hope is not necessary in order to perservere." I can't find the source of that quote--do you know anything about it?
Cheers.
Re: Blogger Sunshine said...
January 12, 2010 12:05 PM
Your commentary appears one sided IMHO.
Ilargi said:
"History is a multi-pronged tool, a bird of many feathers and a beast of many moods. Nothing changed there, and nothing ever will. We are a blood-thirsty species, more, much more, than we are willing to allow. It will decide our way forward as it has our ways in the past. And we will not make it a pretty picture. We simply can't. We'll be cruel as can be. As we are.
But we will also have always another Anne Frank and another Miep Gies. One lived to be 15 years old, the other 100. Both saw, first-hand, more gratuitous violence than most of us will ever see in our lifetimes. There is some layer of comfort in there, and I hope you will forgive me for not being able to identify it off the bat. I’m just sure it's there."
Yes, we will always have another Anne Frank and another Miep Gies. If our species survives the coming predicament (peak everything, economic collapse and climate change), it will be due to the kindness, empathy and courage exemplified by human beings like Miep Gies, not due to the guns that some of us might stockpile to use against our neighbor.
Our ability to distinguish ourselves from the propaganda and greed of the ruling elites and act independently (within our communities) from these elites will determine our survival -- and will be a blessing to our individual and collective conscience.
"If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being. And who is willing to destroy a piece of his own heart?"
- Alexander Solzhenitsyn
Thank you, Ilargi, for once more offering up a piece of your heart.
I hope that today we can resist the draw of political name-calling, and leave the situation in SW Asia alone.
Miep Gies: "I am not a hero."
She is to me.
Hugely.
Hm. perhaps a bit too terse.
It is incredibly easy to be "a hero" in a moment charged with adrenalin and a spotlight. So he threw himself on a grenade to save the platoon? Easy. Took like 2 seconds. And afterwards- hey, no worries ever again.
Real heroism, to me, is struggling to do the right thing- day after day. Always. For your lifetime. When the only one who knows is yourself.
I am neither Jew nor Arab and have no quibble with either race, a neutral Scot in fact.
The Balfour declaration must be one of the most hideous and inhumane pieces of legislation EVER to have been passed IMO.
Shame on Britain for their part in the process and shame on Israel for their actions ever since.
What is happennig in the west bank is OBSCENE.
This is my one and only contribution to the subject.
Z
Sunshine makes a good example of how people can rationalize their support for genocide, and still believe that they are righteous.
Sunshine's argument that the Palestinian people are not native to the area, and thus subject to human rights abuses and slaughter, could be applied to Holocaust. After all, the Jewish people were not native to Germany. So Sunshine would argue that the Nazi's had a right to do as they did. The Nazi's did argue that they were defending their fatherland against the Jewish threat.
It's these sort of rationalizations that make all forms of human brutality seem reasonable. And as thinking and caring human beings, we have a duty to look beyond the excuses and the rationalizations and see what is really happening, and not make excuses for our behavior.
The crimes that might ancestors committed are no more justifiable than what the Nazi's did or what the Zionists are doing today. And further, the fact that someone committed an atrocity in the past, does not make it right to commit atrocities today. Sunshine is wrong in making this argument. Evil doesn't become good, just because there's a lot of it going around.
Sunshine, you are wrong.
Re: Sunshine's post...."There is no such thing as a Palestinian people".
Your choice of the word 'thing' says it all. Be gone now. That is all.
peace
Ilargi, a friend of mine is teaching me some Dutch. If I am using today's word at all correctly, then I wish you all things gezellig.
The article on Cerberus is revolting and repugnant; but sadly not surprising.
The perps are almost universally not knowingly evil- they are on the contrary venially oblivious.
I consider them prime evidence for my growing contention that good people- such as we all wish we were- should have it as a primary responsibility to STEP on and squash permanently- such human cockroaches as cross our paths.
Otherwise; they grow up to become CEOs of companies like this.
Tricky process, I'm well aware; but the dilemma of institutional insistence on universal tolerance having given rise to the most harmful and intolerant institutions in centuries- really needs to be examined.
Israeli / Palestinian foodfighting should go the way of the other "advice from the kitchen"--into the ashcan!
Anyone with a 12 year old mentality has that one figured out anyway, and there is no peaceful resolution!
Here Ilargi... push this button!
-------
[ ASH ]
[ CAN ]
-------
OT a bit...
