Nouriel Roubini's Global EconoMonitor

10 Reasons Why We Will See a U-Shape Recovery

Editors Note: The Following is an excerpt from RGE premium content, “10 Reasons Why We Will See A U-Shape Recovery” which is available to paid clients.

After a free-fall of output in the last quarter of 2008 and the first quarter of 2009, second derivatives of economic activity have turned positive between Q2 and Q3 of 2009. This significant slowdown in the pace of contraction was the first step toward positive growth – namely positive first derivatives of economic activity, which in the end are what really matters. An aggressive and coordinated policy response put a floor under the free fall of output and coaxed the global economy back to positive growth.

As reported in the latest RGE Global Economic Outlook (Q4 and Beyond – available here for paid clients), RGE expects a strong second half of the year in 2009.

202 Responses to “10 Reasons Why We Will See a U-Shape Recovery”

MedicNovember 24th, 2009 at 3:52 pm

If you give me enough of the right drugs, I can give a rock a pulse.The question is always: Is the result worth it? Or differently stated: Have I done the patient a favor by keeping them alive?We (read: the Fed) kept the banks alive, but is the result (TBTF still largely insolvent zombies, trillions into circulation, artificially low interest rates, resultant inflation, etc, etc.) really worth it in the end? Instead of fewer banks, and smaller institutions that are more fiscally responsible, we have the Fed created Frankenstein monsters who wreak havoc among the villagers.I still say let them die. We’ll sort it out later. Life is a terminal disease after all and none of us was meant to live forever…..Least of all a bastardized zombie banking system that continues to suck the life out of the economy.

AnonymousNovember 27th, 2009 at 2:49 am

Hi Medic,Your prescription is the right one. But IMHO it is too late. The monetary system in advanced decay. No physician will even have the courage to tell the patient the truth at this stage of development. The treatment would be way too harsh for the “client” to hear.I’m sorry but that is now definitely the case. And Volcker who knew EVERY THING right from the start is clearly in such a position. On the psychological support side, not on the treatment one.Remember his: sincerely hope that both the Chinese government and the US one do what they have to. Support their people instead of artificially nurturing their so-called, “so-gennante” – like in “die sogenannte DDR” – economy. And avoid the nationalist drift that will in case they don’t. Support means food and shelter for all. And minimal health cover as well! Not unlimited zero-interest money coagulating at Wall Street.The currency system cannot be restored anymore at this moment. Politically impossible. It is a transnational issue with no solution. That is why I have stopped listening to our great professor who is a an policy track. He is not on our side anymore. And can not be. I still read the comment zone that offer some nice views from the ground up.In this day of Thanksgiving, I am grateful to our great professor for his early calls, thanks to all of you. And good luck for those living their old age – aka on cash-based revenues – within the most turbulent monetary zones, China, US, UK.

PeteCANovember 24th, 2009 at 10:49 am

Sorry. Not convinced.For one thing – we’re almost at the end of 2009 … so no brownie points for “predictions” on how this year will turn out. I’ll stick with what I have been saying. They have pumped the Dow beyond any kind of credible level. It’s not the “carry trades” that are doing this. It is Geithner, Bernanke, and the Wall St banks working together. But it should be obvious that things are dramatically over-valued. So why would anyone keep buying $INDU? Answer: Because as long as stock prices keep going up, people will figure that they can still sell at a bigger profit tomorrow. THAT is the recipe for a bubble. Asset valuations don’t make sense … but people are playing the game because the price is going up.See Peter Navaro’s recent comments if you don’t believe me …Navarro On Bizarre Market BehaviorHouse sales have been doing slightly better … because people are afraid to miss out on record low values for mortgage rates. But there is still a huge inventory of empty houses to be cleared, and frankly home prices are still UNAFFORDABLE for a large number of Americans.Everything the Keynesians are doing is ludicrous. They are guaranteeing a double-dip recession (or much worse!) by preventing the free market economy from setting prices fairly.PeteCA

MM CANovember 24th, 2009 at 11:20 am

its almost laughable these days what the mainstream press and TV report. One day housing is recovered the next it is worse than exepcted. this has been a pattern for over 2 months now….No ownder no one truly knows whats happening, expcet for Average Joe American who jsut wakes up and looks at the country with his own eyes and can see for himslef…. We are in the beginning satge of long, hard DEPRESSSION!Case-Shiller: Home Price Recovery Stumbles, Results Worse Than ExpectedJoe Weisenthal|Nov. 24, 2009, 9:03 AM | 1,220 |9Home prices fell 9.4% in September, according to the widely-respected S&P/Case-Shiller housing index. Analysts had been looking for a 9.1% decline, so this is a bit worse than expected.On a sequential basis, home prices rose .3%, again, a bit worse than the .8% analysts had been looking for. The market is now back to where it was in Fall 2003.The housing market is creeping back, but at a pace disappointing to the bulls.Speaking on CNBC S&P’s David Blitzer said the report showed clear signs that the strong momentum seen over the summer is starting to crack.

SoftwarengineerNovember 24th, 2009 at 4:14 pm

CNN’s reporting the same hogwash….”home prices up in Q3″ [means the Jul-Sep timeframe]; but omits the-2% downward shift from Sep-Oct [and the -7% shift YOY from Oct 08-09]….its officially out too, the Obama rosy White House GDP +3.5% data for Q3 in error….should have been +2.8%….LOL….I guess we didn’t buy as much as they factored in….Hey, I imagine the Q3 home price escalation should go way down too [when we factor in corrections]…especially if its overly rosy pending sales that went down the toilet impact it, just like the Q3 GDP errors….The statistics news [especially the rosy stuff] lately is almost all hogwash, not just part of it, most of it….LOL

MM CANovember 24th, 2009 at 11:18 am

do the math…. 11% this past quarter. 17% the previous quarter… If im correct msot state reveues are generated from sales tax, personnal income taxes, Corporates taxes, some real estate taxes, use fees and licenenses… there is no recovery and a consumer led recovery is a pipe dream. the only consumer spending is on basic staples.. do not be fooled by XMAS shopping, msot of the itmes will be needed staple items…. people may by cell phones but they’ll cancel thier regular phone lines, they may buy TV’s but they’ll cancell thier cable and stalite subscriptions, they may by Cheap PC’s because they plain just need a new one to look for jobs, they may by video games for thier kids, but thats all they’ll get for XMAS.U.S. State Tax Revenue Fell 11 Percent in Fourth Quarterly DropShare Business ExchangeTwitterFacebook| Email | Print | A A A By Michael QuintNov. 23 (Bloomberg) — U.S. states tax collections fell for the fourth consecutive quarter as job losses and the economic recession cut revenue from income and sales levies, according to the Nelson A. Rockefeller Institute of Government.The decline of 10.7 percent in the period that ended in September, compared with a year earlier, was less than the previous quarter’s 16.6 percent drop, which was the biggest since 1963, the Albany, New York-based institute said today. The report covered 44 states for which comparable data was available.“Despite indications that the national recession may be over, the revenue situation remained gloomy in virtually every state in the third quarter,” according to the report. A number of states are collecting less than they projected, and “further revenue shortfalls and more spending cuts are most likely on the way for many,” the institute said.State budget deficits will exceed $350 billion in the next two years, the Center on Budget and Policy Priorities said in a report earlier this month. At least 42 states have cut spending, with 28 reducing outlays for health care, and 26 for schools. More than 30 states increased taxes or fees this year, the Washington-based center said.To contact the reporter on this story: Michael Quint in Albany, New York, at

GuestNovember 24th, 2009 at 11:21 am

but but, there is always free money for people to spend. Dont worry Obama administration will do revolving Stimulus forever to keep sending money to our way. wuaHAHAHAAAA, wiiIII free money for all wuaHAHAAA.

GuestNovember 24th, 2009 at 2:58 pm

Yes, the recession has ended NATIONALLY, although every STATE is still mired in depression. Ya gotta love it!

AnonymousNovember 25th, 2009 at 2:35 am

The recession has ended on WALL STREET, but every FEDERAL and STATE taxpayer will be paying the vigorish on Wall Street bonuses for the next two generations.

MM CANovember 24th, 2009 at 11:19 am

Well worth the read at the link below.Show Me Economic Expansion, Chairman Bernanke 48 commentsby: Steven Hansen November 22, 2009When Fed Chairman Ben Bernanke speaks, I listen. The Federal Reserve oversees the American economy, and it is insightful on how the Fed views our economic conditions.In an address this week, not only did Chairman Bernanke provide little new insight – this is the first time I have felt he was misleading in some of his points.Excerpts from Bernanke’s speech this week at the New York Economic Club:

GuestWithQuestionNovember 24th, 2009 at 11:20 am

A question: I remember reading somewhere that banks essentially create money out of thin air when they give out a loan. Something to do with how accounting is set up (the money becomes an entry on income side?) or something like that(?)Can anyone confirm whether this is the case and explain a bit as to why they would be creating money?And if it is the case, then there is still a lot more money being made in USA than just that printed by the government. Would this not have an effect on inflation…and if it does, why doesn’t Roubini talk about it?

GuestWithQuestionNovember 24th, 2009 at 11:22 am

an additionally to above, wouldn’t the Credit Card companies and all other lending institutions be also then creating money out of thin air?

RybergNovember 30th, 2009 at 5:41 am

Yes. Any institution that issues credit is creating money. Strictly speaking, it is not createded out of thin air if there is a reserve requirement but even under fractional banking at least part is created out of thin air.Now consider the carry trade and hedge fund investing. Borrow short term at near zero percent and loan longer term at a higher percent. More debt is created in this process than in the banking process and there are no reserve requirements. Systemic risk and moral hazard abounds.But inflation may not be affected so long as this money is directed toward financial assets. Of course, this definition of inflation implicitly excludes the increase in asset prices.

PeteCANovember 24th, 2009 at 12:10 pm

Look up “Fractional Reserve Banking” on wikipedia.Suppose a bank receives $100,000 in new deposits. That bank is then allowed to create $1,000,000 in new loans – based upon the $1000,000 deposit amount. So $900,000 of loan money was essentially generated out of thin air. Of course, banks will ONLY lend money if they expect to get paid back (and right now banks are not loaning much money because they feel most Americans are not a good credit risk and home prices are not stable).PeteCA

PeteCANovember 24th, 2009 at 1:46 pm

I don’t teach economics or finance. It’s actually an engineering class. The students usually cringe – because of the math skills needed for the education. You can sleep peacefully knowing that you are not enrolled in that class. Ha! Ha!PeteCA

GuestNovember 24th, 2009 at 2:02 pm

PeteCAmy question was not meant as dragotory in any sense. Just out of curiosity.I know from your posts that you have more grasp on the subject than many of the economists today. By the way what subjects you teach i might want to be in your class? 🙂

GuestDecember 2nd, 2009 at 2:40 pm

I don’t teach economics or finance. It’s actually an engineering class. The students usually cringe – because of the math skills needed for the education. You can sleep peacefully knowing that you are not enrolled in that class. Ha! Ha!PeteCABy PeteCA on 2009-11-24 13:46:33

PeteCAmy question was not meant as dragotory in any sense. Just out of curiosity.I know from your posts that you have more grasp on the subject than many of the economists today. By the way what subjects you teach i might want to be in your class? :)By Guest on 2009-11-24 14:02:31

Indeed. Whereas I’m not an engineer (but I do play one around my house), I have to say that my very engineering-nerdy-based education should be a requirement for anyone who wants to have an opinion, professional or amateur, regarding any field which exhibits, for instance, positive and/or negative feedback phenomena or similar degree of complexity. You don’t see engineers arguing that regulating feedback in an amplifier is immoral because it violates the free will of the circuitry. But try to address similar problems in the field of health care delivery, and all of a sudden simple mathematical analysis of stability becomes a Tool of Satan.

11b40November 24th, 2009 at 1:12 pm

Banks are also not loaning because business and private individuals who are credit worthy don’t want to borrow. When demand is contracting, business sees no need to borrow for expansion. When the future is cloudy, the consumer starts doing the opposite – paying down debt.On Main Street today, the question is more along the line of “should we just close the doors before we lose even more money?” That is not a joke. Those folks on Main Streeet have been my customers for over 30 years. I know them personally, and I know the conversations being held around the kitchen tables of small business owners. Many have had a good run, but the past couple of years, business has become more difficult and profits more elusive. Do you pony up your savings and gamble on the economy next year, or do you just pull in and save your nest egg? This is the real story on Main Street today.The key words in the first paragraph are ‘credit worthy’. There is plenty of need/demand for cash, but try going down to the bank and asking for $10K to catch up on your bills and stock the freezer…and good luck.Independent Contractor

ChrisLNovember 24th, 2009 at 4:07 pm

In the last years of the orgy of debt, it was much more than 9 to 1, the ratio of debt money created out of thin air by banks and shadow banks vs the deposits :In 2007, the US economy “consumed” $ 5 trillion of debt (1 Govt, 1.5 households, 1.5 financial institutions and shadow banks, 1 businesses). But the entire economy managed to save less than 1% of GDP, or less than $ 100 billion.So the ratio in 2007 was greater than 50 to 1 !This means that for each and every American household, close to $50,000 of debt money was created out of thin air, in one year.And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.Thomas Jefferson to John Taylor, May 28, 1816

PeteCANovember 24th, 2009 at 4:36 pm

ChrisL:I always enjoy that particular quote from Thomas Jefferson.Two of the most enlighening things that American citizens can do today are to:1) Try to understand the system of money in our country.2) Read more about the founding fathers of this country and ponder what their hopes and aspirations for “America” were really all about.PeteCA

amacflyNovember 24th, 2009 at 8:39 pm

Thank you! I don’t want to drag politics onto the site, but as a born Brit who became a Yank with great pride a dozen years ago, I have become really ashamed of the corruption of my chosen home. The whole Fed since 1916 story of how the banks have totally taken over our country, and perpetuate the divide and conquer two party Punch & Judy show to keep everyone distracted amazes me, and they’re still getting away with it.Mises, Rothbard, Mullins, Griffin, Russo, Rockwell and Ron Paul have all laid out the details of what is really happening in our home, but so few seem to even care, despite the fact the banksters have destroyed our economy.I came to this country with a liberal, open heart, but now I find myself becoming a Libertarian. It seems a reasonable path to meaningful change, and it is better that the Rep Inc dictatorship that I fear we could see once the country finally realizes that Obama and his GS team have no idea how to put Humpty back together again.

GuestNovember 27th, 2009 at 5:09 am

If you’re serious about evolving then don’t stop at libertarianism, keep going forward and take a look at anarchism (which doesn’t have the elitist baggage that libertarianism has).Those who wish to stay stuck, to stay ignorant, don’t read, don’t learn about what anarchism really is about (just continue to suck down the pablum that the status quo is feeding you). Those, however, that truly wish to be free thinkers can start here.

s2007November 30th, 2009 at 10:17 am

anarchism is ridiculous. throw a pebble into the water – it will be disturbed (anarchism) – BUT ALWAYS RETURN TO THE SAME STATEsurely you can do better than this

GuestNovember 24th, 2009 at 1:57 pm

Meanwhile, even some pro-man made global warming advocates have conceded that an investigation is necessary.Bob Ward, director of policy and communications at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, told the London Guardianthat only a rigorous investigation could clear the names of those accused of manipulating the data, admitting that the emails “created the impression of impropriety,” which is a lot further than most have gone in accepting the damning nature of the hacked data.Indeed, the British Met Office performed the equivalent of a child sticking his fingers in his ears by merely attempting to dismiss the emails altogether, without even explaining what was meant when scientists at CRU talked about pulling “tricks” to “hide the decline” in temperatures.A spokesman at the Met Office, which jointly produces global temperature datasets with the Climate Research Unit, said there was no need for an inquiry. “If you look at the emails, there isn’t any evidence that the data was falsified and there’s no evidence that climate change is a hoax. It’s a shame that some of the sceptics have had to take this rather shallow attempt to discredit robust science undertaken by some of the world’s most respected scientists. The bottom line is that temperatures continue to rise and humans are responsible for it. We have every confidence in the science and the various datasets we use. The peer-review process is as robust as it could possibly be. It’s no surprise, with the Copenhagen talks just days away, that this has happened now.”As James Delingpole of the Telegraph highlights, alarmists are not going to be effected by the scandal, because they will allow nothing whatsoever to corrupt their religious belief system. “They’ve made up their minds and no quantity of contrary evidence, however devastating, is going to shake their considered position of “Nyah nyah nyah. Got my fingers in my ears. Not listening. The world IS warming and it’s man’s fault. Must tax carbon now….”However, there seems little doubt that this bombshell will go a long way to derailing, or at least delaying the agenda for a global carbon tax that will be collected by the very same elitists aggressively pushing the fraud of global warming

MorbidNovember 24th, 2009 at 2:37 pm

FINALLY!Revelation! Climate Change Is A Fraud. ACORN Is A Fraud.What do these two have in common?The Liberal Agenda – I hope Al Gore goes belly up on this one for he is has invested heavily in GREEN.Stupidity deserves its just deserts.

GuestNovember 24th, 2009 at 5:43 pm

The conservative/libertarian agenda :yeepeee, let’s just continue to consume as much non renewable resources as if there’s no tomorrow…Stupidity you say ?

amacflyNovember 24th, 2009 at 8:46 pm

For heavens sake, how can you say climate change is a fraud, are you completely mad, or just totally out of touch with what is happening on your home planet? Do you not look at all the data pouring in from all over the planet? Or are you one of the legion of bloggers Exxon pay to try to cast doubt on the very real changes to protect their irresponsible greed?Before you greedily line your pockets with their dirty money go and spend some time on the websites of NASA, NOAA, Scripps Institute, National Geographic, The Smithsonia, Yale, Harvard, you get the picture.

MorbidNovember 25th, 2009 at 7:10 am

There is climate change – but it is not man-made. It’s a natural cycle.No need for a carbon trading system.

