The Impeachment Hearing Room

Any Day Now Some One Is Going To Declare That The Second Great Depression Is Upon Us And That Washington Does Not Know What The Hell It is Doing.

In the “First Great Depression” The Post Depression Analysis defined the fundamental or root cause as a failure to understand the “novelty” of the economy of that era. Any serious analysis would then attempt to then explain the variety of contributing economic components and their interrelationship in the collapse.

If the economy of that era was a “novelty” the current economy can only be described as a nightmare of a severely mentally deranged economic community whose dreams defy any rational interpretation and understanding to date.  The complexity of the current day economy and simply beginning to understand it is beyond the grasp of most normal beings, and when you add to the bad witches brew the fact that the stew has been poisoned by the practitioners who are doing their damnedest to escape exposure and accountability; we are involved in a never-never-land of “once upon a time” schemes of repair by a work crew that has no idea of what they are doing!   

But a first step that can be taken with an assured outcome would be for Geprge Bush to pick up his telephone and make this call…

With One Phone Call, Bush Could Relieve the Economic Pain of Millions
By Staff, Office of Rep. Jim McDermott (D-WA)
With just one telephone call, the President could single-handedly jump start the U.S. economy. Why doesn't Bush make the call?

Currently the steps that are being taken are a façade and an attempt to cover-up a vast financial crime scene.  We’re supposed to believe that the bailout proposals are well thought out and will work, painful as they may be and as difficult as they are to accept.

Wall Street's Bailout is a Trillion-Dollar Crime Scene -- Why Aren't the Dems Doing Something About It? | By Naomi Klein, The Nation

The facts are as follows: Corporate Accountability and WorkPlace:

Washington's handling of the bailout is not merely incompetent. It may well be illegal.

Paul Craig Roberts has put his finger on the singular flaw in the current approach (es).  We all can accept that the challenge is of Rooseveltian proportions, but though that experience may offer some clues, some directions it cannot be drafted an imposed as the absolute prescription for the solution to our present collapse because simply stated; this is a different economy, a different set of problems and dynamics and until we get a handle on those components we will stumble around with the market going up and down as individuals find long range profit opportunities and others idiotically attempt to interpret and spin every move as some sign of definitive value.  They do not because…  

America's Economic Crisis Is Beyond The Reach Of Traditional Solutions

By Paul Craig Roberts

The world has had enough of American irresponsibility and is taking away the reins.

By most accounts the US economy is in serious trouble.  Robert Reich, an adviser to President-elect Obama, calls it a “mini-depression,” and that designation might be optimistic.  The Russian economist, Mikhail Khazin says that the “U.S. will soon face a second ‘Great Depression.’”  It is possible that even Khazin is optimistic.

I cannot predict the future.  However, I can explain what the problems are, how they differ from past times of troubles, and why traditional remedies, such as the public works programs that Reich proposes, are unlikely to succeed in reviving the U.S. economy.

Khazin points out, as have others such as University of Maryland economist Herman Daly and myself, that consumer debt expansion is the fuel that kept the U.S. economy alive.  The growth of debt has outstripped the growth of income to such an extent that an increase in consumer credit and bank lending is not possible.  Consumers are overburdened with debt.  This fact takes monetary policy out of the picture.  Americans can no longer afford to borrow more in order to consume more.

This leaves economists with fiscal policy, which, as Reich realizes, also has problems.  Reich is correct that neither a reduction in marginal tax rates nor a tax rebate is likely to be very effective.  Reich, a Keynesian, has an uncertain grasp of supply-side economics, but as one who has a firm grasp, I can attest that marginal tax rates today are not the stifling influence they were prior to John F. Kennedy and Ronald Reagan.  As Art Laffer said, there are two tax rates, high and low, that will produce the same tax revenues by expanding or contracting economic activity. Marginal tax rates are no longer in the higher ranges.  As for a tax rebate, Reich is correct that in the present situation a tax rebate would be dissipated in paying off creditors.

Reich sees the problem as a lack of aggregate demand sufficient to maintain full employment. His solution is for the government to spend “a lot” more on infrastructure projects on top of a trillion dollar budget deficit --”repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy.” This spending would boost employment, wages, and aggregate demand.

I have no opposition to infrastructure projects, but who will finance the baseline trillion dollar US budget deficit plus the additional red ink spending on infrastructure? Not Americans.  The US savings rate is zero or negative.  Home mortgage foreclosures are in the millions.  Officially, US unemployment is 10 million, but if measured by pre-Clinton era standards unemployment is much higher.  Statistician John Williams, who measures the unemployment rate by the pre-Clinton standards concludes that the rate of US unemployment is about 15 percent.  President Clinton “reformed” the unemployment statistics by ceasing to count discouraged workers as unemployed.  