Last week we talked about 401ks and how they could be regulated to keep people from withdrawing from them to fast.
Late last week the federal government began floating proposals for reforming America's broken retirement system. The proposed reform centers around the idea of getting people to invest more conservatively and withdraw the money more slowly so that they don't outlive their savings.
http://www.huffingtonpost.com/garrett-johnson/here-comes-the-screw-job_b_417545.html
Man's default behavioral position is for cruelty and barbarism. On a evolutionary time scale, "civilization" has only been somewhat civilized for a very small section. The veneer of society makes us (especially those of us in more advanced countries though I use the term loosely) feel that this is how it has always been. Too many have no knowledge of history.
Greenpa said:
Real heroism, to me, is struggling to do the right thing- day after day. Always. For your lifetime. When the only one who knows is yourself.
This reminds me of a line from the movie "The Confession." The Ben Kingsley character, when told that he had done the "right thing" in turning himself in, said:
It's easy to do the "right thing." What's hard is to know the right thing to do."
For many of us, that could certainly apply to building that lifeboat...
My wife's grandparents harboured a Jewish family for some time before providing them with food and equipment to make their escape beyond Germany's borders. Listening to the story, I'm pretty sure they didn't feel at all heroic in what they did. It seems rather they felt it necessary help their neighbours and friends, and perhaps they felt it their duty to do somthing as they too were somehow responsible for allowing their country to be usurped by extremists.
getyourseff- "Man's default behavioral position is for cruelty and barbarism."
oh, ouch. Beware- though I suspect your statement is born of watching what is ugly in the world, when it is allowed that such is the "default" - or "natural" behavior, then it can become an excuse for it.
And personally, I don't think it's true.
A. If you look at histories, studies, and legends from hunter gatherer peoples; it's clear that cruelty was well known to them; and that some tribes became buried in it. But there are clear tales of other tribes that had no such default behavior, though fighting fiercely in their own defence.
B. My neighbors. Seem to be split in thirds or thereabouts. One third will steal your chickens or gasoline, anytime they can. One third will just leave you alone, if you leave them alone. And one third will immediately give you the shirt off their back; you don't even need to ask; if they think you need it; they'll give it. And won't take no for an answer.
As far as I can tell, that behavior in the 3rd3rd has nothing to do with religion- it's just the people. And that does seem to be their default.
"Real heroism, to me, is struggling to do the right thing- day after day. Always. For your lifetime. When the only one who knows is yourself.'
Haiti ... 10 million
http://www.nowpublic.com/environment/haiti-earthquake-maps-usgs-show-severity-quake-2555581.html
Greenpa said...
getyourseff- "Man's default behavioral position is for cruelty and barbarism."
"oh, ouch. Beware- though I suspect your statement is born of watching what is ugly in the world, when it is allowed that such is the "default" - or "natural" behavior, then it can become an excuse for it.
And personally, I don't think it's true."
I think culture has a lot to do with it. In any culture you will always get some people who have no empathy for others, and some who are highly empathetic and collaborative... but culture and the education that springs from it, has a powerful influence on all those in the middle. Culture is both national and local – such as family upbringing, school environment, friends, work, etc... so cultural aspects work on many levels.
Strong cultural tendencies can push a population to be largely one way or the other, but individuals will always stick out... our culture of nuclear families and the consumer culture of "I want" and instant gratification, is one that tends to push people to be less empathetic and less connected, IMO.
Greenpa,would it be that your third, third be the part of the herd that is left after the coming thinning process...my fear is it will not be the best among us that make it thru the bottleneck.
I try and have a "mind my own business" attitude with folks that live around me.I don't care what you do ...whatever floats your boat...each of us has one life to live and I have made enough stupids in mine not to judge to harshly those who have made a few poor judgment calls...
There is a line in a old James Steward movie when he trys to explain why he robbed a bank...his explanation has stuck in my mind and is one that I have used a few times ..being "It seemed like a good idea at the time"...!!
Most of us could say the same thing about each of our own attempts to win a Darwin award..
Getyourselfconnected has very sharp point Greenpa.As long as we call another person...Name that person a object...gook,kike,[you know the list]our natural instinct is to say..."You are not my tribe,Not like me..the name for stranger [is not friend]is ENEMY
True,there have been cultures that have preached kindness and goodwill to all...they last until the next clan of warrior ape types want their Food,women,or land.
It keeps seeming like the more it changes the more it stays the same.Only the scale changes.