GuestNovember 26th, 2009 at 7:33 pm

Climate change is a built-in: inter-glacial periods, as revealed by the earth’s historical recordings, last approximately 10,000; glacial periods (soil rebuilding function) lasts 90,000. No matter what we do the next glacial period WILL occur. To say that man has not impacted the pace, however, is pure hogwash.The carbon trading system is pure crap! More of the rich elitists controlling the world’s population. If we really wanted to pare back our impacts we’d stop producing a bunch of crap!

11b40November 27th, 2009 at 3:56 pm

There will be a carbon tax and a carbon ‘market’. It’s the next field of plunder once the uber financiers leave the current stock exchanges in a smoldering heap. You can almost hear Wall St licking it’s chops at the prospect.Independent Contractor

GuestNovember 24th, 2009 at 2:23 pm

This elite has been around since the nation began, becoming increasingly dominant as the 19thcentury progressed. A key date was passage of the National Banking Act of 1863, when the system was put into place whereby federal government debt was used to collateralize bank lending. Since then we’ve paid the freight through our taxes for bank control of the economy. The final nails in the coffin came with the passage of the Federal Reserve Act of 1913.In 1929 the bankers plunged the nation into the Great Depression by constricting the money supply. With Franklin D. Roosevelt as president, the nation struggled through the decade of the 1930s but did not pull out of the Depression until the industrial explosion during World War II.After the war came the Golden Age of the U.S. economy, when the working man, protected by strong labor unions, became a true partner in the prosperity of the industrial age. That era lasted a full generation. The bankers were largely spectators as Americans led the world in exports, standard of living, science and space exploration, and every measure of health, longevity, and culture.Roosevelt had kept the bankers subservient to the interests of the economy at large. The Federal Reserve was part of the New Deal team, and interest rates were held at historic lows despite a large federal deficit. One main impact was the huge increase in home ownership. After World War II, the G.I. Bill allowed home ownership to grow further and millions of veterans to attend college. The influx of educated graduates led to productivity growth and the emergence of new high-tech industries.But the bankers were laying their plans. In the early 1950s they got the government to agree to allow the Federal Reserve to escape its subservience to the U.S. Treasury Department and set interest rates on its own. Rates rose throughout the 1950s and 1960s. By the time of the interest rate hikes of 1968, the economy was slowing down. Both federal budget and trade deficits were beginning to replace the post-war surpluses. High interest rates were the likely cause.In 1971, President Richard Nixon removed the dollar’s gold peg, allowing the huge inflation resulting from oil price increases that the international bankers engineered through control of U.S. foreign policy when Henry Kissinger was national security adviser and secretary of state. Nixon’s opening to China resulted in early agreements, also overseen by banking interests, to begin to transfer U.S. industry to overseas producers like China which had cheap labor costs.By the mid-1970s, the U.S. had been taken over by a behind the scenes coup-d’etat that included events in 1963 when President John F. Kennedy was assassinated by a conspiracy that could only have been instigated by the highest levels of world financial control. In the election of 1976, David Rockefeller succeeded in placing fellow Trilateral Commission member Jimmy Carter in the White House, but Carter upset the banking community, thoroughly Zionist in orientation, by working toward peace in the Middle East and elsewhere.I was working in the Carter White House in 1979-80. Unbeknownst to the president, Federal Reserve Chairman Paul Volcker, another Rockefeller protégé, suddenly raised interest rates to fight the inflation the bankers had caused by the OPEC oil price deals, and plunged the nation into recession. Carter was made to look weak and uninformed and was defeated in the election of 1980 by Republican candidate Ronald Reagan. It was through the “Reagan Revolution” that the regulatory controls over the banking industry were lifted, mainly in allowing the banks to use their fractional reserve privileges in making mortgage loans.Volcker’s recession shattered American manufacturing and hastened the flight of jobs abroad. Under the “Reagan Doctrine,” the U.S. military embarked on an unprecedented mission of world conquest by attacking one small nation at a time, starting with Nicaragua. Global capitalism was also on the march, with the U.S. armed forces its own private police force. With the invasion of Iraq under George H.W. Bush in 1991, mainland Asia was revealed as the principle target.The economy was floated by productivity gains through computer automation and a huge sell-off of assets through the merger-acquisition bubble of the late 1980s which ended in a recession. This resulted in the defeat of Bush by Bill Clinton in the election of 1992. Clinton was able to create another bubble through a strong dollar policy that attracted foreign capital.The dot-com bubble that resulted lasted all the way through to the crash of December 2000. Meanwhile, the U.S. Air Force led the way in the destruction of the sovereign state of Yugoslavia, whereby the international bankers took over the resource wealth of the entire Balkan region, and the U.S. military gained forward bases for further incursions into Asia.Do we need to say that none of this was ever voted on by the American electorate? But they bought into it nevertheless, both with their silence and through participation in a generally favorable job market in the emerging service occupations, particularly finance.By the time George W. Bush was inaugurated president in January 2001, the U.S. was facing a disaster. $4 trillion in wealth had vanished when the bubble collapsed. NAFTA caused even more American manufacturing jobs to disappear abroad. The Neocons who were moving into key jobs in the Pentagon knew they would soon have new wars to fight in the Middle East, with invasion plans for Afghanistan and Iraq ready to be pulled off the shelf.But the U.S. had no economic engine available to generate the tax revenues Bush would need for the planned wars. At this moment Chairman Alan Greenspan of the Federal Reserve stepped in. Over a two year period from 2001-2003 the Fed lowered interest rates by over 500 basis points. Meanwhile, the federal government removed all regulatory controls on mortgage lending, and the housing bubble was on. $4 trillion in new home loans were pumped into the economy, much of it through subprime loans borrowers could not afford.The Fed began to put on the brakes in 2003, but the mighty work of re-floating a moribund economy had been accomplished. By late 2006 another recession loomed, but it would take two more years before the crisis of October 2008 brought the entire system down.The impact on the job market was immediate and profound. By the time Barack Obama was elected president in November 2008, the U.S. was mired in seemingly endless wars in Afghanistan and Iraq, and the worst recession since the Great Depression was picking up speed. In order to prevent total disaster, the Bush administration ended its eight years of catastrophic misrule with a flourish, by allocating over $700 billion in financial system bailouts to cover the bad loans the banks had been making since Greenspan gave the housing bubble the green light.It is now November 2009. Since Barack Obama was inaugurated in January, unemployment has soared from 7.9 percent to 10.2 percent. A few hundred billion dollars were allocated for “stimulus” purposes, but most of that went to pay unemployment benefits and to keep state and local governments from laying off more employees.A fraction has been distributed for highway improvements, but largely through the bank bailouts the federal deficit has been running at an annual rate of $1.5 trillion, by far the largest in history, with the national debt now topping $12 trillion. Ironically, those Americans who still have productive jobs continue to grow in efficiency, with productivity up over five percent in the last year.So much federal money has been spent that the Obama administration has been struggling to make its health care proposals budget-neutral through a raft of new taxes, fees, and penalties, and by announcing in recent days that the government’ first priority must now shift to deficit reduction. The word “austerity” has been mentioned for the first time since the Carter administration. Yet Congress voted $655 billion in military expenditures to continue fighting in the Middle East. A U.S. military attack on Iran, possibly in conjunction with Israel, would surprise no one.So where do we now stand?At present, the Federal Reserve is trying to prevent a total economic collapse. Interest rates are near-zero, to the chagrin of foreign investors in U.S. Treasury securities, and close to half of new Treasury debt instruments have been bought by the Federal Reserve itself as a way of providing free money for federal government expenditures.But the U.S. economy shows no signs of coming back, with no economic driver emerging that could bring it back. For all the talk about alternative energy, there has been no significant growth of any home-grown industry that could possibly make up so much lost ground in either the short or the long-term.The industries in the U.S. that are holding up are the military, including arms exports, universities that are attracting large numbers of students from abroad, especially China, and health care, especially for the aging baby boomer population. But the war industry produces nothing with a long-term economic benefit, and health care exists mainly to treat sick people, not produce anything new.None of this provides a foundation that can bring about a restoration of prosperity to 300 million people when the jobs of making articles of consumption are increasingly scarce. On top of everything else, since government inevitably looks to its own requirements first, the total tax burden continues to increase to the point where the average employee now pays close to 50 percent of his or her income on taxes of all types, including federal and state income taxes, real estate taxes, payroll taxes, excise taxes, government fees, etc. Plus the cost of utilities continues to rise steadily and threatens to skyrocket if cap-and-trade legislation is passed.The Obama administration has no plans to deal with any of this. They have projected a budget for 15 years hence that shows the budget deficit decreasing and tax revenues going way up, but it is all lies. They have no roadmap for getting us there and no plans for following the roadmap if it portrayed a realistic goal. And yet the U.S. military is still trying to conquer Asia. It is madness.And it is madness because the big decisions are not made by the U.S., by Congress, or by the Obama administration. The U.S. has, for half-a-century, been marching to the tune played by the international financial elite, and this fact did not change with the election of 2008. The financiers have put the people of this nation $57 trillion in debt, according to the latest reports, counting debt at the federal, state, business, and household levels. Interest alone on this debt is over $3 trillion of a GDP of $14 trillion. Failure of our political leadership to deal with this tragedy over the past three decades is nothing less than treason.But then again, at some point the decision was made that the U.S. and its population would be discarded by history, the economic status of the nation reduced to a shadow of what it once was, but that its military machine would be used for the financial elite’s takeover of the world until it is replaced by that of some other nation. All indications are that the next country up to bat as military enforcer for the financiers is China.There you have it. That, in my opinion, is the past, present, and future of this nation in a nutshell. Great evils have been done in the world in the last century, and there is nothing anyone can do about it.Except…. and that’s what each person caught up in these travesties must decide. What are you going to do about it?In mulling over this question, it would be wise to recognize that the dominance of the financial elite has largely been exercised through their control of the international monetary system based on bank lending and government debt. Therefore it’s through the monetary system that change can and must be made.The progressives are wrong to think the government should go deeper in debt to create more jobs. This will just create an even deeper hole of debt future generations will have to crawl out of.Rather the key is monetary reform, whether at the local or national levels. People have lost control of their ability to earn a living. But change could be accomplished through sovereign control by people and nations of the monetary means of exchange.This control has been stolen. It is time to take it back. One way would be for the federal government to make a relief payment to each adult of $1,000 a month until the crisis lifted. This money could be earmarked for goods and services produced within the U.S. and used to capitalize a new series of community development banks. I have called this the “Cook Plan.”The plan could be funded through direct payment from a Treasury relief account without new taxes or government borrowing. The payments would be balanced on the credit side by GDP growth or be used by individuals to pay off debt. It would be direct government spending as was done with Greenbacks before and after the Civil War without significant inflation.Another method increasingly being used within the U.S. today is local and regional credit clearing exchanges and the use of local currencies or “scrip.” Use of such currencies could be enhanced by legislation at the state and federal levels allowing these currencies to be used for payment of taxes and government fees as well as payment of mortgages and other forms of bank debt. The credit clearing exchanges could be organized as private non-profit regional currency co-operatives similar to credit unions.These would be immediate emergency measures. In the longer run, sovereign control of money and credit must be returned to the public commons and treated as public utilities. This does not mean exclusive government control to replace bank control. As stated previously, it would be done in partnership between government and private trade exchanges. Nor does it mean government takeover of business, industry, or the banking system, though all should be regulated for the common good and fairly taxed.This program would lead to a new monetary paradigm where money and credit would be available by, as, when, and where needed, to facilitate trade between and among legitimate producers of goods and services. In this way trade and commerce will come to serve human freedom, not diminish it as is done with today’s dysfunctional partnership between big government trillions of dollars in debt and big finance with the entire world in hock.Such a change would be a true populist revolution.Richard C. Cook is a former federal analyst who writes on public policy issues. He is an advisor to the American Monetary Institute on its model monetary reform legislation soon to be introduced in Congress. His latest book is We Hold These Truths: The Hope of Monetary Reform.

Pecos BankerNovember 25th, 2009 at 3:14 am

Is this such a great post? A lot of conspiracy theory stuff and couldn’t help noticing the word “Zionist”, which pretty much gives away where the author is coming from.Here are some quotes from the article that are at least questionable.”By the time of the interest rate hikes of 1968, the economy was slowing down. Both federal budget and trade deficits were beginning to replace the post-war surpluses. High interest rates were the likely cause.”Why were high interest rates the cause? The huge trade deficits we have had in recent years have occurred as a result of low interest rates.”By the mid-1970s, the U.S. had been taken over by a behind the scenes coup-d’etat that included events in 1963 when President John F. Kennedy was assassinated by a conspiracy that could only have been instigated by the highest levels of world financial control.”What is the basis for this? The international banks are responsible for the Kennedy assasination? Where is the proof?”It was through the “Reagan Revolution” that the regulatory controls over the banking industry were lifted, mainly in allowing the banks to use their fractional reserve privileges in making mortgage loans.”Is this a fact? Commercial banks were not allowed to make mortgage loans before Reagan? Hard to believe. In any case, this was way before MBS, the real problem.”Meanwhile, the U.S. Air Force led the way in the destruction of the sovereign state of Yugoslavia, whereby the international bankers took over the resource wealth of the entire Balkan region, and the U.S. military gained forward bases for further incursions into Asia.”They must have been interested in those huge oil fields in Kosovo, or perhaps it was the eastern orthodox art treasures? And what is this obsession with war against Asia? The war in Iraq makes more sense as an oil play.”But the U.S. had no economic engine available to generate the tax revenues Bush would need for the planned wars. At this moment Chairman Alan Greenspan of the Federal Reserve stepped in. Over a two year period from 2001-2003 the Fed lowered interest rates by over 500 basis points. “How is increasing indebtedness through credit going to result in more tax revenues? As a result of precisely that, tax revenues have fallen precipitously.

ChrisLNovember 25th, 2009 at 11:05 am

I don’t know what happened exactly under Reagan with regards to regulatory controls, but the result is very clear if you look at a historical graph of DEBT as a % of GDP : before Reagan (from the second world war onwards), Total DEBT (private + public) grew more or less in line with GDP. But from 1980 onwards, Total DEBT started growing three times faster than GDP.It’s also under Reagan that the previous trend of decreasing inequality started to reverse itself.It’s also under Reagan that the share of corporate profits harvested by the financial sector started to grow (from less than 10% of total profits before Regan to close to 50% under Bush II).It’s also under Reagan that the savings rate started to decrease from close to 10% of GDP previously, to close to 0% in 2007).You can look at all these curves, it’s very clear : the cancer that is destroying America started under Reagan.

11b40November 25th, 2009 at 3:34 pm

“You can look at all these curves, it’s very clear: the cancer that is destroying America started under Reagan.”Any objective review of history will concur. Ronald Reagan had his good points, but what he ushered in was a divide and conquer political mentality that has essentially ruined this country. A mentality that demonizes the opposition. It is how the republicans married the religious right to Wall St. Mixing these 2 should be like oil and water, but Wall St smiled and sang hallelujah all the way to the bank. What did they care about social issues? After all, they are basically above the laws affecting the commoners.Reagan was a General Electric shill from the 50’s. The Military Industrial Complex and the Financial Industry owned him. He was responsible for increasing the FDIC guarantee from $40,000 to $100,000 and including Savings & Loans. Here is a direct quote from him as he signed that bill into law soon after coming into office.”Boy, we are going to have some fun now.”His cronies did – to the tune of $500 billion extracted from the taxpayer’s pockets.I actually liked the guy in some ways and admire his communication skills, his focus, and tenacity. However, he is a long, long way from being the deity that the right wing wants to make him. Many of the seeds of our destruction were planted under Reagan & others were well fertilized. 1980 was a major turning point in America. The right began to get even for the liberal agenda that took hold in the 50’s and Wall Street wrapped their fist around Washington….or so it seems to me, and I was paying attention back then.Independent Contractor

GuestNovember 25th, 2009 at 7:58 pm

Only some kind of half-wit could possibly NOT believe that much of the real conspiracy that has transpired to bring the world financially to where it is today(on the very brink of financial collapse) has been perpetrated by Zionist leaning influencial banking actors and their bought and paid for cohorts in Govt.And it has been over decades. Denying what is so patently obvious is relied apon by those same treasonist bastards to keep the masses silent.Is it so wrong to point the finger at those who have screwed you out of what essentially is your heritage?

ChignosNovember 24th, 2009 at 2:23 pm

No one wants to hear this but the reason fiat currencies exist worldwide is because the world wants a handout. The banksters argued that creating fiat money would provide the “elasticity” needed for economic growth and the avoidance of recessions–but the argument was disingenuous. What they really wanted was leverage over you.What if you’re getting the biggest dollar handout ever (Goldman-Sachs)? You’re not producing wealth………and you know it. Think all that money will ever get spent or do you any good? Won’t it just lay dormant in some account somewhere? Think Teddy Kennedy lived a happy fulfilled life? Seems to me the Kennedy family is (and was) perfectly miserable. Not exactly what old Joe Kennedy (the GS of the 20s/30s) had in mind. Are youe paying attention Lord Blankfein?Or what if you’re a lesser offender? A starving musician on food stamps has that hand out. Think s/he would ever produce the sounds of a Don Fagen (“The Nightfly”)? Not likely.I doubt Lord Blankfein has ever heard Don Fagen.Whether the taxpayers bail out those with their hands out or not is irrelevant to those of us who know how to produce wealth and pioneer on. We have confidence that we know why we’re on the planet. Get out of debt. Buy silver, platinum, palladium, and gold (no counterparty risk). Play the markets if you want to. Leave enough FRNs in the bank to pay your taxes (if the Feds devalue they can go float for their taxes).My definition of success is to shoot your age in golf. Remember, in this world there is no free lunch.