For years, the US government’s budget has been dependent on foreigners financing the red ink.  Countries such as Japan and China and OPEC suppliers of oil to the US have huge export surpluses with the US.  They recycle the dollars by buying US Treasury bonds, thus financing the US government’s red ink budgets.

The open question is: how much longer will they do so?

Foreign portfolios are overweighed in dollar assets.  Currently the dollar’s value is benefitting from the financial crisis, as investors flee to the reserve currency.  However, sooner or later the huge outpourings of dollar debts will cause foreign creditors to draw back.  Already China, America’s largest creditor, has sent a signal that that time might be drawing near.  Recently the Chinese government asked, as they do indirectly  through third parties, “Why should China help the US to issue debt without end in the belief that the national credit of the US can expand without limit?”

Is the rest of the world, which has demanded a financial summit to work toward a new financial order, going to  permanently allocate the world’s supply of capital to covering American mistakes?  

If not, the bailout and the stimulus package will have to be financed by printing money. 

And the bailout needs are growing.  Car loans and credit card debt were also securitized and sold.  As the economy worsens, credit card and car loan defaults are rising.  Moreover, AIG needs more money from the government. Fannie Mae’s loss has widened to $29 billion despite the $200 billion bailout. General Motors and Ford need taxpayer money to survive. General Motors says that its GMAÇ mortgage unit “may not survive.” Deutsche Bank sees General Motors shares “as likely worthless.”

Shades of the Weimar Republic.

What Reich and the American economic establishment do not understand is that the recession paradigm does not apply.  There are no jobs waiting at US manufacturers for a demand stimulus to pull Americans back into work.  The problem is not a liquidity problem.  To the contrary, there have been many years of too much liquidity.  Credit has grown far more than production.  Indeed, US production has been moved offshore.  Jobs that used to support the growth of American incomes and the tax bases of cities and states have moved, along with US GDP, to China and elsewhere.  

The work is gone.  All that are left are credit card and mortgage debts.

Anyone who thinks that America still has a vibrant economy needs to log onto www.EconomyInCrisis.org and face the facts. 

Economists associate economic depression with price deflation.  However, traditionally, debts that are beyond an economy’s ability to service are inflated away. 

This suggests that the coming depression will be an inflationary depression. 

Instead of falling prices mitigating the effects of falling employment, higher prices will go hand in hand with rising unemployment--a situation worse than the Great Depression. 

The incompetent Clinton and Dubya administrations, unregulated banksters and Wall Street  criminals, greedy CEOs, and a no-think economics profession have destroyed America’s economy.  

What is the remedy for simultaneous inflation and unemployment?  

Three decades ago the solution was supply-side economics.  Easy monetary policy had pushed up consumer demand, but high tax rates had curtailed output.  It was more profitable for firms to allow prices to rise than for them to invest and increase output.

Supply-side economics changed the policy mix.  Monetary policy was tightened and marginal tax rates were reduced, thus stimulating output instead of inflation.  

Today the problem is different.  The US has abused the reserve currency role, thus endangering its credit worthiness and the exchange value of the dollar. 

Jobs have moved offshore.  The budget deficit is huge and growing.  If foreigners will not finance the widening gap, the printing presses will be employed or the government will not be able to pay its bills. 

The bailout funds have been wasted.

The expensive bailout does not address the problem of falling employment and rising mortgage defaults.

Treasury Secretary Hank Paulson could not see beyond saving Goldman Sachs and his bankster friends.  The Paulson bailout does nothing except take troubled assets off banks’ books and put them on the overburdened taxpayers’ books, thus endangering the US Treasury’s credit rating.  

What the Bush Regime has done is to stick the taxpayers with the banks’ mistakes.

An intelligent government would have used the money to refinance the troubled mortgages and stop the defaults.  By saving the mortgages from default, the banks’ balance sheets would have been made secure.  By failing to deal with the subprime crisis, Bush and Congress have added a financial crisis to the exhaustion of consumer demand and the problems of financing huge trade and budget deficits.

Belatedly, Paulson has realized his mistake.

On November 12, Paulson announced, “We have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. 

Our assessment at this time is that this is not the most effective way to use [bailout] funds.”

The financial crisis has cost taxpayers far more than the amount of the bailout.

Americans’ savings and pension funds have been devastated. 

Americans in investment partnerships, who have been required by IRS rules to pay income taxes on gains in the partnerships’ portfolios, have had the accumulated multi-year gains wiped out. 

They have paid taxes on years of “capital gains” that have disappeared, thus doubling their losses.

America’s economic troubles will rapidly accumulate if the dollar loses its reserve currency role. 

To protect the dollar and the Treasury’s credit standing, the US needs to curtail its foreign borrowing by reducing its budget deficit.  It can do this by halting its gratuitous wars and slashing its unnecessary military spending which exceeds that of the rest of the world combined. 