I am pretty sure we have already sealed our collective fate with climate change on the horizon,the ice caps melting,the whole world is pissed beyond words at our swagger and stupidities...I wish they[other countries regular folks,germans ,french,ect] would realize that the average American now is
Un-employed,or near to...scared spitless at the gyrations of housing prices and economic news...enraged at the plutocracy who aren't even trying to hide their looting of the country while regular folks loose a lifetimes worth of work in the flash of a manipulated market....and coming to the realization just how much of a "Krill"he is to "those who matter"..
I know it will keep up ...until the day it wont..and things will start to get very very strange.
When they gut social security is when I will know the wealthy are ready for the citizens to revolt.They would not dare unless the fix is already in....and O-man is their guy
snuffy
Snuffy said: "The terrifying fact is that it is everyone now.......that saying about a recession being when your neighbor is laid off,a depression is when you are, has deadly new twist.What is it, when everyone you know is laid off,and out of work.?"
It's called the first stages of collapse, which by the way, does not mean that things will go straight down. They almost never do. But the future of industrial civilization is downward for the foreseeable future.
Yes, there will be fits and starts back upwards here and there. But don't be fooled. As Tainter notes, an increase in complexity, which is basically the only salvation we can hope for, requires a massive new energy source. We've not found that yet so the odds remain on collapse, at least in my book.
It's interesting how polar-opposite pronouncements on China appear constantly in the press -- one side that insists China is a bubble, and the other saying nonsense. I live in Asia (not China) and my experience tends to support side that says nonsense.
Those who say China is a thousand Dubais definitely don't understand Asian culture or physical reality. China is a very crowded place with enormous pent up demand for real estate, probably five times greater than supply, which is not true in Dubai. Most would-be buyers in China don't have the cash to buy at current prices, but they are waiting below to catch any dips.
Asians generally take a very long view, and don't believe in currency or banks or governments. They believe only in gold and real estate. Asia also has a very strong sense of family continuity and filial duty that does not exist in "screw you pop" western cultures. Investment time horizons here regarding gold and real estate are are decades, centuries, forever. Many of my neighbors live in houses worth 100x their annual incomes, which would be bizarre by western standards, but there is no rush to sell.
Another factor people don't grasp is the virtual absence of property taxes. In the USA, real estate has a painful carrying cost, so second and third properties must provide income to make sense. For first properties, the resident/owner must have enough income to pay the taxes. Here, however, real estate works as an inert store of value like gold, because annual taxes run about the cost of lunch. Of course, governments could crash their property markets by imposing western-style tax rates. Don't hold your breath.
It's a cliche about China that consumption is low because the people are fanatical savers. Most of that savings goes into real estate. People save every spare penny to buy land, houses, condos, etc.
What's new here is debt-based speculation. Some of those loans will go bad, and prices will fluctuate based on credit cycles, but the vast underlying demand will prevent any crash.
Seeing Asia as I do, it's funny t read the last paragraph from today's China bubble theorist:
"The liquidity environment, however, is likely to turn against the bubble soon. The killer is inflation driven by a surge in money printing. The average lag between currency creation and inflation is 18 months in the United States. China's lag could be two years since the government uses subsidies to suppress inflation. By 2012, China could experience 1990s-like inflation. And that's when the property bubble will probably burst."
Say what? Fiat currency inflation in Asia increases real estate demand, not vice-versa. Duh.
Mugabe - I know little about China compared to yourself, but I agree with your analysis with my limited knowledge.
What impresses some of us about China is how any people of more than a billion souls can achieve some sort of civil and social cohesion. Just logistically it is amazing IMO how they do it!
Imagine 1.2 billion Americans with this cursed plutocracy like what has evolved here! Can't happen, something a "playing field" much more functional and level (and disciplined) would have to exist.
Greenpa:
"oh, ouch. Beware- though I suspect your statement is born of watching what is ugly in the world, when it is allowed that such is the "default" - or "natural" behavior, then it can become an excuse for it.
And personally, I don't think it's true."
The examples you use about some tribes not being violent, please name them so I could take a look at their history as I must have missed them.
I agree about your second example, but again my point was not about today, but speaking on a more base level of natural behavior due to evolution.
Right now, as bad as things are, they are not that bad. The crew that had to face the Great Depression I fear were far stronger folks used to getting by with little already, not the pampered donnas we all are here in the US (yes I know not every single one, you get my point). Should things gets really bad I think my default position observation may become clear once again and that sucks.