ChrisLNovember 24th, 2009 at 4:42 pm

The problem is not fiat money. The problem is pathological optimism or the unwillingness to evaluate risks properly.In 2007, $ 5 trillion worth of new debt money was created out of thin air (for less than $100 billion worth of savings). Behind this enormous amount, there are millions of loans. Behind each and every loan, there is a borrower, and a bank or shadow bank.Every borrower says to the bank : there’s no risk, I’m sure I can reimburse my loan with interests over a certain period of time.And every bank thinks, ok I’ll take the profit from that loan, and in any case, I’m adequately insured against the risk if it goes wrong. In other words, I’m shifting the risk to someone else. This mega fucker, the “Value at Risk” model used by all financial businesses.And by the way, pathological optimism and unwillingness to evaluate risks properly is still very much alive today. Plus now the bailout mentality that makes it even worse.There’s no need to believe in miracles, that there is a simple ad-hoc solution to this problem, there’s no “let’s just change the monetary system, get rid of the FED and Fiat currencies and woooopy the problem is solved”.

ChignosNovember 24th, 2009 at 5:16 pm

Pathological optimism is the belief that there is a handout for you out there somewhere. There is no free lunch. If we had a gold standard (and we will again eventually, one way or another, and in a sense we still do even now) the market and the banks would have to tow the line. You can’t create money outta thin air to fund all the pathology. Doesn’t matter whether BB and Timmay want it or not–the price of gold is the price the world values everything else in. The more they bail and obfuscate, the more debt the people take on, the higher the price will go.

GuestNovember 27th, 2009 at 3:04 am

Pathological optimism is the belief that there is a handout for you out there somewhere.Yes, a lie that is perpetually propagated by those in power to keep everyone subservient. Think marketing minds…

snsNovember 24th, 2009 at 2:24 pm

second half ’09 predications? you mean Q4, right? i’m not premium so what are the specific predictions? i sense generalities….

snsNovember 24th, 2009 at 2:26 pm

ps chingos re: fiat currency creation: “What they really wanted was leverage over you.” pure idiocy and a touch of truth, whatever that is. stick to your game; golf game that is.

GuestNovember 26th, 2009 at 8:18 pm

(For once, IMHO) Chignos hit one! Money IS the mechanism whereby we are controlled. If people don’t get this fundamental then there’s little hope of meaningful correction. The Cook article above, though it takes some liberties (but then again, who the hell doesn’t?), does a pretty good job of demonstrating this.

gAntonNovember 24th, 2009 at 2:30 pm

The Inevitable–It’s Already Down The DrainSo President Obama’s popularity rating has plummeted to below fifty percent! Presiding over the decline and fall of empire is a dirty job, but someone has to do it. So let Obama do it. After all is said and done, it won’t make much difference who did it. And at least Obama won’t be using George Bush’s concentration camps to incarcerate his fellow Americans.They say that Nero fiddled while Rome burned. I wonder if Obama can play the violin–a guitar would probably do in a pinch.Also, Obama is telling the needy unemployed that they need to be patient. It is hard to be patient when you are hungry, bankrupt, and only too aware that your situation is hopeless. The economic disease afflicting the country is an astronomical amount of private and public debt (there are other problems too, but the are much smaller and more manageable then is the debt). There is really nothing that he can do for the unemployed without increasing the debt, and even then he really can’t help them. They are bleeding to death, and he can only offer the unemployed an aspirin table and a band aid. They are badly damaged, and the majority will remain so for the rest of their lives.(Parenthetically, I would like to add that I think that giving Obama the Nobel Peace Prize is like sending the goat to watch the cabbage.)

SoftwarengineerNovember 24th, 2009 at 4:20 pm

ExactlyDebt to rescue health care or build streets either creates no new jobs and/or the few alleged jobs it saves totally go away after the debt money is burned up.Stimulus II at a theater near you, then Stimulus III, etc, etc…until we’re bankrupt?No manufacturing in America, no hope.More overpopulation in America, even more unemployment and debt surging to bankruptcy.Its as simple as the nose on your face.

GuestNovember 24th, 2009 at 3:45 pm

White Collar Criminals Are Running Amok, Says U.S. Attorney — It’s A Perfect Storm!Lawrence Delevingne|Nov. 24, 2009, 4:14 PM | 144 |1PrintTags: Crime, Regulation, White-collar crime, Wall Street, Insider Trading, Legal, Raj RajaratnamIt’s already been a banner year for white-collar crime, and it’s only going to get worse.U.S. Attorney for New York’s Southern District, Preet Bharara, outlined the amazing opportunities crooks have today in a speech at NYU Law last week, but said his office is prepared with aggressive tactics more commonly associated with mafia investigations and HBO’s The Wire.Bharara has had a busy first three months on the job, including the $40-plus million Galleon Group insider trading case; the arrest and indictment of a high-level political booster Hassan Nemazee for a $292 million bank fraud; and a real estate fraud case involving 41 defendants and $64 million in residential mortgages.But there’s plenty more to come.Bharara said three factors that – in combination – “suggest a crisis greater in potential and magnitude than anything we have seen so far.”First, the “sheer scale of the frauds exposed in recent weeks and months has dwarfed anything we have ever seen.”Second, the “current environment provides rich and historic opportunities for continuing fraud,” incuding $700 billion in TARP loans and; the President’s $787 billion stimulus; and looming scams from health care reform.Finally, Bharara says fraud is increasing difficulty to detect. “Part of that is due to the growing complexity of financial systems and instruments; part of it is due to the march of technology; and part of it is due to the increasingly devious and clever methods that fraudsters are using to conceal their crimes.”But, as the Galleon Group investigation illustrated, the Southern District is using increasingly aggressive tactics to catch white-collar criminals, especially wiretaps. Bharara lists five in particular:WiretapsGood Old Fashioned SurveillanceCooperating Witnesses and InformantsInternational CooperationAggressive Computer SurveillanceAs we noted today, Raj Rajaratnam is challenging the legality of the wiretaps used against him; his could could a test case for the effectiveness of their use in investigations.

FEDupNovember 24th, 2009 at 4:09 pm

A “U” shaped recovery? No, there won’t be any recovery for at least 10 years. Does anyone seriously think home prices (reflecting home equity and wealth) will return to peak levels in under 10 years? Does anyone think wages and full employment for the masses will return to peak levels when we have new college job seekers hitting the workforce each year in a contracting economy? Does anyone think that higher taxes and fees, increased healthcare and social security costs and carbon taxes are not going to paralyze the consumer? This time, the elite with the full support of our govt puppets have crossed the threshold: dumping on Americans more debt when we already had too much debt knowing there’s no way in hell to pay any of it back so the elite reason that we might as well run the printing presses 24/7 and grab all we can now before the system crashes: they will recover, but the rest of us…don’t hold your breath!

SoftwarengineerNovember 25th, 2009 at 11:47 am

You Got It FedupAs America’s population density and slamdunk unemployment increases; per capita spending, house prices and wages are simulataneously decreasing.We can go to Stimulus II, Stimulus III, etc, etc and slow the soon inevitable train wreck down; but its clearly hopeless, without an immediate population density decrease and a domestic manufacturing base in America.Got a better solution?

NoviceNovember 24th, 2009 at 4:16 pm in Four Borrowers Is UnderwaterBy RUTH SIMON and JAMES R. HAGERTYThe proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.Underwater MortgagesThese so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

NoviceNovember 24th, 2009 at 4:21 pm

My sister lives near Sacramento and wants to move back east. Problem is she cannot sell her house for what it’s mortgaged for. She is giving serious thought to walking away. Nearly 1/4 of all homeowners with mortgages are in the same position. Even if they can make the payments, they are stuck with a house they cannot sell. I think rumors of recovery have been seriously over estimated.

Octavio RichettaNovember 24th, 2009 at 5:01 pm

SPY, EFA, EEM with the USD carry trade which one do you think will nosedive harder first? The beauty of these ETFs is that they price the respective indices in USD. So we do not need to correct for currency;range=ytd;compare=eem+efa;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedThe beauty of these ETFs is that they price the respective indices in USD. So we do not need to correct for currency

GuestNovember 24th, 2009 at 6:18 pm

Two questions:1.Shilling says:”Stocks will fall through March lows as investors begin to worry about disappointing 2010 earnings.” How does this mesh with Roubini’s thesis that we are in recovery now?2. I thought you were a big ECRI fan, and aren’t they still predicting an up market?

Octavio RichettaNovember 24th, 2009 at 9:28 pm

I subscribe to Shilling’s letter. I think he does a very good job at long term economic forecasting but doesn’t get high marks for short term forecasting of either the economy or the stock market.Yes, I am a big fan of ECRI for short/medium term forecasting – BTW, the second derivative of the WLI* continues to be in negative territory. It has been there for a month now. And today, we got a revised down GDP with under 5% growth. This still calls for a “wait and see” watchful posture as the evidence is still not there to make [with any certainty] a [short term] recovery call that is any softer than ECRI anticipates.*By looking at the second derivative of the WLI (i.e., the rate of change of the annual growth rate for the WLI) I was able to see the turnaround earlier (late January) than ECRI but the rest of the market didn’t so I paid the price of being somehow long through the March lows. Being too fast/too smart/too early around turn arounds in the stock does you no good. It is like in the beauty contest game. It is not being able to judge raw beauty that matters; what matters is guessing right what the judges think.My lowest YTD return coincided with the market’s but I was down only -14.5%. As of today, I am up 13.3% for the year. I am now up to 82% high yield equities and added a couple of riskier Oil holdings XOM and COP. I have no idea how I will end up the year but, believe me, I am keeping my eyes open.IMO, the evidence for a V recovery is loosing steam. But don’t be mistaken; the super dark stuff we were all talking about a year ago is over. A U type recovery is not a depression. And as Shilling/Gross say, high dividend consumer good companies/utilities would do relatively well in slow economy, despite our friend in the previous post who equates EEM to Large CAP-High dividend consumer staple stocks. That kind of coarse grade analysis won’t make you any money.I may lighten up in this type of equities but no way I am gonna sit om 0% cash forever. Betting big in gold? I ain’t Cool McCool.BTW, the intention of this series of “cheap” unedited posts is not to provide sound investment advice to people reading a macro blog.

Octavio RichettaNovember 25th, 2009 at 2:35 pm

I did quite a bit of [perhaps too drastic] “fat” trimming today. In more than a way I am a #^&^#@$% chicken; but no-one has ever gonne broke by taking profits. I reduced my equity exposure from 80+% to around 58%. Among the positions I got rid off where my largest one: CBY + KFT, I made about a 4% profit in this trade I most likely I will come to regret selling it (I am invariably too early). I also trimmed down other positions that were too large (over 3% of my total portfolio) for me to sleep well at night, among them, MO and PM (I don’t think this move will make my wife any more likely to quit smoking but in any event I am giving it a try-:). I also got rid of my index position in the S&P so all I have left in terms of equities is a bunch of: high yield utilities, including VZ and T with average yield approaching 5%, big cap consumer goods stocks with an average yield of over 3%, risky holdings are limited to COP, XOM, and TIE accounting for about 6% of my portfolio total. The “ultra safe” portion of my portfolio is close to 30%* 10 year CDs yielding 5+%*I never sold the CDs to get into 80% equities, I Used margin instead. My cost of margin is over 5% but I don’t think selling 5% 10yr CDs in the secondary market is a good move in a 0% rates environmment as once you sell them you can never buy them backBTW, the WLI was up this week. It is very likely the market will continue its upward move throughout the first quarter but this is that time of the year in which I tend to make sub-optimal decisions just to lock in a year that has been kind to me (I more than doubled the 5% return objective for what I knew would be a difficult year).The tendency to assume excessive risk is always there but over the years I have learned (painfully) to control my animal spirits. At this point of time in my life, capital preservation (i.e., the return of my money as opposed to the return on my money) is the key.

Octavio RichettaNovember 24th, 2009 at 5:12 pm

BTW, you read everywhere that strong USD is due to reversal in carry trade and that makes equities risky assets go down. I agree with this only on the very short term. Long term equities holder will see a definite advantage at holding US stocks given current valuations and a cheap USd due to the currency component of return.BTW, a while ago I started writing about high dividend quality consumer stocks as an alternative to 0% money market rates. The mainstream press is now catching up with this:1. Gross:…Which brings up the second point. If companies are going to move toward a utility model, why suffer the transformational revaluation risk of equities with such a low 2% dividend return? Granted, Warren Buffet went all-in with the Burlington Northern, but in doing so he admitted it was a 100-year bet with a modest potential return. Still, Warren had to do something with his money; the .01% was eating a hole in his pocket too. Let me tell you what I’m doing. I don’t have the long-term investment objectives of Berkshire Hathaway, so I’m sort of closer to an average investor in that regard. If that’s the case, I figure, why not just buy utilities if that’s what the future American capitalistic model is likely to resemble. Pricewise, they’re only halfway between their 2007 peaks and 2008 lows – 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5-6% not .01%! In a low growth environment, it seems to me that a company’s stock should yield more than its less risky debt, and many utilities provide just that opportunity. Utilities and even quasi-utility telecommunication companies now yield between 5 and 6%, whereas their 10- and 30-year bonds yield less and at a higher tax rate to you the investor.So come on you frustrated Will Rogers lookalikes. Join the wimp who pulled his money out of the bank just 14 months ago. Look at your monthly statement, zero in on that .01% yield and say to yourself, “I’m as mad as hell, and I’m just not going to take this anymore!” You can’t buy the Burlington Northern – Warren Buffett has scooped that up – and most other choices offer tempting returns, but potential bullets as well. Buy some utilities. It may not be as much fun as running a railroad, but at least you’ll know who to call if the lights go out.William H. GrossManaging Director2. Barron’s main feature this week:BARRON’S COVER10 for the MoneyBy VITO J. RACANELLISpecial Report on Retirement: Folks approaching retirement should consider buying high-quality, dividend-paying stocks to bulk up their portfolios. Here are our top 10 picks. Video: Dividend-Paying Stocks

ORNovember 24th, 2009 at 5:26 pm

BTW, for non-stock pickers this ETF looks rather interesting:Management fees are 0.40% and it sports a 2.99% dividend.S&P Global 100 Index Fund

GuestNovember 24th, 2009 at 6:19 pm

Two questions:1.Shilling says:”Stocks will fall through March lows as investors begin to worry about disappointing 2010 earnings.” How does this mesh with Roubini’s thesis that we are in recovery now?2. I thought you were a big ECRI fan, and aren’t they still predicting an up market?

GuestNovember 24th, 2009 at 8:26 pm

Message to Obama, while you bail out Wall street white collar crimminals, the Black unemployment level in America is now over 35%… Think they will vote for you a second time around? who is standing up for them these days?

GuestNovember 24th, 2009 at 11:05 pm

He is, by telling them to be better fathers, get an education and stay out of jail! He is not an economist, not that any old economist would make a great president. He has been dealt a bad hand. Be grateful the world is appreciative that we picked an inteligent president that they can admire, not an as. If you don’t admire a president that recognizes the importance of positive relationships and…hlowe

GuestNovember 26th, 2009 at 8:30 pm

THE problem is that people look to leaders! This sets up exploitation, which is exactly what is happening now.Intelligence has nothing to do with morals, but wisdom does.

AnonymousNovember 27th, 2009 at 2:35 pm

Intelligent immorals make their living off of stupid immorals. That’s why we have poiticians.A great wise man once said that wisdom is knowing what you don’t know. Obviously this doesn’t apply to you–you know it all.

MM CANovember 24th, 2009 at 8:53 pm

Well, just got our open enrollemnt Health care and option forms and prices for 2010… and you guessed it, health care contibtuion for employees went up 40% in one year. Now over $6000.00 a year for my family… 26 years same company, a Fortune 100 company…reason – their costs went up and they arent paying anymore and will just pass it on to the employees in years to come. Current cost of plan is now 17K year… Oh and if Obamas crazy health plan passes We’ll all get taxed on the compnay paid piece of 11K… so thats another 2.5k to 3.5 k in federal income taxes coming our way…Wage and income deflation/destruction in full speed ahead…. Stuff like this will do nothing to help the country recover…. this is an unmitigated disaster unfolding right before 300 Million eyes…I’ll add too, that because of good health on all 5 people covered by this plan, we are lucky if we spend/use 2k a year on all costs…been this way for last 10 plus years. in 2003 our employee contribution was just under 500.00 annually.No one much talks about the insurance companies (life and health), but most of big 10 are also also Inslovent…just like the banks…BTW- Dental plan is joke…. Does any company anywhere offer a decent dental plan?They want almost 800.00 a year in employee contributuions for just 2000.00 a year in coverage. Still debating whether to can that, after I check all 5 mouths…so lets see 30 Million with NO JOBS, 40 Million on Food stamps, 50 Million without health insurance, 100 Million without Dental coverage, 15-25% of all cars on the road without insurance now (depending on who is polling)… 200 plus Million people without life insurance…..We can’t feed, we cant get our teeth fixed, we drive illegally, we cant pay mortages, we cant find JOBS, We are so Screwed as a country!