The empire has run out of resources, and the 700 overseas bases must be closed.

Can Americans afford massive infrastructure spending when they cannot afford health care?

In Florida a Blue Cross Blue Shield group policy for a 60-year old woman costs $14,100 annually, and this is a policy with deductibles and co-payments.  Supplementary policies from AARP to fill some of the gaps in Medicare can cost retirees $3,300 annually. When one looks at the economic situation of the vast majority of Americans, it is astonishing that the Bush regime regards wars in the Middle East and taxpayer bailouts of Wall Street criminals as a good use of scarce resources.

US corporations, which have moved their production for US markets offshore in order to drive up their share prices and provide their CEOs with multi-million dollar bonuses, can be provided with a different set of incentives that encourage the corporations to bring employment back to the US. 

For example, the corporate income tax can be restructured to tax corporations according to the value-added in the US. 

The higher the value-added in the US, the lower the tax rate; the lower the value-added, the higher the tax rate.

Cutting the budget deficit by halting pointless wars and unnecessary military spending  and reducing the trade deficit by bringing jobs back to America are simple tasks compared to confronting inflationary depression.

The World Has Had Enough Of American Irresponsibility And Is Taking Away The Reins.

At the November 15 economic summit, the world will begin the process of imposing a new financial order on the US in exchange for continued lending to the bankrupt “superpower.”  With bailouts eating up the world’s supply of capital, continued foreign financing for Washington’s wars of aggression is out of the picture

Paul Craig Roberts, a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, has held numerous academic appointments. He has been reporting shocking cases of prosecutorial abuse for two decades. A new edition of his book, The Tyranny of Good Intentions, co-authored with Lawrence Stratton, a documented account of how Americans lost the protection of law, was published by Random House in March, 2008.

And just what does this development/symptom suggest to you?

Blogs - Tent Cities for Homeless on the Rise in United ...

Now the Automotive Industry is the high beams of bailout chatter!

The questions here are what should we do and what are we going to do?

Chances Dwindle on Bailout Plan for Automakers
New York Times - United States
Susan Walsh/Associated Press Senator Christopher J. Dodd said Thursday that he did not think there would be enough Republican support in the Senate to get ...
See all stories on this topic

Detroit Bailout Loses Steam
U.S. News & World Report - Washington,DC,USA
20 to provide further help to the carmakers," Senate Majority Leader Harry Reid "rejected that idea." The Wall Street Journal reports Reid spokesman Jim ...
See all stories on this topic

What if General Motors goes broke?
Buffalo News - NY, United States
Christopher J. Dodd, DConn., chairman of the Senate Banking Committee, said there wasn’t enough Republican support to guarantee passage of the bailout ...
See all stories on this topic

GM Headed to Zero, With or Without the Pelosi Bailout
Seeking Alpha - New York,NY,USA
Nancy Pelosi’s “too-big-fail” theory certainly succeeded in encouraging buying interest in General Motors (GM) on Wednesday. However, before analysts start ...

Don't subsidize industrial dinosaurs (Here is a position that has as its implied solution the reduction of auto workers to a near slave labor class, their pay checks, retired and health care gutted so the fat cats can keep rolling!)

Given that the Globe's weekend automotive reviews frequently tout the wonders of domestic trucks and SUVs, no doubt you understand why Americans persist in subsidizing industrial dinosaurs like General Motors to make unreliable, oversized gas-guzzlers, while paying unionized employees inflated wages and retirement benefits.

In fact, bankruptcy may be the best thing for the auto industry. It would force resolution to industry problems such as unsustainable healthcare costs for employees and retirees

Depressed yet? Brace for still more bad news

Washington Panics as the Economy Burns  (And Panic Is The Word For It!)
By Arianna Huffington, Huffington Post
$290 billion into his bailout plan, Hank Paulson is calling for a do-over, but does his next plan have any more chance of success; is it any more intelligent?

Deficit hits record, unemployment surges, but Dow rises

'It's a Mess,' Says Treasury Department's Inspector General; Bailout Lacks Oversight Despite Billions Pledged | » follow the topic 

U.S. Treasury Abandons Plan to Buy Up Toxic Mortgages | » follow the topic

The initial costs of the government's economic bailout efforts sent the U.S. budget deficit for October soaring to a record $237.2 billion, putting it on track to reach the once-unfathomable sum of $1 trillion for the year.

"And as bad as these numbers are, they may look good a year from now because things are going to get much worse," said Sung Won Sohn, an economist at the Smith School of Business at California State University.

In more grim economic news Thursday, the number of newly laid-off workers applying for jobless benefits — 516,000 — last week hit the highest level since the period right after the 9/11 terrorist attacks. Unemployment, which jumped to a 14-year high of 6.5 percent in October, is now projected to climb above 8 percent.