No doubt this is obvious to all but I just connected a dot yesterday. I was thinking about complexity,running the blame complexity for our problems tape in my head. The new dot was fraud. Complexity is fertile ground to fraud and corruption as it is more challenging to track complex patterns.
Could it be that lack of transparency is not an intentional criminal act but the nature of complexity itself?
" Keep it simple,stupid " would be an excellent deterrent to theft and deceit.
This leads to understanding why sound bits are so effective. Nothing complex there....
Scandia,
"Could it be that lack of transparency is not an intentional criminal act but the nature of complexity itself?"
Obama hasn't done a press conference with live journalists asking questions since July 22, 2009.
Now I like the thought that the reason for this is that the poor soul is overcome by complexity, but I'm not quite convinced.
2009: The Year of the Great Vampire Squid (Fitts)
"It would appear that significant funds went to the black budget, including the high tech weaponry capable of providing enforcement of investment terms and conditions in foreign lands without a friendly legal infrastructure. There are also questions about space investment and whether corporations are not just mining the natural resources around the globe but on other globes as well."
Other globes as well? Hmmmmmm
Tero said... "Greyzone:
I don't think it's that simple. The intelligence applied to energy also matters quite a lot according to people like Robert U. Ayres."
There is some truth to that, but it breaks down over the long run.
Consider a thought experiment.
Food and drink provide the body energy, just as gasoline provides fuel for a car. Or likewise, an array of fuel sources powers a civilization.
Say you carefully measured the weight of the food you consume. Every week, you reduce your daily diet by 1/4 ounce.
You could probably do just fine for quite a while, adjusting your diet, making it ever more efficient. You could cut out activities and rest more. But at some point, your food intake would not be enough to maintain your body mass, and your body will begin cannibalizing itself.
Eventually you will die.
Now if you applied that same thought experiment to a population of people, where you carefully measured how much food was provided to the population as a whole, and let them decide how they will ration it. How would that work out as the food supply dwindles to zero?
And with our current system, the food supply is tied to the energy supply.
We've flat lined on energy production since 2005. Already the global economy is cannibalizing itself. We're already rationing. We as the people of planet Earth are sacrificing everything to make sure that a few thousand bankers see stratospheric growth in profits. This is how we're managing the decline.
Now we could do as you suggest and prepare with increasing energy efficiency. But out population continues to grow and we are devoting ourselves to insuring that bankers can afford to eat 2000 lobster dinners a day. It would unconscionable for them to only have enough money to eat 1500 lobster dinners a day.
We could do as you suggest, but there is no reason to think we will. We have to build virtual financial pyramids as tribute to the banker pharaohs. And that is not compatible with preparations for a contracting energy base.
" Keep it simple,stupid " would be an excellent deterrent to theft and deceit."
This point is also made in Bill Moyers' Jan 8 discussion with Mother Jones writers David Corn and Kevin Drum.
http://www.pbs.org/moyers/journal/01082010/profile.html
Third Coast,
Thanks for your response from the other day--perhaps I will check it out sometime.
Regarding the China “bubble” I found the below interesting:
“There are, however, fundamental differences between China's real estate and consumer finance markets and those of the U.S. and Dubai, which Chanos compares them to. First, when buying residential properties, consumers in China have to put down 30% before taking out a mortgage. For a second home, they have to put down 50%, no matter what their net worth. Therefore, China doesn't have the reckless consumer behavior that occurred in the U.S., where people with bad credit were taking out huge loans from Countrywide with no money down, or were buying 10 homes without deposits in the hope of flipping them in a few months. People who buy homes can afford it.”
http://www.forbes.com/2010/01/11/china-bubble-chanos-leadership-managing-rein.html
@Ilargi and Sensato...I would go further and say that lack of transparency has encouraged risk by the too big to fail. Myself the same conditions would discourage risk.
TPTB, having won every round so far, have used this feature of opacity to their advantage and that choice, I believe, is intentional. Keeping us confused about shadow systems works for Obama & Co.
In the old days criminals had a " hide-out". Now the hide-out is electronic and damned hard to find.