GuestNovember 25th, 2009 at 7:54 am

Insurers’ next headache? Commercial-mortgage defaults, says FitchPotential losses from mortgage-backed securities, direct loans could top $22B through 2011, rating agency predictsBy Darla MercadoNovember 24, 2009, 3:03 PM ESTAlready under pressure from credit rating agencies, U.S. life insurers are about to be rocked again — by defaults on their investments in commercial real estate and mortgages, according to a report from Fitch Ratings Ltd.Unless the commercial real estate market recovers, Fitch estimates that commercial-mortgage-backed securities of recent vintages will suffer losses that average out to about 9%. The ratings firm expects pressure on the securities and other non-AAA rated bundles of commercial mortgages to rise sharply next year.Fitch projects the potential losses from commercial-mortgage-backed securities owned by life carriers to be between $13.1 billion and $16.0 billion. Directly-placed mortgages will generate $5.4 billion to $6.6 billion in losses through 2011, under Fitch’s core stress scenario.As of the end of 2008, Fitch’s universe of life carriers had about $308 billion or 12% of invested assets in directly-placed mortgage loans. Exposure to commercial mortgage-backed securities, including collateralized-debt obligations comprised of commercial real estate, topped $150 billion or 5.8% of total invested assets at the end of last year, according to Fitch.However, most of the securities were investment-grade, as less than 2% of invested assets were in high-yield securities at the end of 2008, according to Fitch.Fitch also notes that the steep declines in statutory capital over the last 18 months have hobbled the insurers’ ability to get through an extended downturn.To date, the life insurers have not recognized material impairments

GuestNovember 25th, 2009 at 7:54 am

Insurers’ next headache? Commercial-mortgage defaults, says FitchPotential losses from mortgage-backed securities, direct loans could top $22B through 2011, rating agency predictsBy Darla MercadoNovember 24, 2009, 3:03 PM ESTAlready under pressure from credit rating agencies, U.S. life insurers are about to be rocked again — by defaults on their investments in commercial real estate and mortgages, according to a report from Fitch Ratings Ltd.Unless the commercial real estate market recovers, Fitch estimates that commercial-mortgage-backed securities of recent vintages will suffer losses that average out to about 9%. The ratings firm expects pressure on the securities and other non-AAA rated bundles of commercial mortgages to rise sharply next year.Fitch projects the potential losses from commercial-mortgage-backed securities owned by life carriers to be between $13.1 billion and $16.0 billion. Directly-placed mortgages will generate $5.4 billion to $6.6 billion in losses through 2011, under Fitch’s core stress scenario.As of the end of 2008, Fitch’s universe of life carriers had about $308 billion or 12% of invested assets in directly-placed mortgage loans. Exposure to commercial mortgage-backed securities, including collateralized-debt obligations comprised of commercial real estate, topped $150 billion or 5.8% of total invested assets at the end of last year, according to Fitch.However, most of the securities were investment-grade, as less than 2% of invested assets were in high-yield securities at the end of 2008, according to Fitch.Fitch also notes that the steep declines in statutory capital over the last 18 months have hobbled the insurers’ ability to get through an extended downturn.To date, the life insurers have not recognized material impairments

Pecos BankerNovember 29th, 2009 at 9:12 pm

Well, let’s see. The rating agencies gave us bogus information when everything was hunky-dory, so now were supposed to believe them when they are pessimistic. Nah! I say we should doubt their pessimism on the grounds that they have zero credibility. Therefore, I conclude that things are positively rosy now and getting better! But wait, maybe those devilish rating agencies are too clever. They knew people like me would assume the opposite of their predictions–thus they are telling the truth with the idea that nobody will believe them due to their complete lack of credibility. Oh the devilish fiends! They want us chumps to start investing heavily in insurance companies so that their buddies in the financial industry can short the hell out of them. But wait! That is not clever enough by half! They, they…Oh, I give up–I need Obama to guide me by the hand, I’m turning into a jelly like mass of quivering flesh.Obama, where’s Obama?

MM CANovember 24th, 2009 at 8:54 pm

When the real revised number comes out DEC 22 it will be down to 2.3 – 2.5% 3rd qtr GDP. and all of that will have been from Stimulus spending, Cash for clunkers and home housing credit… THERE WAS NO REAL GROWTH, in fact it was negative upwards of 2% and now everyone including OBAMA is realizing we are in DEEP TAR!Krugman: We’ll Never Get Back To Full Employment At This RateJohn Carney|Nov. 24, 2009, 9:56 AM | 437 |3While lots of us were expressing relief that the slip dowward in the revised economic growth numbers out from the government was not worse than expected, Paul Krugman came in with a reality check. The revised number is so low that it means the unemployment rate will remain elevated…forever.The problem is that with growth at just 2.8%, we’re not really doing anything to take up the slack in the economy. Our under-utilized productive capacity won’t come online.For Krugman, the key measure of economic health is the size of the output gap–which is a measure of the difference between what the economy would be producing if it kept growing at its historical pace and the actual growth (or decline) in the economy. (Incidentally, how come nobody ever talks out an inverse output gap during booms?) Krugman says that at these growth levels we’re not really doing anything to close the output gap.Krugman writes:When the 3.5% advance number came out, I took to warning people that even if the economy continued to grow at that rate, we wouldn’t see anything like full employment until late in Sarah Palin’s second term. Given the latest number, the date at which we can expect to see a return to full employment is … never.Actually, the situation may be even grimmer. The odds are good that growth will slow next year as the inventory bounce fades and the stimulus turns from pushing to dragging the economy. Still zombified banks may continue to trap capital and at least some of the business investment from the past year will turn out to be zero-interest rate driven malinvestment.

GuestNovember 24th, 2009 at 10:11 pm

Thanks to safety nets, so far you are correct. I have renters that can only pay rent because they receive unemployment benefits.Taxes were 70% at the upper end and interest rates for houses were 18+ when Volker put the brakes on inflation. Between lower taxes and interest rates over the last 30 years we achieved growth. Were do you think we go now?hlowe

GuestNovember 24th, 2009 at 10:20 pm

Of course I omitted the obvious other issues, for example, we are now the largest debtor nation, strategically disadvantage due to exporting much of our manufacturing base, over indebted house holds…Can you address these issues and give me some piece of mind?By the way happy holidays (seriously).hlowe

GuestNovember 26th, 2009 at 8:38 pm

I’d think that you’d get this point, but apparently not…The system ONLY operates on growth. If 2.8% only treads water then clearly we’re going to sink/drown. At a measly 2.8% we’d be looking to DOUBLE out current economic output in 25 years.We’re sputtering at the peak, trying to create the illusion that the other side doesn’t exist, but pretty soon the view will come in sight, and from that point we’d better accept the view because it will be the ONLY one that we’ll have. Rather than ignore this fact we should be ensuring that our brakes work…

MM CANovember 24th, 2009 at 9:01 pm

Check this brewing disaster out, coming to a state next to you too… If they cut this in any way or increase the business taxes this will only casue more NO JOBS! the 180 Billion we gave AIG would plug this hole for all states and fix a lot of other problems too… 17-20 Billion to paid out by Goldman Sucks this XMAS season in Bonuses and we have millions of people collecting a few hundred dollars a week worried now if it will continue. something just doesnt seem fair.Another California crisis: Unemployment fund facing $7.4 billion deficitBy Denis C. Theriault dtheriault@mercurynews.comSACRAMENTO — Already grappling with one multibillion-dollar budget deficit, cash-strapped California now is facing a crisis in its unemployment insurance fund — source of the tens of millions paid each week to jobless residents.Amid record unemployment, the fund will likely finish the year $7.4 billion in the red, according to the latest projections from the state’s Employment Development Department. Just to keep checks coming, California has had to reach into Uncle Sam’s pockets for some $4.7 billion to date.The state must return what it borrows by 2011 — or face hundreds of millions in interest payments that would come at the expense of funding for schools, parks and social services.But with unemployment expected to remain high as the economy slowly turns around, officials fret they won’t be able to pony up on time. And to prevent the fund’s shortfall from ballooning even further in the next two years, Gov. Arnold Schwarzenegger and the Legislature face a nettlesome dilemma: Cut back on benefits, raise taxes on employers or do both.”It’s not going to be able to correct itself at this point,” said Loree Levy, spokeswoman for the state’s employment department. In all of 2003, the fund paid out $6.1 billion, she said, but through October of this year it’s already distributed more than $12 billion.Call it another casualty of California’s worst downturn in decades. The grim news for the unemployment fund was laid out in the same report last week that forecast a $20.7 billion deficit in the state’s operating budget.Although the state has added jobs in the latest employment report, released Friday, unemployment overall is at 12.5 percent, a modern record. Some 740,000 Californians receive regular benefits, an “unprecedented demand” officials say has eaten through reserve funds socked away in flush times.The system is funded by employers who pay taxes based on their employees’ wages. An increase in the number of people seeking unemployment benefits means a reduction in the wage base that replenishes the system. Currently, the fund is gushing what amounts to $40 million a day in benefits.Record unemployment, however, is only part of the problem.Earlier this decade, the Legislature increased unemployment benefits, which at the time were among the nation’s most meager. But a proposal to raise employer contributions to fund that expansion failed because it required a two-thirds vote.Employers pay unemployment taxes only on the first $7,000 each worker earns. That makes California’s cap on taxable wages the lowest in the nation, officials say, and it means the state doesn’t save enough money in good times to weathersignificant downturns.Still, in facing an unemployment fund deficit, California has plenty of company.Wayne Vroman, an economist with the Urban Institute in Washington, D.C., said 24 states (plus the Virgin Islands) have turned to the U.S. Labor Department for loans as of last week. California’s debt, he said, is the largest, befitting its status as the most populous state.Given the depths of the recession, the federal government as part of its stimulus package has waived interest payments on those loans until 2011.That interest is accruing at 5 percent annually. By late 2011, California’s bill on interest alone could approach three-quarters of a billion dollars, which the state would have to pay from its already-strapped general fund.And if the state is unwilling to tap its operating funds to pay the interest, the federal government would step in with its own tax increase for employers.To head off those doomsday scenarios, Schwarzenegger and two lawmakers — Assemblyman Joe Coto, D-San Jose, and state Sen. Denise Moreno Ducheny, D-Chula Vista — have called for increasing the taxes paid by employers.Schwarzenegger also wants to re-examine benefits. He’s proposed reducing the percentage of lost wages that unemployment checks replace and tightening eligibility requirements.All three proposals to fix the shortfall have run into concerns from labor and business advocates alike. But with the unemployment picture worsening, Doug Hoffner, undersecretary of the state’s Labor and Workforce Development Agency, said the administration may seek even steeper tax increases and benefit cuts than previously sought. A revised proposal is still under study, he said.Hoffner said the governor hopes to work with the Legislature in solving the crisis, adding that any solution must address both sides of the shortfall: Employers must pay more, he said, and workers must gird for leaner benefits.”It’s right hand, left hand,” he said. “This is a situation that has accrued over many, many years, and it needs to be addressed on two fronts.”

FEDupNovember 25th, 2009 at 8:00 am

The threshold has been crossed:rising unemployment and benefits or increased state expeditures with decreased state revenues must lead to insolvency unless taxes go way up and/or state services go way down-but this just delays the inevitable of more foreclosures and bankruptcies and mass exit from the “(fool’s) golden state.”

GuestNovember 24th, 2009 at 11:28 pm

“comparing the difference between the yield on regular 20-year government bonds and the “real” or after-inflation yield on inflation-protected bonds”wuaHAHAHAHAA, you gauge inflation this way? What a load of CRAP!!!!! HAHAHAHAAAA”and right now the bond market doesn’t see any ahead” when FED and Treasury manipulate dollar printing and bond market, why would they want to push yield up??? in fact, they will want to push yield down. and that mean no inflation??? What a load of CRAP!!!!!

GuestNovember 24th, 2009 at 11:32 pm

wuaHAHAHAA, read this:”How do you transfer present resources to the future? Most consumable goods can’t be stored, or require significant cost for storage. Services can’t be stored; elderly people can’t store up health care.Storage occurs through building up productive capacity that will be wanted by other at a later date, such that they will want to trade current goods and services for your productive capacity. Storage also occurs by purchasing goods that do keep their value, and then trading them for goods and services you need when the time come to consume.”and ask yourself is bond price and bond yield, whether that be inflation-protected or not justified? if not, then they are manipulated by FED and Treasury. and are they bond (inflation protected or not) good storage of value, NOT!!!!!!!!!! LOL load of CRAP!!!!!!!

SoftwarengineerNovember 25th, 2009 at 11:40 am

Good QuestionMost need to cash in their gold from time to time to eat and pay rent. That’s when organised crime is there to help….check it out, these cash for gold places are notorious for illegally giving out like 25 cents on the dollar reimbursement, it was on MarketWatch recently.As the economy falls apart I suspect all the “cash for gold” places will be run by organised crime.

GuestNovember 25th, 2009 at 11:54 am

gee, if you are noob and dont understand the value of gold and surrend your gold for 25cent on the dollar, then you deserve to be robbed blind, cuz you are blind, wuaHHAHAHAAAA moron.

GuestNovember 25th, 2009 at 6:20 pm

when FED is doing QE at 0%, it actually keeping all rate down. and you saying low yield whether inflation protected is because of no inflation? what a load of CRAP. where you get your economic degree, 1st grade?right now, you go super market or restaurant, what you see, the item you buy you need all up in price. today, a dish that was $7.99 couple months ago now $9.99 at a chinese restaurant. double cheese burger now $2 and that is the special and size reduced. it is named double cheeseburger, but look like thin sick cheeseburger. no inflation, you are either stupid or brain dead.

PeteCANovember 25th, 2009 at 4:00 pm

Iceland went bust because – for a while – the country offered very high interest rates. This attracted the activity of a lot of hedge funds, who could borrow money through the yen carry trades and then earn good payoffs from deposits in Iceland. For a while, while the money was good, all the Icelandic people enjoyed well-to-do lifestyles. But the whole game collapsed when the hedge funds withdrew their cash. Iceland will struggle for a long time in the future. It’s a classic example of a boom-bust fincancial bubble driven by cheap liquidity (in this case low interest rates from the Bank of Japan).Incidentally, the Fed denies that it could be cause of these types of scenarios (due to its near-zero interest rates), while China is growing increasingly nervous that carry trades based no the US dollar could cause the same kind of wreckage elsewhere in the world.Countries that are at risk?Eastern Europe (Latvaa, Estonia, et al.)Southern Europe (Greece, Spain etc.)Pakistan is fairly shaky – but propped up by IMF loans.The UK is not exactly doing great (for that matter).And neither is our dear old USA.For a new article about the problem in Greece see this link:Pritchard-Evans on Economy In Greece”But it’s hard to say where things will crumble next.PeteCA

PeteCANovember 25th, 2009 at 4:16 pm

Ohhh … and I forgot to mention Ireland and Turkey.And California – but our state hasn’t been thrown out of the union (yet!).It is actually amazing how spineless most politicians are around the world – when it is totally obvious that they must cut budgets to get finances under control. We seem to be in a global race to discover “who defaults first”.PeteCA

GuestNovember 26th, 2009 at 8:46 pm

Actually what governments are failing to do, according to William Black, is go after the wealthy elite who created this mess. Squeezing govt spending, while necessary, is only a small part of the medicine.George Bush got into office on the tails of the energy corporations. Obama made it on the tails of bankers.

11b40November 27th, 2009 at 9:11 am

“Ohhh … and I forgot to mention Ireland and Turkey.”…and Dubai…and, and , and??Independent Contractor

MM CANovember 24th, 2009 at 10:40 pm

So tell me, stocks have gone up because of the liquidity injected… what happens when they start to pay it all back…? Or coudl it be they dont plan to? Check the list out… Bad stuff down the road… The top Big banks are all INSOLVENT!BTW General electic, as I said a year ago is a Dead Companyy walking! Everything they touch turns to crap and they make cheap apliances too, that brak after a year or two..Bloomber and Zero hedge has the full listA Proposal For Goldman Sachs: Pay Down $21.2 Billion In TLGP Borrowings Using Your $20 Billion+ Bonus AccrualSubmitted by Tyler Durden on 11/24/2009 16:54 -0500The list below highlights the firms that are on the hook to the FDIC in the form of implicit TLGP guarantees. The top five financial companies consist of CNBC’s parent company (not for long) General Electric at $88 billion, Citi at $64.6 billion, Bank of America at $44.5 billion, JPM at $40 billion, and Morgan Stanley at $25 billion. Goldman is just out of the top five at the 6th position, with current outstanding TLGP borrowings at $21.3 billion – nearly a dollar for dollar match with what is expected to be the firm’s end of year bonus accrual.It is only fair to propose to Mr. Blankfein that instead of paying $20 billion in bonuses, the firm uses the bonus accrual to immediately repay every single last cent of its TLGP borrowings. If the firm wishes to approach the private (non-taxpayer subsidized) market subsequently, and reissue the full amount refunded, it may of course do so. Since the firm has repeatedly stated that it is not indebted to the US taxpayer any more, it would be very hypocritical if the firm proceeds to pay $20 billion in bonuses while it is still receiving the implicit interest rate benefits courtesy of having over $20 billion in debt on its balance sheet funded at virtually risk-free rates.Mr. Blankfein: do not apologize, just do the right thing for once.The same logic applies to Mr. Dimon who has borrowed almost $40 billion courtesy of TLGP, as well as Mr. Pandit and of course Lewis, who combine for nearly $110 billion in TLGP borrowings.Full list of TLGP beneficiaries below

MorbidNovember 25th, 2009 at 7:25 am

EDITORIAL: Hiding evidence of global cooling

By THE WASHINGTON TIMESScientific progress depends on accurate and complete data. It also relies on replication. The past couple of days have uncovered some shocking revelations about the baloney practices that pass as sound science about climate change.It was announced Thursday afternoon that computer hackers had obtained 160 megabytes of e-mails from the Climate Research Unit (CRU) at the University of East Anglia (UEA) in England. Those e-mails involved communication among many scientific researchers and policy advocates with similar ideological positions all across the world. Those purported authorities were brazenly discussing the destruction and hiding of data that did not support global-warming claims.

FEDupNovember 25th, 2009 at 7:50 am

When a country is run by people of no moral character and sinister ulterior motives, fallacies become facts, lies become truth and wrong becomes right.

MorbidNovember 26th, 2009 at 6:08 am

Yeah, and hearing both sides of the climate story is something that has been hijacked by the criminal climate man-made global warming elite crowd of whom some 99% now make their living from. No bias there!

MorbidNovember 26th, 2009 at 6:38 am

Scientist in climate change ‘cover-up’ storm told to quit

More emails came to light yesterday, including one in which an American climatologist admitted it was a travesty that scientists could not explain a lack of global warming in recent years.In another note, UK researchers dismissed the work of scientists challenging global warming as ‘crap’.Another appeared to call for pressure on the BBC after a reporter suggested that evidence for rising temperatures since 2001 was thin.’I am now convinced that they are genuine, and I’m dismayed and deeply shaken,’ he said. ‘There are some messages that require no spin to make them look bad.’There appears to be evidence of attempts to prevent scientific data from being released, and even to destroy material that was subject to a Freedom of Information request.’Worse still, some of the emails suggest efforts to prevent the publication of work by climate sceptics, or to keep it out of a report by the Intergovernmental Panel on Climate Change.