The stream of negative news initially sent Wall Street down sharply, with the Dow Jones industrials briefly trading below 8,000. The markets rebounded with a fury, though, and closed up almost 553 points , the third-largest point gain on record, following the 889-point rise Oct. 28 and the 936-point surge Oct. 13.

The Treasury Department said the $237.2 billion federal deficit for October, the highest ever for a single month, reflected the $115 billion spent last month to purchase stock in eight of the country's biggest banks, the opening phase in the $700 billion rescue of the financial system passed by Congress on Oct. 3.

October's deficit was far bigger than analysts had expected, more than four times as large as the October 2007 deficit of $56.8 billion, and more than half the total for all of last year.

A $1 trillion shortfall estimate for the year reflected not only the expenditures for the rescue effort but also an expected second stimulus program and the effect of a steep recession.

Meanwhile, the prospects of a government rescue for the nation's foundering automakers dwindled Thursday as Democratic congressional leaders conceded that they would face potentially insurmountable GOP opposition for such a plan in a lame-duck legislative session next week.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said he didn't think there was sufficient Republican support to get the 60 votes needed to move forward a bill to provide $25 billion in aid for the automakers.

At the same time, hope among many Democrats on Capitol Hill for an aggressive economic stimulus measure all but evaporated. Democratic leaders have been calling for a package that would include help for the auto companies as well as new spending on public works projects, an extension of unemployment benefits, increased food stamps and aid to states for rising Medicaid expenses.

Senate Majority Leader Harry Reid, D-Nev., said he would open a lame-duck session in the Senate on Monday, hoping to move forward with legislation that would extend unemployment benefits and to attach to it an amendment providing aid for the auto companies.

Aides to House Speaker Nancy Pelosi, D-Calif., said the House would be brought back into session Wednesday afternoon.

Also on Capitol Hill, some of the largest U.S. banks sharing in the $700 billion government bailout tried Thursday to assure lawmakers that they are using the money to make more loans and help financially strapped homeowners avoid foreclosure.

Executives from JPMorgan Chase, Goldman Sachs Inc., Bank of America and Wells Fargo & Co. told the Senate Banking Committee that none of the $85 billion they have received from the government is being used to pay salaries or bonuses.

Some of the executives said bonuses this year will be lower because of the economic downturn.

This weekend in Washington, President Bush will host the leaders summit of the Group of 20 — which includes the world's wealthiest nations and major developing countries such as Russia, China, Brazil and India — to seek a common approach to the global economic crisis.

Bush on Thursday defended his administration's response to the crisis, which has included extensive government assistance to banks and government takeovers of the country's biggest mortgage finance companies.

"I'm a market-oriented guy, but not when I'm faced with the prospect of a global meltdown," Bush said in a speech in New York. "But the crisis was not a failure of the free market system."

We are dangerously close to the day when the run on the banks is at hand, mattresses are going to be stuffed, folks will be looking for refrigerator boxes to live in on the streets, cat food, Campbell’s Baked Beans and Chef Boyardee Spaghetti, warmed over burning Barrels on streets will become common and the lucky folks will be those working and serving in the warmth of soup kitchens.

You think I’m kidding you.  You think I’m over the edge.  If you do; just ask yourself a few serious questions: (1) Do the folks in DC know what they are doing, (2) Does the media really understand what is going on, (3) Are we being told the truth by our government and (4) Do they know the truth?

And there so many other problems to deal with and some ugly motivational solutions that Washington does not have the balls for.  Let’s just round up the Executives of Freddie and Fanny, AIG…arrest them, prosecute them and send them to jail.  How much would you like to bet that if we did this that suddenly a significant number of financial institutions would suddenly find ways to correct things in house before they dare stick their hands out for bailout loot?

Let’s have a policy that no one gets a cent without opening their books to full review and that they have to report the expenditure of every penny of those monies.  Stop all foreclosures and renegotiate every faltering loan now!  No one gets any money from us without strings attached!

To keep Congress focused on the task let us simplify the health care problem for them and place all Americans under the Federal Government’s Program.  It will work big time!

Appoint several “Blue Ribbon Panels separate from the Congress to prepare the recommendations and plans for Constitutional Restoration, Judicial Reform, Regulation of our Financial Institutions, Election System Reform, Infra Structure Renewal and the Greening of America, Building the no plug In Electric Car and Development of The battery Technology to Implement that goal as if it were “The Put A Man On The Moon Project”….and more.  The Congress can deal with the final product when it is set before them as they have proven time and again they don’t have the brains, vision or commitment to do what must be done! 

Just a few thoughts before I go find a refrigerator box!

Some Things Even Obama Can't Transcend