* Not knowing you have a blindspot is a blindspot
* Monsters start out as ordinary citizens and then torture others; Abuse is automatic when other people are labeled subhuman; Only a thin veneer separates us from cruelty and barbarism
* Only the stupid and cruel will commit atrocities, i.e. most people
*The three kinds of people: The good, the bad and the detached; The deatched can be turned bad by cultural influences; Maybe only the bad will make it through the bottleneck
* Chinese switch from lead to cadmium in toys; Chinese lip gloss may be sludge; The Chinese may be fudging their official economic data; Chinese real estate is not a bubble; Demand there is real; They save every penny to put it into land and houses
* Peak phosphorous gets little press; Obama hasn't done a live press conference in six months; Keep it simple and stupid
* Getting to the top now requires birthright or sociopathic greed or both; Greed knows no bounds but resources do
* Saying that Israelis mistreat Palestinians is hateful since Palestinians aren't actually people; Why can't Arabs just be happy that our oil is under their land, forget about the so-called abuse of so-called Palestinians and absorb the so-called Palestinians into Jordan? Aren't 20 Arab countries enough? Arafat invented modern terrorism; Evil societies promotes suicide bombers while nice societies use unmanned drones to blow innocent people to smithereens; TAE offers a bright ray of Sunshine in a terror stricken world
* Heroism is struggling to do the right thing day after day; People are motivated by perceived necessity rather than heroism; Heroes don't see themselves as heroic; Easier to do the right thing than to know what the right thing to do is; Who among us will hide hispanics in our attics when Sarah come to power?
* American retirement system is broken; People should invest more conservatively and withdraw more slowly or else
* Only increasing complexity can save us; This would require massive new energy sources; New complexity is fertile ground for fraud
* 'T was gezellig en de slijtig toovs gijrden en gimbelden in de weeb ...
* Vampire squid is about to hit the fan, resulting in calimari
- People react in expansionary accommodating ways then they feel comfortable and themselves accommodated by their environment.
- People react in contracting aggressive ways then they feel uneasy and/or threatened by their environment.
I would say that is "human nature" and is true on individual and on a society level.
The point then becomes not to change human nature from "tendency for violence" to "urge for cooperation" but to achieve that more and more people/societies feel comfortable/accommodated by their environment thus spreading this feeling to other people/societies within their reach forming a selfamplifying and expanding "field of cooperation" (sorry for the clumsy term :-).
But then again there were several examples of movements, societies and even religions that were able to generate sufficient happiness/joyness to "infect" the broader segments of "carrier"-population and initiate and sustain such "field of cooperation" for several generations but they all faltered eventually.
For this effect to become selfsustainig and expansionary there probably needs to be a corresponding shift in "ideology" (ideology in the broadest sense of this word, meaning the way how we see us, our environment und our realationships with ourselves, others and the world around us) since it is this ideology that becomes our primal driver when the physical needs are met.
Every time such a movement, society or religion matures, they primal objective becomes conserving/guarding the wealth (again, in the broadest sence of this word meaning also social and "experiential" wealth) brought by this initial "field of cooperation"-boost thus stopping and reversing the momentum of expansion and so destroying the selfamplification of the "field". Why didnt they succeed in understanding the underlying nature of the effect and incorporating this understanding into the "ideology" making it an integral part of said movement, society, religion?
It seems that we have little trust in our ability to cooperate with our environment to create and recreate this feeling of comfort and happiness we so desire and so, upon sudden realization of our immense luck brought by some incomprehensible circumstances, we are panickily shutting down all "transport and communication ways" to our neighbours (individuals and societies) so as to not let this wealth "betray" us, melt away before our fearful eyes and leave us again to the misery we somehow got to consider our true home.
Perhaps there is indeed something in the human nature that needs to be changed.
Can we left behind our fears of a chaotical and even randomly cruel universe that forces us to convulsively grab and fight for the little pieces of happiness irregularly falling from somewhere above us and instead learn to gracefully exchange the gifts that come our way with our neighbours in the sure knowledge that more and more gifts can be had again and again if we just court the universe in the right way?
Does our less then favorable perception of the "human nature" with all its destitute traits beget our unnerving expirience of ourselves and so forms our less then friendly and comfortable reality or does the less then friendly and comfortable reality bring forth our destitute traits and so form the unnerving expirience of ourselves resulting in our less then favorable perception of the "human nature"?
And if these are just two sides of the same coin constantly flowing in and out of each other, are we bound to accept the reality "as is" succumbing to our perception of ourselves or can we, by secondly perceiving a more plentiful and cooperative version of the universe and humanity and by firstly exemplifying this realization to one another and the world, constantly flowing in and out of each other, remint the said coin to be more to our liking?