ChrisLNovember 26th, 2009 at 10:08 am

In that dailymail article :

Although there is no hint of evidence that climate change is not real, the emails appear to show researchers manipulating raw data and discussing how to dodge Freedom of Information requests.

GuestNovember 26th, 2009 at 8:57 pm

Fact: climate change is real (duh!)Fact: humans have escalated the increase in CO2 into the atmosphere (if you don’t believe this, then show me how the opposite is true)Fact: ice core samples clearly demonstrate the the world has repeatedly undergone major climate shifts through two periods/states named “glacial” and “inter-glacial,” with “inter-glacial” being the state that we’re currently in and lasting, on average, 10,000 to 12,000 yearsFact: people profit off of ALL sides in an argument/debate (the outcome isn’t as important so much as the ability to profit off of the activity)Cap and trade is BS. Claiming that man hasn’t impacted the planet’s climate is also BS.Clowns to the left of me, jokers to the right, here I am…

MorbidNovember 27th, 2009 at 6:06 am

Dear Clown-Joker,From what I read in Chilling Stars and Unstoppable Global Warming – human CO2 production is estimated to have caused the globe to warm by about 1 degree. Where do you obtain your information?Of course climate change is real – it is a natural cycle dominated by nature; not man’s activities. For me CO2 production generates pollutants causing adverse environmental side effects such as acid rain and lung problems as can be seen in China. It’s that destruction of the environment that has me concerned.My solution, if I was president, would be to immediately mandate no more than one child per household as in China. The world today is adding 80 million people every year – this is not sustainable and there will ultimately have to be a population crash.Look Out Below.

PeteCANovember 25th, 2009 at 10:18 am

I’m not sure who’s denying the dollar carry trade. It’s obviously running in high gear right now.However, I’m not on the same page as Prof Roubini. Very likely there will be a turnaround in the dollar sooner or later. No currency or asset moves in the same direction forever. At that time … there will be a temporary interruption to the risk trades. But that doesn’t mean that the world will fall apart. Sooner or later (after that) the dollar will resume its long-term downwards path, and the risk trades will resume. Look at the Japanese yen – once the carry trades started running … it took a LONG time before the whole situation collapsed.There will eventually be a long-term bottom for the dollar – but I don’t think we are anywhere close to that at this stage.PeteCA

GuestNovember 25th, 2009 at 10:45 am

Question, can the US keep the market up (dollar down) thru the holidays in order to induce greater consumer spending?hlowe

ChrisLNovember 25th, 2009 at 12:00 pm

I don’t think you can compare the situation of a country running large current account surpluses who is fighting deflation with large doses of QE (Japan 2000-2007) with a country running large current account deficits who is fighting defmation with even more agressive QE programmes (USA 2009-?).It’s true that the Japanes experiment went on for a long long time.I don’t think the USA has that much time before it hits a major discontinuity (run on the dollar).Almost all the Japanese debt (public & private) was owned by Japanese households and businesses. The US is not in this “comfortable” position.The notion that the Fed can maintain rates at 0% and print $100 billion of fresh dollars every month for a very long time is a complete farce.The one and only reason why the US (and the rest of the world’s) economy is not tanking now is the Fed’s QE and 0% rate policy.But those who think the Fed can maintain this perfusion for a long time will pretty soon see how wrong they were.I don’ think we have the luxury of 6 or 8 years like Japan did. Maybe half, at best.-Thanksgivings fable-After having force-fed this turkey for 30 years with DEBTgrain, it has become obsese. It looks enourmously beautiful, and all those who have small thin turkeys would like to have the same.But the enormous turkey can’t take it anymore. Or his master stops force feeding it with DEBTgrain and puts it on a very harsh diet (which will contain the smallest amount of DEBTgrain as possible), and it has a chance to survive, smaller and thinner, but eventually alive and well. Or it continues with the crazy DEBTgrain diet in order to keep his turkey the biggest most enormous one in the lot, and the poor turkey will explode.Happy thanksgivings

PeteCANovember 25th, 2009 at 12:14 pm

For some reason, Thanksgiving now also reminds me of that little story by Nassim Taleb who wrote the popular book “The Black Swan”. The story goes as follows …”Consider a turkey that is fed every day. Every single feeding will firm up the bird’s beleif that the general rule of life is to be fed every day by friendly members of the human race who are looking out for its best interests. But on the afternoon of the Wednesday before Thanksgiving, some UNEXPECTED will happen to the turkey. It will incur a revision of belief!”Some time I need to finish reading Taleb’s book.And I came across an interesting rejoinder recently to the premise of the book. A sports commentator observed … “Black swans are not really rare. You just have to know WHERE to look for them!”.PeteCA

PeteCANovember 25th, 2009 at 12:18 pm

And another small misprint above. We really do need an “Edit” feature on this blog. It should have said …”On the afternoon of the Wednesday before Thanksgiving, something UNEXPECTED will happen to the turkey.”

ChrisLNovember 25th, 2009 at 1:35 pm

I mentionned in the previous thread, a Talebanalogy that I like :the FED trying to reflate the economy with heavy runs of the printing press is a bit like trying to get ketchup out of the bottle : you shake once, you get nothing. Twice nothing. And eventually, you get Ketchup all over the table.

ChignosNovember 28th, 2009 at 10:18 pm

Pete,You need to consider seriously that something new always happens. No day this year is the same as on the same date exactly a year ago, or two years ago, or any number of years ago in living memory. Given that, you’ll get the idea of the black swan event, i.e., what if………the world’s reserve currency goes to worthless? It’s never happened before.

GuestNovember 25th, 2009 at 9:48 am

Fed and Treasury monetizing Agency MBS, federal debt interest payment, fiscal budget, and healthcare coverage for all. free money for you, for me, for all. free benefits, services, entitlment for all, wuaHAHAHAHAHAA

FEDupNovember 25th, 2009 at 10:10 am

This is because they do not know what else to do, they are terrified of all other choices and they are in servitude to the world’s elites. They will just continue QE until they unvail a new accounting scheme to rebalance the books or come up with another diversion like WAR to keep the people from rioting. It has become the ultimate game of poker where the house keeps doubling down on the prayer that they will somehow win before the masses catch on and the system collapses-except they don’t even hold a pair of deuces!

MM CANovember 25th, 2009 at 10:03 am

The below is beacuse they dont have the money to lend and also if they did/or do, Small Buisness is going out of buisness at an alarming rate….FDIC reports biggest drop for business loans on recordBy Paul Wiseman and Pallavi Gogoi, USA TODAYU.S. banks are earning money again, but they’re writing fewer business loans, threatening a fragile economic recovery.The Federal Deposit Insurance Corp. reported Tuesday that U.S. bank loans fell by $210.4 billion or 2.8% during the third quarter – the biggest drop since the FDIC started keeping records in 1984. Banks booked $2.8 billion in third-quarter profits, reversing a second-quarter loss of $4.3 billion. “We need to see banks making more loans to their business customers,” says FDIC Chairman Sheila Bair. “This is especially true for small businesses.”Loans to businesses fell 6.5%, and real estate loans plummeted 8.1%.”Until small businesses are able to borrow, we can’t have a robust economy, because that’s your largest source of jobs,” says Richard Posner, a law professor at the University of Chicago and a federal circuit judge. The Small Business Administration has said that small businesses created 64% of new jobs in the past 15 years.Banks are reluctant to make new loans until they’ve cleared off the bad ones they made during the housing boom. Back then, they paid “insufficient attention to certain kinds of risky loans,” says Edward Kane, finance professor at Boston College. “You can’t expect them to turn around and turn the lending machine back on.”Non-current loans rose more than 10% during the quarter to $366.6 billion or nearly 5% of all loans, the highest rate on record. Banks charged off nearly $51 billion in bad loans last quarter, the 11th straight quarterly increase and up more than 80% from a year earlier. “Loan losses will continue to climb as long as foreclosures keep rising and homeowners, builders and developers continue to hurt,” says Kate Monahan, banking analyst at Aite Group.Banks don’t expect things to get better anytime soon: Two out of three banks set aside more reserves for losses during the quarter, reserving a total of $62.5 billion, 22% higher than last year. Banks are hoarding money in super-safe Treasury securities, and, “Businesses were not as eager to take on debt,” says FDIC chief economist Richard

FEDupNovember 25th, 2009 at 10:21 am

From clothing to cell phone plans, Walmart is determined to wipe out all competition as are the fast food chains pricing double cheeseburgers, etc at $1.00; and small businesses with less reserves, less access to loans and lower volume pricing power are highly susceptible to these unAmerican practices, not to mention all the new start-ups that are lacking capital: result as you say-the destruction of small business, innovation and jobs. Keep feeding us those red m&ms, MM CA!

11b40November 25th, 2009 at 4:11 pm

Un-American? Not so. It has been the way of America since the early 70’s when the retail chains convinced Congress that Americans had the right to buy, and they had the right to sell, anything and everything at the lowest possible price – regardless.That is when the fair trade laws were repealed. Up until then, a manufacturer/marketer had control of the retail pricing of his widget if he chose. It was his option. Markets were orderly. The little guy could find, promote, and develop product lines that were profitable and even if a ‘discount’ merchant got hold of the product, the discounter could be forced to maintain the price. No longer did the vendor control his product’s retails – hence his product’s future.It did not take long before this concept was extrapolated to imported goods. Remember, our leaders in congress had already bought into the concept that the ‘consumer’ had the ‘right’ to the lowest possible prices. Never mind that products started flooding in that were made with slave labor. Never mind that our factories were now being told to compete against governments. Never mind that our jobs were going away and our industries were shutting down. Never mind that we have minimum wages, social security & other safety nets to pay for. Never mind that we want clean air, water, healthcare, and safe work environments. Never mind that our manufacturers must comply with tons of rules and regulations – every one of which our leaders passed into law.Whew! I feel better now. I could go on, but that’s enough. We are terminally stupid.Independet Contractor

11b40November 25th, 2009 at 4:16 pm

What is continually missed in all this ‘banks not loaning’ reporting in the press is any discussion of DEMAND for loans. How many loans are actually being denied to credit worthy borrowers? Perhaps the number of loans made is way down because the number of credit worthy applications is way down. Knowing that answer might shed some true light on the subject.Independent Contractor

MM CANovember 25th, 2009 at 10:47 am

They are manipualting the data now. See below for one point. Jobs losses are stil laoccuring at a high rate. Obama knows he cannnot continue this way and i am confident his labor people are looking at alertnative ways to announce and communincate the numbers now. Warn notices have not slowed down and in fact are increasing in forecast for the first 6 motnhs of next year. Also when someone takes a holiday 4-6 week temp job they no longer are counted. Wait till the end of january and february when NO JOBS will be sky rocketing again.To all those with NO JOBS, have a Happy Thanksgiving and may luck and good fortune be on your side during these rough times… You have the support of all Americans! (except for Pols and Wall street and the PTB)The continuing claims figure, though, does not include millions who have used up the regular 26 weeks of benefits typically provided by states and are receiving extended benefits for up to 73 additional weeks.

GuestNovember 25th, 2009 at 11:02 am

wuaHAHAHAH, QE at 0% money supply V shape recovery!!! free money for you, free money for me, free money for everybody!! cheers

FEDupNovember 25th, 2009 at 11:31 am

WOW: Gold hits $1186-I guess we’ll call 2009, the year the Turkey Economy laid Golden eggs-Happy Thanksgiving to everyone!

SoftwarengineerNovember 25th, 2009 at 11:35 am

Its a Slamdunk Economic Sign that Things are Totally Falling ApartWhen free news websites start charging “pay per view” fees.

PeteCANovember 25th, 2009 at 1:51 pm

Very best wishes to everyone for a happy Thanksgiving.Although we complain about economy – we’re still very lucky to live in this place called America.PeteCA

MorbidNovember 25th, 2009 at 2:44 pm

Lest We Forget The Native Americans – & Their UnHappy ThanksgivingLet us not forget the sufferings of the Native Americans – something they had to endure because the herd of about 60 million buffalo were wiped out to such an extent many died from starvation to say nothing of the slaughter at the hands of the “Indian Hunters” thanks to the Iron Horse (Black Horse of the Apocalypse comes to mind here =’s FAMINE) which Sitting Bull called “The Bad Medicine-Wagon” – forcing like this his people and those of Black Elk to walk the black road of tremendous suffering. It is estimated that 50 million Native Americans were killed through war, starvation and disease brought on by the white man – more than those killed during WW I and WW II combined.GOD BLESS AMERICA! GOD BLESS OUR CHRISTIAN ANCESTORS!GOD BLESS WALL STREET – May The GREED, Rape & Pillage Get It’s Just Rewards.

MorbidNovember 25th, 2009 at 2:29 pm

China Expert Warns of Pandemic Flu Mutation

The World Health Organization warned on Tuesday that H5N1 had erupted in poultry in Egypt, Indonesia, Thailand and Vietnam, posing once again a threat to humans.”First, it places those in direct contact with birds — usually rural folk and farm workers — at risk of catching the often-fatal disease. Second, the virus could undergo a process of “reassortment” with another influenza virus and produce a completely new strain,” it said.”The most obvious risk is of H5N1 combining with the pandemic … (H1N1) virus, producing a flu virus that is as deadly as the former and as contagious as the latter.”Zhong told the Chinese media last week that China may have had more H1N1 flu deaths than it has reported, with some local governments possibly concealing suspect cases.China must be alert to any mutation or changes in the behavior of the H1N1 swine flu virus because the far deadlier H5N1 bird flu virus is endemic in the country, a leading Chinese disease expert said.Zhong Nanshan, director of the Guangzhou Institute of Respiratory Diseases in China’s southern Guangdong province, said the presence of both viruses in China meant they could mix and become a monstrous hybrid — a bug packed with strong killing power that can transmit efficiently among people.”China, as you know, is different from other countries. Inside China, H5N1 has been existing for some time, so if there is really a reassortment between H1N1 and H5N1, it will be a disaster,” Zhong said in an interview with Reuters Television.

Octavio RichettaNovember 25th, 2009 at 2:38 pm

As posted above:I did quite a bit of [perhaps too drastic] “fat” trimming today. In more than a way I am a #^&^#@$% chicken; but no-one has ever gonne broke by taking profits. I reduced my equity exposure from 80+% to around 58%. Among the positions I got rid off where my largest one: CBY + KFT, I made about a 4% profit in this trade I most likely I will come to regret selling it (I am invariably too early). I also trimmed down other positions that were too large (over 3% of my total portfolio) for me to sleep well at night, among them, MO and PM (I don’t think this move will make my wife any more likely to quit smoking but in any event I am giving it a try-:). I also got rid of my index position in the S&P so all I have left in terms of equities is a bunch of: high yield utilities, including VZ and T with average yield approaching 5%, big cap consumer goods stocks with an average yield of over 3%, risky holdings are limited to COP, XOM, and TIE accounting for about 6% of my portfolio total. The “ultra safe” portion of my portfolio is close to 30%* 10 year CDs yielding 5+%*I never sold the CDs to get into 80% equities, I Used margin instead. My cost of margin is over 5% but I don’t think selling 5% 10yr CDs in the secondary market is a good move in a 0% rates environmment as once you sell them you can never buy them backBTW, the WLI was up this week. It is very likely the market will continue its upward move throughout the first quarter but this is that time of the year in which I tend to make sub-optimal decisions just to lock in a year that has been kind to me (I more than doubled the 5% return objective for what I knew would be a difficult year).The tendency to assume excessive risk is always there but over the years I have learned (painfully) to control my animal spirits. At this point of time in my life, capital preservation (i.e., the return of my money as opposed to the return on my money) is the key.

Octavio RichettaNovember 25th, 2009 at 2:46 pm

Ups! I am sorry. In the middle of a trading day I run the numbers in my head. The fat trimming was more drastic than I thought. I am down to 48% equities, 20% CDs and 32% in cash that will sit idle until I come up with a way to use it; hopefully, I will be patient enough to wait until next year.Happy T day to everyone:-)

Octavio RichettaNovember 26th, 2009 at 3:29 pm

Looks like everyone is out eating turkey and getting drunk while Dubai and the rest of the world gets ready to fall apart.Dubai Debt Delay Rattles Confidence in Gulf Borrowers (Update3) like the end of the year party is gonna by a rocky one:-) Am I glad I made a big “chicken” move move right before T day. The tone for the rest of the year may be negative.

Octavio RichettaNovember 28th, 2009 at 2:34 am

Got down to 41% equities on Friday when the DOW/S&P was hovering at less than 1% looses. Sold COP XOM and TRV.

PeterJBNovember 26th, 2009 at 4:43 am

perhaps you should consider the meaning of life?The presence of “grains of dust” (impurities) in the crystals of silicon: without impurities, a crystal is a locked structure that is the image of the full death:Keyword: impurities | life | meaning | impuritiesso much so, that no growth is possible without “corruption”.Keywords: No | growth | corruptionHappy Thanksgiving and may this Thanksgiving make you think just what is is that you are giving Thanks for.May your celebration bring you an early twilight.

blindmanNovember 26th, 2009 at 9:10 am

pjb,mean life meaningi give thanksin the moment.celebrate the purityand filth togetherand then aloneam gone forever presentearly twilighthovers, paintingthe revolving globebelow. perpetual andsimultaneous sunset riseday night and meaning of life has always bothered me uponcontemplation. the term “meaning” loses its meaningand i’m left with just life and that is enough for me, butapparently not for most. and…few understand or care and so we move on toward calamity andworsity. no dynamic peace here which is not like a frozenpure crystal but is sloppy but informed by compassion. the intellectof the heart as i think i heard said..pss. Democracy Now! Special: An Hour of Music and Conversation with Legendary Native American Singer-Songwriter Buffy Sainte-Marie.”..this is not the way to put an end to war” b.s.marie.’universal soldier’psss.happy perpetual twilight to all! and thanks!peas

MorbidNovember 26th, 2009 at 6:15 am

Ah, it’s The Trap Door “Y” Recovery!Nice DOOMSDAY addition BOB – thanks for this possible further layer of doom.

MorbidNovember 26th, 2009 at 6:22 am

PSI guess this means things fall into what physics calls a “Quantum Well” – something that requires “Quantum tunneling” to escape from since the “energy” required exceeds the well depth! That “Quantum Leap” may only occur in our consciousness.Look Out Below

MM CANovember 26th, 2009 at 7:47 am

Tim Duy – Director of Undergraduate Studies of the Department of Economics at the University of Oregon and the Director of the Oregon Economic Forum – noticed an amazing sentence in the minutes of the most recent meeting of the Fed Open Market Committee:As has already been widely noted, the minutes of the most recent FOMC meeting reiterated the Fed’s eagerness to reverse, not extend, policy:Overall, many participants viewed the risks to their inflation outlooks over the next few quarters as being roughly balanced. Some saw the risks as tilted to the downside in the near term, reflecting the quite elevated level of economic slack and the possibility that inflation expectations could begin to decline in response to the low level of actual inflation. But others felt that risks were tilted to the upside over a longer horizon, because of the possibility that inflation expectations could rise as a result of the public’s concerns about extraordinary monetary policy stimulus and large federal budget deficits. Moreover, these participants noted that banks might seek to reduce appreciably their excess reserves as the economy improves by purchasing securities or by easing credit standards and expanding their lending substantially. Such a development, if not offset by Federal Reserve actions, could give additional impetus to spending and, potentially, to actual and expected inflation. To keep inflation expectations anchored, all participants agreed that it was important for policy to be responsive to changes in the economic outlook and for the Federal Reserve to continue to clearly communicate its ability and intent to begin withdrawing monetary policy accommodation at the appropriate time and pace.Read that carefully and realize this: An apparently not insignificant portion of the FOMC believes that there is a terrible risk that banks loosen their credit standards and increase lending at a time when, even if the economy posts expected gain, unemployment remains at unacceptably high levels. Silly me, I thought increased lending was the whole point of the exercise to lower interest and expand the balance sheet. That whole credit channel thing. If not to expand lending during a credit crunch, then what else are they expecting?I am in shock that this sentence made it into the minutes. One can only conclude that a significant portion of policymakers are simply clueless. Or, more disconcerting, they have lost all faith in the ability of financial institutions to channel capital into activities with any hope of financial returns. Has the Fed now embraced the view that they manage the economy through little else then fueling and extinguishing bubbles?Yves Smith has the definitive last word on the issue:These statement is an indication of intellectual bankruptcy at the Fed, that they have learned nothing from the crisis. But that isn’t surprising. CEOs usually need to be fired after they have presided over a disaster. They are incapable of seeing and remedying their errors. Why should senior bureaucrats be any different?

blindmanNovember 26th, 2009 at 8:25 am

m,it seems to me that the point is not to increase lendingor solve a liquidity or credit crisis but to replace (bad) privatedebt with (good) public debt. they know what they are doing theyjust can’t admit it honestly because it is not legal or ethical, better tolook incompetent and confused than criminal.?

GuestNovember 27th, 2009 at 3:27 am

Yes, exactly!But… I’m not yet convinced that this is all criminal (yes, the banksters are wallowing in bonuses). Think about this: if they all knew that they could no longer hide the fact that growth wasn’t possible, what do you think that they would do? While it’s easy to think in the sinister (I don’t trust “leadership,” but given that this is the current system), what if it’s not? Keep in mind that if you telegraph your moves their effectiveness is likely going to be substantially diminished.The intentions might very well be good/noble, but, paraphrasing Albert Einstein, the minds that created the problem cannot be expected to correct it.

blindmanNovember 26th, 2009 at 9:29 am

old news ? 17, 2009Finance Capitalism Hits a WallThe Oligarchs’ Escape PlanBy MICHAEL HUDSON..” And at least it made Wall Street richer than ever before – while almost doubling the share of wealth held by the wealthiest 1 per cent of America’s families. For Washington policy makers, they are synonymous with “the economy” – at least the economy for which national economic policy is being formulated these days.” …”The oligarchy’s plans for a bailout (at least of its own financial position)In periods of looming collapse, wealthy elites protect their funds. In times past they bought gold when currencies started to weaken. (Patriotism never has been a characteristic of cosmopolitan finance capital.) Since the 1950s the International Monetary Fund has made loans to support Third World exchange rates long enough to subsidize capital flight. In the United States over the past half-year, bankers and Wall Street investors have tapped the Treasury and Federal Reserve to support prices of their bad loans and financial gambles, buying out or guaranteeing $12 trillion of these junk debts. Protection for the U.S. financial elite thus takes the form of domestic public debt, not foreign currency.It is all in vain as far as the real economy is concerned. When the Treasury gives banks newly printed government bonds in “cash for trash” swaps, it leaves today’s unpayably high private-sector debt in place. All that happens is that this debt is now owed to (or guaranteed by) the government, which will have to impose taxes to pay the interest charges.The new twist is a variant on the IMF “stabilization” plans that lend money to central banks to support their currencies – for long enough to enable local oligarchs and foreign investors to move their savings and investments offshore at a good exchange rate. The currency then is permitted to collapse, enabling currency speculators to rake in enough gains to empty out the central bank’s reserves. Speculators view these central bank holdings as a target to be raided – the larger the better. The IMF will lend a central bank, say, $10 billion to “support the currency.” Domestic holders will flee the currency at a high exchange rate. Then, when the loan proceeds are depleted, the currency plunges. Wages are squeezed in the usual IMF austerity program, and the economy is forced to earn enough foreign exchange to pay back the IMF.As a condition for getting this kind of IMF “support,” governments are told to run a budget surplus, cut back social spending, lower wages and raise taxes on labor so as to squeeze out enough exports to repay the IMF loans. But inasmuch as this kind “stabilization plan” cripples their domestic economy, they are obliged to sell off public infrastructure at distress prices – to foreign buyers who themselves borrow the money. The effect is to make such countries even more dependent on less “neoliberalized” economies.”..

FEDupNovember 26th, 2009 at 10:30 am

they may have already anticipated this as the Dow futures are down 180 pts on Thanksgiving when the rest of the markets are closed!