Rudy
P.S. Sorry for possibly bad english
Tero said... "Weaseldog: indeed.
But the question is, am I a 500kg person who is asked to eat quite a lot less or am I a 50kg person who is asked to eat less who absolutely can't eat any less.
I'm betting I'm a 500kg fatso."
That was 2000.
Now you're done to 50kg.
We're cannibalizing now, and soon to go catabolic. I think the ArchDruid was a bit premature in naming it that, as the banks still have other financial entities to eat.
Tribute for TAE summary...
Mugabe, my perspective on China in particular and South Asia in general is different from yours.
Nearly half the people on Earth live in South Asia.
Almost all their recent prosperity has come in a wave of manufacturing that was off-shored from the developed world over the past thirty years.
The economies of China and India are utterly export-dependent, blather about "decoupling" notwithstanding. When the debt-driven consumption dries up, the export economies die.
China's position on their environment is, to use Ruppert's word, "oblivion." Absolutely nothing will stand in the way of their continued development - until something does, like water.
Take a good look at the Pearl River Delta mass migration, the largest in human history. It's all happening in reverse now, with hundreds of millions trudging home as the factories close. Sure, there's "pent-up demand" for housing, but without jobs it'll stay that way. The younger generation is moving back home, driving down rents and house prices - in Guangzhou or Ft. Meyers, it's all the same.
Now I'm no expert - I've only been to Asia seven times in the past year - but my native-born partner has imparted to me a unique perspective about how fragile and brittle the whole system is in China. I personally can't imagine anyone realistically suggesting otherwise; the markets there are so obviously in the throes of a cheap-money asset bubble, that there is one one conceivable outcome. The only questions are when the crash will happen, and how far it'll go.
Devastating death toll...
http://edition.cnn.com/2010/WORLD/americas/01/13/haiti.earthquake/index.html
I headed over to the RedCross website, sad day all around.
For anyone who may be interested, there will be a TAE get-together in Seattle (Ravenna/University District) the evening of Sunday Jan 17th. Please contact Todd at toddsahl(at)yahoo(dot)com for details.
So sad about Haiti... And they are the poorest of the poor in this hemisphere ...
Nelson,
Now I'm no expert - I've only been to Asia seven times in the past year - but my native-born partner has imparted to me a unique perspective about how fragile and brittle the whole system is in China. I personally can't imagine anyone realistically suggesting otherwise; the markets there are so obviously in the throes of a cheap-money asset bubble, that there is one one conceivable outcome. The only questions are when the crash will happen, and how far it'll go.
I have never been to Asia at all, but for what it's worth I agree with this assessment. Credit bubbles lay out the same wherever they occur, and demand in economic terms isn't what we want, it's what we're ready, willing and able to pay for. Hoards of people may want to own homes and cars, but if they can't afford them then that isn't demand and it doesn't confer price support.
There is a tremendous amount of bad debt in China, and that will deflate just like our bad debt. IMO the consequences could be less severe in China in some ways (ie less need to provide a high income to cover property taxes), but the environmental devastation in China will be an aggravating factor, particularly in relation to water supply. Northern China seems poised to experience its version of the 1930s dustbowl in the US, with major consequences for food production.
IMO the extreme gender imbalance in China is also a warning sign of potential violence when there is no longer enough to go around.
Ahimsa,
Indeed our hearts should go out to them, and yet there are those who would blame them for their own plight. That stomach-churning story is the sort of thing we can sadly expect a lot more of in years to come. It's all about dehumanizing people who are different and there are many who will fall for it.
It's all about sin and spin, which can be very effective propaganda tools. We should all be very vigilant about spurious justifications to sway us against another group of people. It's a divide and rule tactic.
Hmmm, it seems this piece of news from Monday hasn't gotten much notice.
President Obama Signs Executive Order Establishing Council of Governors
Executive Order will Strengthen Further Partnership Between the Federal and State and Local Governments to Better Protect Our Nation
The press release is available at this link.
The President today signed an Executive Order (attached) establishing a Council of Governors to strengthen further the partnership between the Federal Government and State Governments to protect our Nation against all types of hazards. When appointed, the Council will be reviewing such matters as involving the National Guard of the various States; homeland defense; civil support; synchronization and integration of State and Federal military activities in the United States; and other matters of mutual interest pertaining to National Guard, homeland defense, and civil support activities.
TPTB appear to be getting the proverbial ducks in a row.
Stoneleigh said:
"That stomach-churning story is the sort of thing we can sadly expect a lot more of in years to come."
I'm afraid that that fuckhead has been at it for quite some time.
Stoneleigh,
what China has going for it is its command economy, and command-everything-else, for that matter. The country runs silky-smooth compared to the utter chaos that is India or (Outer) Mongolia.
The Chinese government can and will step in to make the center hold, just as they did during the Great Leap Forward famine (which my partner survived).
But to see and feel the sheer crush of humanity in Guangzhou or Shanghai today is to know how very close to the precipice the cities run, even on the best of days. In an orderly decline precipitated by purely economic factors, it's certainly possible that the people might be returned to the countryside again, like Mao did to the students in '68. A flu or a quake or a revolt would likely offer no such opportunity for the city-dwellers to "get outta Dodge," and it would be every serf for himself.
And that's what scares me more than anything else about the willful blindness and stubborn denialism that's all around us today: It's not just that the inevitable crash will be deeper as a result of greater depletion, it's the losing of our last chance at an orderly - or at least less tragic - unwinding of humanity's great urbanization experiment.
Clearly, the world governments have no Plan B, nor would they even consider one in which their influence shrinks. We're going to have to do this ourselves, on individual and community scales, likely battling our own national "leaders" the whole way. It may be an impossible quest, but I have no Plan B either, so let's get to it. Chin up, everybody.
Thank you for the homage to Miep Gies. Amazing woman. The night she passed away they showed the more recent Anne Frank film on BBC. First time I had seen it - although I read the book as a child and have visited the museum in Amsterdam.
Haiti situation heartbreaking. One organization worth supporting in this tragedy is 'Doctors without Borders'. Currently taking donations on line.
Ahimsa - "So sad about Haiti... And they are the poorest of the poor in this hemisphere ..."
I just said the same thing (paraphrasedly) to my spouse. The AFSC and most local Quaker groups as well are making preps to try to help in some way.
Over the next several years we are likely to continue to witness tragic events of varying kinds all around the world, including geological, weather related, warmaking (like Iraq, Afghani etc.) conflicts, and etc.. It is a violent world.
Such things can't be "fixed" but to do nothing is utterly inhumane.
Stoneleigh - "...and yet there are those who would blame them for their own plight."
You know, the difference between me and my Quaker spouse is this... I could despose of that fat ass religio-fascist tyrant with my bare hands!
Getchersef: "The examples you use about some tribes not being violent, please name them so I could take a look at their history as I must have missed them."
I'm thinking mostly of Inuit, etc; and the Pacific Islanders; Micronesian more than Polynesian. Polys tended to have slaves a lot, Melanesians had quite a taste for long pig they say- Micronesians were just that- small islands; more difficult for Big Men to take over.
Now- all their folk stories show they were totally familiar with bad and evil people inside the tribe- but the context (at least as commonly translated...) suggests serious disapproval of such behavior, and even surprise and shock when it happens.
And for sure, I've even commented myself here about the tribal attitude that "those people" over there are not, in fact, human- and therefore good to hunt. Basic Mafia philosophy.
But... they call me a cockeyed optimist
immature and incurably green.
:-)
Greenpa,
I follow you. Thanks for the reply.
Ilargi,
I found a TAE level picture of zeppelin construction you may like; I have it posted tonight.
... some tribes not being violent ...
Not counting fighting against the Europeans
http://en.wikipedia.org/wiki/List_of_massacres_of_Indigenous_Australians
The indigenous battles between tribes could be considered small irrelevant conflicts.
jal
Re.: Peaceful societies
Remember that the native Australians were living there for 50,000 years of coexistence.
That is the scale of comparison.
jal
New post up.
Punch and Judy, Pontius Pilate and the US dollar
.
Pat Robertson also said that the Americans were being punished by 9/11 because of legalized abortion.
The man is obviously delusional.
The real tragedy is that he makes front page news and is the guru of many.
Grrrrrrrrr
It's called the first stages of collapse, which by the way, does not mean that things will go straight down. They almost never do. But the future of industrial civilization is downward for the foreseeable future.
But one wonders, What, pray tell, is likely to occur in the single most complex civilization ever to exist?
It is said the more complex the system, the harder the fall.
Let us hope not.
Tero:
http://nyc.theoildrum.com/node/3388
http://anz.theoildrum.com/node/3526
Very important to read the comments.
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