GuestNovember 26th, 2009 at 10:40 am

The New KleptocracyBy Dr. Michael HudsonGuns and Butter Interview on KPFA radio- Part One , and Part TwoCopy: Global ResearchOctober 8, 2008“Considering that there is an $800 billion giveaway, to be followed by another trillion and another trillion after that, this is the biggest giveaway since the land giveaway to the railroads in the mid-nineteenth century and just as that giveaway created a power elite that would rule America for a century and a half, this is creating a new power elite that has changed America from a democracy into an oligarchy. And as Aristotle said, ‘what is democracy but the stage immediately preceding oligarchy?’”———-I’m Bonnie Faulkner (BF): Today on Guns and Butter, Dr. Michael Hudson. Today’s show: “The New Kleptocracy”. Dr. Hudson is a Financial Economist and Historian. He is President of the Institute for the Study of Long-Term Economic Trend, a Wall Street Financial Analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book “Superimperialism: The Economic Strategy of American Empire” is a critique of how the United States exploited foreign economies through the IMF and World Bank. He is also author of “The Myth of Aid” and “Global Fracture: the New International Economic Order”.Dr. Hudson has written several articles on the recent Wall Street meltdown and Secretary of the Treasury Hank Paulson’s Plan. These articles have included, Financial Bailout: America’s Own Kleptocracy–the Largest Transformation of America’s Financial System since the Great Depression. The Paulson/Bernanke Bailout: Will the Cure Be Worst than the Disease? Financial Fraud: Mr. Paulson and the New Yazoo Land Scandal. And Thinking the Unthinkable: a Debt Write Down and Jubilee Year Clean Slate.BF: Dr. Michael Hudson, welcome again.Michael Hudson (MH): Thank you very much, Bonnie.BF: Secretary of the Treasury Hank Paulson’s $700 billion so-called bailout, first called “The Plan”, was defeated in the House. Then a modified version called “Troubled Asset Rescue Plan or (TARP)” was passed by Congress in it’s “Emergency Economic Stabilization Act of 2008”. Still others refer to this legislation as “Cash for Trash”. What would you call it?MH: Cash for trash is exactly what it was, and the emphasis should be placed on “Emergency “ for Emergency Plan. It was rushed through without giving any opportunity to debate. Dennis Kucinich protested, for instance, that this was the first time a major plan that was going to create the equivalent of 700 billionaires, people who are going to become the next power elite to govern America for the next century –that this act was done without any hearings, without specialists–despite hundreds and hundreds of major economists throughout the world saying that it was a disaster and a giveaway. It is cash for trash. It will not resolve the problems. The dollar will plunge. The stock market already plunged. It is purely a giveaway to Mr. Paulson’s colleagues on Wall Street and a giveaway to Mr. Obama’s and Mr. McCain’s campaign contributors. The Democrats were the major supporters of Mr. Paulson while even the Republicans sought to dissociate themselves from the plan so they couldn’t get blamed when the inevitable failure of the plan shows that all that was done was a giveaway of $700 billion to Mr. Paulson’s colleagues and pals on Wall Street.BF: Well, now what and who are being bailed out? People now are saying it’s a $700 to an $850 billion revolving money fund.MH: The Secretary of the Treasury said that he really just picked the amount out of the air. There will be another $700 billion next month, another $700 billion after that. Trillion after trillion will go to create a financial elite of kleptocrats. What’s happened here by Mr. Paulson of Goldman Sachs is almost a mirror image of what the other Goldman Sachs’ Treasury Secretary Robert Rubin did in Russia: he’s creating and endowing a class of kleptocrats by giving them liquid treasury securities in exchange for basically worthless junk. It’s actually called the “Worthless Assets Recovery Program, (WARP)”. This is pretty much what was done in Russia to create Russian kleptocrats. In Russia’s case they gave State ownership of raw materials and fuels, oil, other assets to individuals who then diversified their portfolios by selling as much as they could to the West and taking their money out and putting them into dollars and sterling and euros. What’s happening here is that the Wall Street beneficiaries are going to take the money and run and put it in safe economies such as Russia, China and any other non-US economy they can find: the result will be a huge capital outflow, a capital flight that will put downward pressure on the dollar.BF: You know Dr. Hudson, I was just about to ask you what the difference is between the Russian Kleptocrats and the American Crony Capitalists? Is there any difference at all that you see?MF: Only that the Russian Kleptocrats were supported by Clinton’s Democratic Administration and the American’s Kleptocrats are supported nominally under a Bush Administration but primarily by Mr. Obama and the Democrats led by Barney Frank in the Congress, and Nancy Pelosi and by Reid. These are Democrats that must go and if there is any sign of Mr. Obama keeping them on then you know that the Democratic Party has been firmly captured by the Democratic Leadership Committee, i.e. Wall Street’s lobbying group within the Democratic Party.BF: Well now, since you’ve brought up Barack Obama, he was the one that lobbied “for” the passage of this, isn’t he?MF: That’s correct and the amazing thing was that McCain did too. Last Friday I was attending the American Monetary Institute Conference in Chicago and we had some of the smartest financial brains around at that. It was at Roosevelt University and we all went down to the Student Union to watch the debate. And let’s take a look at what happened last Friday. The previous Thursday Mr. McCain had said there might not be a Friday debate because he was going to suspend the campaign until he could straighten out Washington regarding the bailout. So he went to the White House. There was reportedly not much very much that he said during the meeting but the Republican Congressional Leader Boehner made some very good suggestions. He suggested instead of the bailout the government use the money to set up a bank insurance fund of say anywhere from $250 billion to the $700 billion that was mentioned. The insurance fund would lend money to banks in exchange for their preferred stock. This fund would be financed by levying an insurance charge on the entire US banking system, just like the Federal Deposit Insurance Corporation levies insurance rates on the banks. And the rates that would be levied, under the Republication proposal, would have reflected the actual risks involved. So that if the banks got together and lobbied politicians and supported the political campaigns of politicians who wanted to deregulate the industry that’s’ fair enough but let them pay the risks. Let them pay 1% or 2% or even 3% of their deposits for this because that’s what it would take the government to bail out policies that Alan Greenspan and others have supported. Instead of supporting this plan and instead of saying that he’d come to Washington to save American taxpayers from the giveaway, Mr. McCain did absolutely nothing. He was blamed by the media on Friday morning (Friday afternoon too) for saying, “Oh he’s come to disrupt a done deal. Look what happened. He went to the White House. Now you have the Congressional Republicans opposing it.” Mr. McCain could have said, “Absolutely,” that’s just what he’s done because he’s a maverick and he’s going to protect American taxpayers from the bipartisan attempt to both reflect the campaign contributions of their largest contributors–Wall Street. And he’s not going to let it happen. He could have jumped in front of the parade. Jumped in front of the opposition to the Act, that reportedly 90% of voters were supposed to oppose, and this would have put Mr. Obama on the defensive. McCain could have said, “I’m opposed on the giveway and supporting taxpayers. Mr. Obama is the man who is giving it all way to Wall Street and his major campaign contributors. Look at what’s happening with Mr. Rubin, there’s no difference at all between his financial advisor Robert Rubin and the Treasury Secretary Hank Paulson.” Instead Mr. McCain shifted gears, reversed himself, gave in and said, “now I’m supporting the plan too”. So the result of the Friday debate, if you remember the first half hour, Mr. Lehrer kept trying to press both presidential candidates on ‘how do you feel about the bailout, what do you think? ‘ And they talked about anything else. Mr. Lehrer tried to be more polite and finally he was laughing, and he said, “Aren’t either of you guys going to answer my question?” And they both of them said, “No.” Now when they refused to give their position to the bailout to the American people. When they refused to take a position on a plan that most voters “overwhelmingly” opposed and then they support the plan this shows they’re just in the hands of their financial backers.BF: Could you just briefly explain again how this insurance proposal would have worked and why it would have been preferable?MF: The government would have set up a fund and the fund’s money would have been provided to banks on the term that Warren Buffet earlier that week had made–a $5 billion investment in Goldman Sachs. It would have leant money to banks on the condition that number one, it wipes out the stockholders–if any bank would have borrowed from the insurance fund that meant it was doing so as a life or death matter and either it would have sacrificed its common stock or it would have made its common stock subordinate to repaying the government for the risk. The government would have charged a high rate of interest and a high fee for making the insurance payment (as any insurance company would have done). And instead of printing new treasury bonds to give away in exchange for these bad mortgages it would have established simply a line of credit which at first would have been the same thing but the credit would have been repaid not only by the banks that borrowed but by all the banks in the country paying insurance—essentially bank insurance. Instead of being an insurance fund for depositors like the FDIC is, it would have been an insurance fund for the bank owners themselves. The banks have been acting almost as a financial gang in pressing not only to support the Federal Reserve chairman who is a deregulator (and the Federal Reserve is supposed to essentially represent the interests of the commercial banking system), but the banks also now have supplied the Treasury Secretary and the Treasury Secretary is not supposed to represent the banks. The Treasury Secretary is supposed to represent the public interests. And instead, Mr. Paulson is representing the banking interests, Wall Street, not the public interest and so there is an inherent conflict of interest and the system of checks and balances that are supposed to prevent a giveaway like this have been broken.BF: That’s right. And you mentioned Warren Buffett and I’ve noticed you’ve mentioned the $5 billion he was putting into Goldman Sachs and other investments. He’s set it up where he’s got a good deal and he gets 10% back every year and other things.MH: Yes. And he says the government should have done the same thing. And the Republican congressmen actually voted according to their ideology not according to their campaign contributions because they realized that what’s the point of getting a political campaign contribution if voting for the giveaway is going to result in their voters voting against them anyway and voting them out of office. Their corruption in changing their votes has been so egregious that no amount of television advertising can wipe away the fact that the voters now know that they’re bought and paid for. They’re trying to pretend that they did it in order to help the upper middle class by insuring bank deposits not only for $100,000 but for $250,000 so all your listeners up there that thought they were worried that had more than $100,000 in the bank can now rest a little bit more secure. And there were a few other giveaways to the upper middle class. They had to have the pretense of doing something as an excuse for changing but really the giveaway remains in place and most American voters realize that this has been a giveaway with no quick pro quo.BF: One commentator noted after the modified plan passed the Senate, that most of the senators that voted against it were up for re-election in November.MH: That’s right. If they want votes they have to represent the popular position and according to all the press reports and the statements out of Washington there has never been so much of a voter protest as there has been against this giveaway. The people seem to know very clearly when they’re being given a line that just isn’t true. And no amount of apology and pretense can cover up this obvious fact.BF: Now is the government buying real assets or just worthless toxic junk?MH: Well no real assets will be bought at all, although the government will end up foreclosing on them. Let’s say what the real problem is: the real problem is that the volume of mortgage debt far exceeds the ability of debtors to pay and the willingness to pay. Mr. Paulson’s pretense, which is an absolute lie and which should lead him to criminal prosecution because he knows it’s a lie, is that the problem here is a liquidity problem. But its not a liquidity problem, it’s a bad debt problem. Suppose that people bought a house for $125,000 and have a full mortgage on it for that price and suppose the house has fallen to $80,000. I know a number of houses like that. I know a professor in western Illinois that had a house that she bought for $125,000. The highest bid she has it on: $80,000, fully mortgaged. Dennis Kucinich tells me that the house next door to him in Cleveland, Ohio was bought for $125,000 and now it’s only worth $80,000. So this is typical. Now imagine a bank responding to a borrower who wants to say, “Well gee, I want to be able to pay my mortgage can you lend me enough money to pay my mortgage?” What bank can be expected, when already the house is 50% over-mortgaged… who is going to lend more mortgage than a property is worth? That era is over! No bank any longer is going to lend more money than a house is worth. And already Mr. Paulson said that 5 million Americans are in arrears and facing foreclosure. The figure was then corrected by other economists to 10 million Americans in the coming year are going to lose their homes! Now no amount of liquidity is going to provide them with the money to stay in if already they can’t afford the mortgage. And in fact the government is now supposed to make money “quote” for taxpayers “unquote” by coming in and acting as debt collector. Now, in order to make money for taxpayers, the government now has to come in and say, “We’re going to enforce the Adjustable Rate Mortgages that are exploding in interest rates. You are now going to have to pay much higher interest rates. Penalty rates. Back fees and penalties or we’re going to throw you out of your house because we have to make money for the taxpayers. We are now the collecting agents not Countrywide Financial or Fannie Mae or Washington Mutual or the others. So the debts of homeowners will remain in place. The debts of cities and municipalities will remain in the place and all that happens is that people who have the mortgages are supposed to be bailed out now because under Mr. Paulson’s plan as he wrote it and the plan that the house originally rejected, the terms were that the government would buy the bad mortgages and bad debts from the banks and other investors and insurance companies for what they had paid for them. In other words insurance companies will not take a loss for their bad investments. Banks won’t take a loss for their bad investments. Hedge funds won’t take a loss for their bad investments. Now how many of your listeners would love to be able to say, “geez I made a bad stock investment. I’d like the government to buy back these stocks that I bought that have gone down.” That’s not what the government is doing because these aren’t the major campaign contributors. So this is the asymmetry. The inequity. And the irony is that the Democrats have supported this so strongly. A week ago last Thursday in the Wall Street Journal, Hillary Clinton of all people came out with a wonderful wonderful plan. She said that the government should insist on rewriting the bankruptcy laws. She said the government should rewrite the mortgages down to the current market price and the government should replace exploding interest rate mortgages with normal interest rates or the teaser rates that had been signed. So she obviously knew what the right thing to do was. And that’s the plan that would have worked. And yet she went and voted for the plan as it came out of the Senate when they passed it on Thursday. So she met the criterion of evil that Milton described in Paradise Lost: somebody who knows the right thing and yet does the wrong thing knowingly. That is also the definition of a crime. A criminal has to knowingly and consciously be making a mistake. And Hillary, and the other democrats, Obama… just about all the democrats who supported the bill said, “We don’t like it. We know its wrong but we’re voting for it because it’s an Emergency and if we don’t vote for it the stock market will go down.” Well as you saw on Friday the stock market did go down and it will continue to go down because foreign investors realize that this money that is being given away is going to flow out of the country very quickly and that’s going to put downward pressure on the dollar. And even if housing prices only fall another 20% or so, if the dollar declines by more they’re going to take a heavy loss that they basically can’t afford to take.BF: Well you know Dr. Hudson I was going to ask you if the Plan (we’ll refer to it that way) gives struggling homeowners the chance to refinance into long-term fixed-rate mortgages and it sounds like…. I mean, there’s some sort of subterfuge in the media, and some claims that, well. plans have been mitigated and we fixed it and we’ve put something in for homeowners, but that’s not really true is it?MH: No. It’s not true at all. They said, they will ask the banks, “will you please give homeowners a break?” Now this is absolutely ridiculous. And it’s very funny that while many of the Republicans and Democrats claim to appeal to Christians, what they’re doing is the exact opposite of what you found in the Bible. For instance in Matthew there’s one of the passages where Peter asks Jesus about forgiveness. Jesus tells the story of a king whose official comes to him and owes him about 10,000 talents and he can’t pay. He said, “I just don’t have the money.” And the king says, “Well, you have to pay the penalty. You will become my debt-bond servant and so will your family. You and your family are going to come into debt bondage to me. The official threw himself down at the king’s knees and said, “I’m sorry. I’m a good man. Please have pity on me.” So the king had pity on him and said, “Okay, I’m going to relieve you. I’m not going to throw you into debt bondage. Pay me when you can.” Then the official went out and found somebody who owed him about 1,000 talents or a much smaller sum and he said, “Pay the money. I have to pay the king.” And the debtor didn’t have the money so the official said, “Okay, I’m throwing you and your family into debt bondage.” Well, he went around trying to collect all this money and this frightened a lot of debtors and the debtors went to the king and said, “look this official is coming and throwing everybody in jail and throwing everyone into bondage in order to collect a debt to pay you. This is bad. So the king called the official in and said, “Look I had pity on you but you don’t have pity and forgiveness on your debtors so now I’m going to throw you into jail.” And in this case now the king is like the US Treasury Department forgiving the debts of Wall Street saying Wall Street doesn’t really have to pay. But now Wall Street and the banks are going and tightening the screws on the smaller debtors. So technically the government should say, “Well gee, in view of your bad behavior now that Countrywide and Bank of America and others are going to go around (and I’m already told that the thugs are going around to the black neighborhoods in Brooklyn to try to scare people out of their houses to take over) the government should say, “well, now that we see how it’s working out, we’re not going to lend you the money except on very extortionist terms that will reduce you guys to debt bondage.” I’m amazed that in the South, the Bible belt, nobody is looking at this passage from Matthew in the Bible that describes it. And in fact, lets get back to the point, where under the Emergency part of the Act, all of this is done as if it had to be in a hurry. There easily could have been enough time for the Democrats to put in a bill letting judges renegotiate the mortgages. Nothing was done. They could have repealed the awful bankruptcy bill that the credit card companies and other bankers lobbied for so carefully a few years ago. The government could have restored the favoritism to the debtors, 90% of the population rather than to the creditors, the upper 10%. But it didn’t do this. There was no bailout for the debtors. No renegotiation or lightening of the credit terms for them. There was nothing at all that was done.BF: Well speaking of the vote in Congress, on Black Monday, September 29, the Dow drops by 777 points after the first vote in the House of Representatives on the plan is defeated. Do you think that this vote was staged in the sense that Congressional leaders know where the vote is before its taken?MH: No. I think obviously the leaders didn’t know. The leaders had all begged the Congressmen to support the act because the leaders themselves had already arranged very heavy campaign contributions for themselves out of all of this. And they’d taken care of themselves but the fact is that the individual Congressmen knew not only that they weren’t promised any cash on the table for themselves to sell out their voters to Wall Street but they thought that even if the Democratic National Committee or the Republication Congressional Committee contributed money to their campaigns, no amount of television or media advertising could persuade the voters that they were not crooks. So the Congressional leaders thought their subordinates would obey them. This was always a false hope. The leaders were surprised. But it was very clear from the very beginning on the part of the actual Congressmen that they weren’t going to support it because they had already come out on the floor with such vehement opposition to the bill and pointing out exactly what was wrong with the bill, that it didn’t have to be done in a hurry. That there was no attempt to solve the debt problem which was the core of the thing, that it misrepresented the debt problem as a liquidity problem and that it simply was to bail out Mr. Paulson’s friends who are of course the same people who contribute to the Democratic campaigns.BF: Well then if the people who initially… in Congress, who initially voted ‘No’… then [they] “did” understand the bailout bill. See I was going to ask you if politicians understood the problem in the bailout bill.MH: They seemed to have very well. They understand the problem is a debt problem. The real problem for them is what’s more important: to get money in their pockets and to sell out to their backers? Or to represent what they think is right and what their voters think is right? The people who voted for the bill decided to sell out the public and vote against the public interest in their own interest and that of their backers.BF: So now what are you saying turned the No’s around into Yes’s? Were they paid off?MH: An enormous amount of lobbying took place in the intervening week. Not only in terms of money to the campaigns of just a few people (and they only had to turn over maybe 20 or 30 votes), but also the leadership went to the No voters and said, “Look what is your pet project? Is it ecology? Is it the environment? We’re going to put in environmental things. Do you want more FDIC coverage for the upper middle class among your voters, the people who can afford to contribute to your campaign? We’ll give you that.” Politicians call this a Christmas Tree of something for everybody to persuade politicians that their pet hobbies or their pet concerns will be taken care of.BF: Well, in your opinion then, were the politicians bought off cheaply?MH: Considering that there is an $800 billion giveaway, to be followed by another trillion and another trillion after that, this is the biggest giveaway since the land giveaway to the railroads in the mid-nineteenth century and just as that giveaway created a power elite that would rule America for a century and a half this is creating a new power elite that has changed America from a democracy into an oligarchy. And as Aristotle said, ‘what is democracy but the stage immediately preceding oligarchy?’BF: Yes, that’s becoming a very prescient quote. I even saw in there the cancellation of a rum tax in the Caribbean.MH: Yes. There was every special interest. In other words they negotiated special interests for constituents of particular representatives so that the representatives could then go to their contributors and say, “Look, now we want our payoff. We’ve given away more money to you.” So now the giveaway has been to a lot of special interests and campaign contributors and bribers. Every campaign contributor got a huge gift for this–enough of a gift to convince the representatives that when they leave office they’ll be taken care of for life.BF: Do you think fear played a part in it? I mean there was such a turnaround.MH: No fear at all. Pure greed.BF: Now in your opinion, why didn’t Treasurer Secretary Hank Paulson want oversight in his plan?MH: Because now the government is going to be negotiating with Wall Street what price to pay for giving mortgages… for junk mortgages. If there was oversight, people could say, here’s a mortgage that was fraudulent to begin with, that didn’t have any market value and that no private investor in the world has been willing to buy, why are you willing to pay so much for something no private investor would have bought? And there are guaranteed to be charges of corruption about the people who are doing the buying and selling and Paulson didn’t want any of those charges. He wanted the property and the money to be stolen fair and square.BF: Well, since you’ve brought up fraud in the mortgage-backed securities, everyone seems to agree that many of these securities are worthless but doesn’t the fraud go much deeper? For instance, I’ve heard that the same worthless mortgage shows up in multiple bundled securities. Do you think this is true?MH: It’s reported to be true. And the cure promises to be much worse… make the problem much worse. Mr. Paulson and the Democrats agree that there should be a regulator, a single regulator over the financial and real estate industry. Now at present Washington has actually brought a lawsuit to stop the Attorneys Generals for various States from prosecuting fraudulent mortgage loans. And they say that “only” the government can do this (under some obscure law from the 1840s) because “we’re going to regulate, you’re not allowed to do anything”. Then the government has done nothing to enforce the law. Now suppose a super-regulator going to say we have the authority to regulate financial fraud, nobody else does. All they have to do is, put someone like Alan Greenspan in charge of this… All they have to do is put a deregulator in charge of it and do absolutely nothing and nobody else in the entire country; no Attorney General, no prosecutor, not private suits… Nobody can stop the fraud. So centralizing the regulatory process in the hands of deregulators appointed by the industry to be regulated, by the major campaign contributors, institutionalizes systematic rip off of the Treasury.BF: I think I read in the newspapers about what you’re referring to. Was part of this where the States themselves, the State governments, wanted to go after fraud and were stopped by the Federal government?MH: Yes, that’s exactly right.BF: That’s what I thought.MH: People like Mr. Mozillo should be in jail. Franklyn Roosevelt said, “Nothing in politics is accidental”. Nothing that happens in politics really is an accident. So when you have a plan that’s going to fail very shortly, like Mr. Paulson’s plan, and he says, “Gee I guess I didn’t understand Wall Street”, you’re talking about one of the smartest guys on Wall Street, from a firm that’s considered to be the smartest financial firm on Wall Street. So when they claim, “Gee its just incompetence. I guess our giveaway didn’t work,” you can be pretty sure that this is not an accident. That it wasn’t out of ignorance they did it. You can assume that they knew just exactly what would happen. That they knew it would be a failure but it would be a failure that gives their constituency $700 billion, 700 billionaires, while tightening the screws on the rest of Americans.BF: Now can you tell me what are credit default swaps?MH: Credit default swaps are the easiest way to lose money. Suppose I would do this: Dennis Kucinich’s other political advisor, Dave Kelly and I have said, “if you give us $5,000, for every $5,000 we’ll insure a billion dollars worth of these bonds.” Nobody is going to give us $5,000 because on a teeny little base, suppose we got 10 people to say, “gee, this is great, we’ll ensure 10 billion dollars worth of bonds,” we’d end up with $50,000, and then the bonds would go under and people would come to us for insurance. They’d say, “Okay now pay us, we’ve lost our money.” And we’ll say, “Gee, I’m sorry, the $50,000 we put in the fund we’ve already spent it on salaries and bonuses for ourselves. We don’t have any money to bail you out.” So companies were buying, pretending to buy, insurance from Monoline companies, i.e. companies who were set up exclusively to insure bad debts and the insurance premiums were laughably low compared to the actual risk. So the insurance companies used junk mathematics to create options to buy and sell junk bonds and junk mortgages. The whole thing was junk. Remember the people who developed the [Stowe?] mathematics for options trading and insurance were the people who set up the long-term capital management that went bust ten years ago and almost broke down the market. And then this year the same managers started all over again, started another fund and they’ve lost 40% this year. So the fact is their models don’t work. The Nobel Prize for these guys turned out to be pretty much of a Booby Prize because the models that were used have led to the biggest financial crisis in history. Its junk mathematics and the insurance companies were collecting premiums that didn’t have any relationship whatsoever to the risk. What they did provide was a cover story for investors to say, “Well we’ve done due diligence. We’ve insured our small holders. We’ve insured our depositors. We’ve actually taken out credit insurance so that we can’t lose. And now they express surprise, shedding crocodile tears, over the fact that “Gee, I’m afraid the insurance didn’t work. Thank God we’ve already paid ourselves huge bonuses and paid ourselves [decent] salaries. Thank God we’ve taken care of ourselves. Sorry folks. I’m okay.”BF: Well now was the bailed out AIG involved in these credit-default swaps?MH: Yes. It was a major writer of the credit-default swaps. And in today’s paper today it is reported that of the $85 billion that the government gave them, they’ve already run through $61 billion. So its already used it, and now its already run through it and its been downgraded by the ratings agencies and its about to go bankrupt anyway. So the only effect that the $85 billion that was given to it was to repay the pals of Paulson who sold out the quickest. They paid the smartest insiders and the people on the periphery, the foreign bankers, the people who have been gullible enough to have faith that this is actually going to help the system have been left holding an empty bag.BF: Well now, if this credit-default swap, this fake insurance… I would have thought this would have gone belly-up immediately. What would happen when people would try to collect?MH: They can’t collect because there’s no money there. The assumption is that only a few marginal companies will go bankrupt by accident–not that the problem was systemic. And the problem is systemic. The whole idea of banks originating loans and selling them to outsiders was a guaranteed failure from the very beginning because … let’s contrast that with how one makes money by speculating on property. If you buy property the idea is to buy a house and to sell it to somebody else at a higher profit hoping for the proverbial greater fool to come along. No fools come along now and the speculator is withdrawn from the market. Now this property is financed by a mortgage and the way that Wall Street has worked is, “Let’s package the mortgage and sell the mortgage at a profit to somebody else.” Well you have to find the proverbial greater fool for that. Now they expected the proverbial greater fool to be Sovereign Wealth Funds. They thought, “If everything goes wrong in this game of musical financial chairs, we can turn around and sell to the Arabs. We can sell to OPEC. We can sell to maybe China and Japan. We can leave them holding the bag just like we left the German banks holding the bag and we can escape cleanly. But they didn’t have enough time to do this so now the proverbial greater fool is the US government. And the US government is going to create about $2 trillion of new Treasury Bonds and exchange these perfectly good Treasury Bonds that are as good as cash (because you know the government can always print the money), they’ll exchange these bonds—cash for trash.BF: Wow. Now also the trash that the cash is buying, are these mostly collateralized debt obligations and derivatives? I mean this is what they’re really buying isn’t it?MH: It’s all left up to the Treasury. And do you want to really leave it up to a Secretary Treasury that has been so deceptive as to misrepresent everything… the problems that are facing America? Do you want to leave it to the discretion of a Secretary Treasury that says, “We have a liquidity problem, perfectly good mortgages at some price, its just a little liquidity”; that will not tell the people what every American seems to know by now that it’s a debt problem? Every American knows that if there’s a higher mortgage than the value of the property nobody is going to lend money, because most Americans know they can’t get mortgage loans. They can’t get car loans. They can’t get personal loans. They can’t get new credit card loans. They know there is no money available at all. And the reason is when they ask the bank, “Why not?” the bank said, “Well we’ve looked at your income and you’re already loaned up. You’re already paying 40% of your income for housing and debt. You’re already paying another 20% just for student loans, health loans, personal loans, car loans, credit card arrears.” There’s no more slack left in the economy. The debt overhead is absorbing now the entire economic surplus. There isn’t anymore that people can do… so now is the time for foreclosures to come. Now is the time for the upper one percent to sharply increase its holdings, its degree of wealth and income. The Congressional Record Office has estimated that 10 years ago, the top wealthiest one percent of America’s population owned 37% of all revenue from wealth–interest, dividends, capital gains. Five years ago they’ve increased this so that the upper one percent owns 57% of America’s wealth. The estimate is today that the top one percent of the population now owns almost 70% of all the American wealth. Now just think of it. This is like a Banana Republic. This is like a third world Kleptocracy–one percent of Americans owning almost 70% of all of the income from wealth. The hypocrisy of the Treasury Secretary and of the Democrats who support the plan is that “Well, gee we have to bail out the stock market to help the little guy. We have to help the pension fund. We have to help the small investor.” Now if they really wanted to help the pension funds what they would have done was say, “look, we’re going to give this money to bailout the Pension Benefit Guarantee Benefit” which is now $25 billion in arrears for what it needs to guarantee failing pension plans. They would have said, if they wanted to help depositors, “Gee, the Federal Deposit Insurance Corporation” which is now $40 billion in deficit, they would have put $40 billion, much less than $700 billion, just $40 billion to bail out the FDIC. They didn’t do it. They would have said… remember when Mr. Bush said last year said there’s no money at all for Social Security, that Social Security is running a trillion dollar deficit over the next 40 years. “Let’s put some of this money to refinance the Social Security Program.” They didn’t do that. They could have used a much smaller amount to guarantee Public Health. They didn’t do that. So instead Mr. Obama and Hillary came out against Public Health and against Social Security; against bailing out the pensions, against bank security, in voting for this plan. And they should be held accountable.BF: So that when they say there is a liquidity crisis, there is no liquidity crisis, it’s a debt crisis.MH: That’s correct. It’s a bad debt crisis and a bad investment crisis. And Wall Street says, “Gee, we thought that in the game of musical chairs, we’d have a chance to get out quick. Just like Goldman Sachs was able to get out quick from a lot of the junk mortgages. And they weren’t able to get out quick enough so they said, “We want the government to take the loss. We don’t want to take the loss. Will you please buy all our bad investments at the price we paid for them so that we won’t take a loss? We’d much rather the taxpayers take a loss.” And Mr. Obama said ‘Yes’. Mrs. Clinton said ‘Yes’. Most of the Democrats said ‘Yes’. The Republicans tried to say ‘No’. They said, “We don’t want any part of this.” Many of the Republicans obviously did vote for it but this is a Democratic plan for the incoming Democratic administration to impose with a vengeance. And it’s the Democrats that have put the class war back in business.BF: Well, we here in the media declaim that, “Oh well, the Republicans were against it but for the wrong reasons.”MH: (laughs) What can one say to that? The fact is that yes that’s true. They were against it because if you look at what they said, they said that this is socialism. Well its nothing like socialism at all. When you give away money to the wealthiest class, this is old-fashioned Kleptocracy and it’s a step back towards feudalism. It’s not a step towards socialism at all. So in that sense, the rhetoric that the Republicans used was their usual silly rhetoric but the fact is they did oppose the act. And if you look at the statements that were made on the house floor and the senate floor, statements that do not appear in the New York Times, that do not appear in the Chicago Tribune, that do not appear in the Wall Street Journal, then you’ll see that these Congressmen who voted against it were pretty smart and the media is refusing to say what they actually said. The media is refusing to cite the reasons that the Congressmen voted against it. You don’t find any discussion at all of Dennis Kucinich’s reasons for voting against it: the fact that there was no need to panic, the fact that there were no hearings. It’s unbelievable that an act of this magnitude by government, never before has there been an act like this with no congressional hearings. No bank oversight committee hearings. No testimony by expert witnesses–absolutely no discussion at all–a total clamp down almost done under Martial Law. And that’s why I said last Friday was the day that American democracy ended and the Oligarchy imposed its brute force.BF: Dr. Hudson, I was about to ask you about the role the media has played in this. There’s been an awful lot of disinformation put out.MH: That’s the role of the media these days. And what would you expect from a media that has been centralized in the hands of the wealthiest classes? The media has acted as cheerleaders for the Act, for Wall Street, for the Real Estate industry and they have indeed been promoting disinformation. You don’t get any of what I’ve been saying, not only in the media but on educational TV, on MacNeil Lehrer or any of the other reports. You get a little bit more on PBS. You get much more on radio. And of course much much more on the Internet. The Internet is really the only place where you can get very open discussion of the problems. Almost every day in the last two weeks I’ve written the lead article for Counterpunch, for instance, and my Counterpunch articles on Internet have been picked up by many other major Internet information clearing houses… Michel Chossudovsky… all sorts of other people have been picking up my articles and these have been going around so that my website has 5,000 hits a day. So somebody is reading all of this. The media is not reporting it–in this country. Yesterday I was on Japan’s largest Sunday talk show debate program talking about it. I’ve been on Canadian media. I’ve been on BBC’s international service. I’ve been writing articles in Latvia. Nothing in the United States.BF: I’ve been reading your articles on, Michel Chossudovsky’s website.MH: Yes.BF: I wanted to talk a bit about how Secretary Treasurer Hank Paulson’s plan has changed. What do you think of the FDIC insurance increase for depositors?MH: The Wall Street Journal had a wonderful editorial on that yesterday. They said this can be almost as much of a giveaway as the $700 billion itself, because its something open-ended. The banks are in trouble. How many Americans do you think have more than a $100,000 in the bank? Remember if a couple has $200,000 they’re doubly insured. They’re insured for $200,000. If they have four kids they can put them in accounts. Ever since I worked for the Savings Bank Trust Company in 1961 the savings banks would take money from wealthy bank depositors and they would spread them around, $100,000 in each of the 127 New York Savings Banks. So the fact is you’d have to have more than about I’d say $2 million to have difficulty finding insurance that you couldn’t spread around among 20 banks. All of this was insuring the top 10% of the population. How many people have that much liquidity that it really matters? It was a giveaway. Again they solved the problem of the giveaway to the ultra-rich by giving even more away to the rich and that’s what the Wall Street Journal itself pointed out in its editorial page on Friday and it was a great editorial. Now so far, people have talked about the $700 billion that is at stake and the government has said we’re going to put securities in here, however what the media has not reported, although the British newspaper The Economist had a wonderful chart last week, showing that the Federal Reserve has already swapped $500 billion worth of Treasury bonds for junk. The cash for trash has already begun since March by the Federal Reserve so $500 billion is almost as much as the $700 billion that the Treasury is talking about, this has already been given away by the Fed to Wall Street insiders and nothing has been said in the media about this at all. Although its been statistically reported by the Fed. The Fed reports its holdings and securities. It reports its holdings of Treasury Securities, which have gone down by $ 500 trillion. It reports its overall securities, which are now $1.1 trillion compared to less than $500 billion in Treasury Securities. And this leaves between $500 billion and $600 billion in essentially non-treasury securities, which are the junk they’ve taken on with these swaps that it’s arranged. And the Fed has been swapping this not only with the banks that its supposed to represent but its been doing cash for trash with insurance companies, investment banks and people who have no relation at all under the Fed and this is being done under the Fed’s special small print of the Fed’s Articles of Incorporation saying it can do this to save the economy. Well its not saving the economy at all. It’s wrecking the economy by doing this. It’s wrecking the economy by buying trash from insiders and as I said, creating a new Kleptocracy.BF: Well I’ve never heard of this other, this previous $500 billion. No, that wasn’t reported. Well if they don’t have to…Why are they…MH: Well the Fed says that it has reported it. Anybody can go online on the Federal Reserve and check the daily and weekly Federal Reserve Statistics. You can be sure that just everybody on Wall Street that has a stake in the financial system has done that. The media has blacked it out.BF: Well if they gave away $500 billion previously with a media blackout why did they even bother to go public with the $700 billion?MH: Because they need altogether about $5 trillion to create… If they’re going to create 500 billionaires to run the country for the next century and to create really a new feudal class they need $5 trillion and they don’t want the people to know what’s occurring because if they did the voters would get so upset they’d create probably a new political party, an alternative. And they don’t want the voters to have an alternative certainly before this election. They’ve got one candidate, McCain who is advised by Phil Gramm’s] who is in completely in [???]’s pocket. They have another presidential candidate, Obama, whose financial advisor is Treasury Secretary Rubin. If you want to see what is likely to happen to the United States you should look at what Mr. Rubin did when America had a completely free hand in redesigning the Russian economy. This was their ideal. You’ve seen since the 1996 giveaways in Russia, the Russian population has fallen more than it fell in World War Two. The financial devastation today is even more devastating than military destruction. The result is a shortened life expectancy, lower birth rate, depression. The effect is psychological and social, not merely economic.BF: Well why didn’t they keep their subsequent $700 billion a secret? Did they just feel they couldn’t?MH: Because it’s become so large, larger than the Federal Reserve has on its balance sheet. The Federal Reserve only had $1.1 trillion and the Treasury can print an infinite amount of bonds to exchange for trash and what they needed was much more than just a trillion, they need really trillion after trillion to bail out the bad debts because that is how deep the hole is that Wall Street (and behind it, Free Market Economics of the Chicago School variety) has led the country into.BF: Well then would you say it’s too big to bail out?MH: In essence yes. It can’t really be bailed out. But what you can do is let the insiders get as much money as they can as quickly as they can under emergency conditions so that they can take their money and run. Of course it can’t be bailed out. But you can have a lot of insiders take their money and run. And they’re going to run–out of the dollar.BF: Dr. Hudson, as always, thank you for the good analysis.MH: Well thank you Bonnie. It’s always good to be on your Guns and Butter show.

PeterJBNovember 26th, 2009 at 11:09 am

Speaking of future events and trends:The next generation of computers may make use of the “spin” of electrons instead of their charge. memory? In the Orbit: perhaps memory is in the Spin – ie the equatorial impulse – semantics methinks but Yes, this is an Universal Principle (and which has been utilized for some time now albeit quietly).add to this, manganese and its ultra high memory capacities which arises from recent laboratory experimentation trials – successful it seems and,you have what will be a trend or, IOW low energy ultra high memory computing capacity – add very low cost – across the whole spectrum of human endeavour. This is a future trend to watch, imo.keywords: future | trend | low cost | spectrum | memoryHo hum

perpetual twilight....November 26th, 2009 at 11:16 am Bailout’s New Financial OligarchyBy Dr. Michael HudsonGuns and Butter Interview on KPFA radio- Part Two , and Part OneOctober 15, 2008“If you want to see the ideal of the World Bank and the IMF, look at the Russian, Latvian and Estonian economies. They have shrunk as if there were a war on. And in a sense it is a war – a class war and simultaneously a war of American high finance against the rest of world. As in military wars, its devastating consequences threaten to include shortening life expectancy, lower health standards and depopulation, poverty and de-industrialization, rising debt arrears and defaults. You’re going to have many of the post-Soviet countries going the way of Iceland very quickly as their real estate debt collapses. Because crazy as it may seem, it was the real estate bubble that brought in the foreign exchange – in the form of mortgage loans denominated in foreign currencies – that financed their structural trade deficits. Now that the bubble has burst, there’s no way of keeping these neoliberal hothouse economic experiments afloat.”———-I’m Bonnie Faulkner (BF): Today on Guns and Butter, Dr. Michael Hudson. Today’s show: “The Bailout’s New Financial Oligarchy.” Dr. Hudson is ….BF: Dr. Hudson, welcome again.Michael Hudson (MH): Thank you, Bonnie.BF: Last week the Dow Jones Industrial Average closed out its worst week ever, down 18%. On Thursday, October 9th, it touched 7999, down over 40% from its high around 14000. Then on Friday it had a 1000-point swing on record volume. I heard one woman on the floor of the New York Stock Exchange yelling that no one knows what anything is worth. What’s going on?MH: During the first seven minutes on Thursday I watched the Dow sink 100 points per minute. That’s over 1% per minute. Then the average began to recover, pending a statement by President Bush. But when he didn’t say anything helpful, it continued its fall. Late in the day you could see the Plunge Protection Team come in and try to push up the financial stocks, but the attempt ran out of steam. The reason is that most investors – and voters too, by the way – have come to realize that Paulson’s plan is not going to help the “real” economy, only his cronies on Wall Street.Let’s go over his two plans. Plan A, initially rejected by Congress (thanks mainly to Republican opposition) was to buy $700 billion of junk mortgages and other bad debts, including fraudulent loans. The aim was to bail out bad lenders and investors, but not their victims. This predator-oriented plan was a waste of money as far as helping the economy recover was concerned. Congress rejected it as a blatant giveaway, although Mr. Paulson says that he’s still going to spend hundreds of billions of dollars for this purpose and nobody looks ready to impeach him. Predatory finance has been able to protect its gains extracted from the economy at large by passing its losses onto the government sector.Plan B calls for giving this money directly to the banks and leading insurance companies, on terms that let them continue paying high executive salaries and dividends to existing shareholders rather than wiping them out as normally happens when an enterprise has Negative Equity. The Treasury’s idea of “protecting the taxpayer” is to buy “preferred” stock. The word “preferred” is a legal term that means simply that the shares are non-voting and can be wiped out, because they are not technically creditor claims. In case of further trouble the government goes to the back of the collection line, not to the front. This gives the banks money to pay the big speculators on bad gambles, enabling the winners to collect from suddenly affluent debtor-banks and debtor insurance companies.The pretense is that the banks are going to turn around and lend out this government money is going to help the economy at large. But the economy is too over-indebted and is shrinking too fast to take on more debt. Homeowners and consumers, real estate investors and corporations have pledged so much of their income to pay debt service that there is not much left to pay interest on yet more debt. The solution to today’s problem is less debt, not more.The market plunge for mortgages and corporate bonds had the virtue of preparing the ground for renegotiations, write-downs and write-offs along these lines. But Mr. Paulson made it much more difficult sought to turn things around in this way. Higher valuations for mortgages and other debt claims have taken the pressure off creditors to agree to write-downs. It’s easier for them simply to swap their junk mortgages to the Treasury or Federal Reserve for full-value U.S. Treasury bonds, and make the government take the loss – and presumably levy taxes to cover the interest charges on the augmented debt!There is no way that Mr. Paulson, in charge of as clever a company as Goldman Sachs, could honestly pretend that giving money to banks would persuade them to make bad loans that will lose even more.[1] This assertion merely serves as a cover story for the Treasury giveaway. The money actually will be used to buy other banks, consolidating the U.S. banking sector into just a few giant nationwide banks, European-style.Mr. Paulson is what Franklin Roosevelt called a “bankster.” Congress is not going to indict him for perjury, but I think people have seen his true colors and that he is not a “public servant” acting in the national interest. When an official follows a policy that fails, you can be pretty sure that somebody is benefiting by his blindness. Such people are called “useful idiots” to the vested interest, but I think we are dealing here not with idiots but by skilled double-talkers, masters of deception. The aim of these banksters is to take the bailout money and run – or as I said, to act as vulture investors buying other banks to strengthen their monopoly hold on the rest of the economy. So what we’re seeing is really the largest financial theft in American history. Wall Street has inserted its lobbyists into the government’s decision-making apparatus and crafted a cover story that they know to be false. The media are barely questioning it. Today’s New York Times front page (Oct. 15) does point out that the Treasury has given the banking system and its lobbies what they want – a program free of Treasury control over executive remuneration.But neither the New York Times nor other popular media have acknowledged the basic problem: Today’s debt overhead is substantially in excess of the ability to pay, and hence of today’s market valuations. This means that a large part of the private sector’s bad mortgages and other bad debts are unpayable. But now are going to be carried, either by the banks or by the government if it takes ownership in exchange for the new Treasury bonds it is printing.When you get down to the actual magnitude of this problem, the only real solution turns out to be “Plan C” – the Unthinkable Option from the creditors’ vantage point. That is to do what always has to be done in the end: to write down the unpayable debts to reflect the current market value of collateral pledged to back them, that is to the amount that can be paid under today’s conditions. And remember, these conditions are worsening. The economy will continue to shrink as long as these excessive debts are kept on the books.Unfortunately, the Treasury plan does not require banks to renegotiate or otherwise write down the debts. The bailout plan passed by Congress is an anti-debtor plan. It won’t work over time, but a lot of speculators and creditors can get richer by leaving the government holding the bag for these bad debts. The Treasury is swapping its own bonds for bad IOUs. Interest charges on these newly minted Treasury bonds will be built into the federal budget as a transfer payment from taxpayers (that is, the lower income brackets, which pay the highest tax rates) to creditors and property owners (who have made themselves exempt from income taxation).One twist to Mr. Paulson’s Plan is that banks do not have to mark their securities or other assets to actual market prices. Rather than telling prospective investors, depositors or others that they’re worth, banks can use Enron-style “mark-to-model” accounting to say that their stock’s book value is whatever in-house model-builders want to say they’re worth, on whatever blue-sky assumptions they choose. The only constraint now is the fact that foreigners and domestic investors have now realized the degree to which that the banking system, Wall Street and the rating agencies are run by men that used to be crooks, but now are euphemized simply as “creative accountants.”……

GuestNovember 27th, 2009 at 3:53 am

Why would anyone want to “make” a worthless buck?Did you not read Dr. Hudson’s comment that the “insiders” are running out of the dollar?

GuestNovember 26th, 2009 at 1:59 pm

you guys are pathetic. instead of complaint about gold goes up. plz complaint about FED and Treasuy debt and dollar printing and Democrats borrow and spend policy. Tell these criminals to stop!!!

ChrisLNovember 26th, 2009 at 3:26 pm

Yet someone else who hasn’t understood that it’s not the “Democrat’s borrow and spend policy”, but the entire American crony political elite’s policy.Jeebus, think before you continue with your laughable partisan rethoric. Just look at a graph of the American DEBT (private and public) over the last 30 years : it has continuously been increasing at a rate of 10% per annum (ie doubling every 7 years), whatever the colour of the administration or the congress.Our crony political elite thrives from the polarisation of The People into Red and Blue camps.

GuestNovember 27th, 2009 at 3:54 am

Apparently “moron” doesn’t get it that it’s the SYSTEM! He/she seem bothered to learn this. Like it can be corrected- ha!

GuestNovember 26th, 2009 at 3:15 pm

Real nasty times are just around the corner and nothing can be done to prevent them. The system must be purged. More major layoffs are on the way, real wages will fall and taxes will rise. The Dow will settle somewhere between 1,500 and 4,200. We won’t know where until we get a lot closer. Companies have maintained the bottom line by firing people, offshoring and outsourcing and using illegal aliens. That method of cutting costs is approaching a threshold of diminishing returns. The next big wave of layoffs will be municipal in towns, cities, counties and states that no longer have the reserve to pay employees. Some states, such as Florida has no funds to pay for unemployment benefits and were it not for the stimulus plan they would have stopped issuing checks a year ago. At this rate in many states municipalities will cease to function and schools, fire and police will be disbanded. That is where this is all headed. Americans have to be told the truth about what is really going on and who and what caused it and how we can fix it.

Octavio RichettaNovember 26th, 2009 at 3:30 pm

As posted above:Looks like everyone is out eating turkey and getting drunk while Dubai and the rest of the world gets ready to fall apart.Dubai Debt Delay Rattles Confidence in Gulf Borrowers (Update3) like the end of the year party is gonna by a rocky one:-) Am I glad I made a big “chicken” move (described above) right before T day. The tone for the rest of the year may be negative.

ORNovember 26th, 2009 at 4:51 pm

Sorry! I meant this one which is not by the Professor but interesting and relevant

GuestNovember 26th, 2009 at 4:56 pm

DUBAI, United Arab Emirates – Just a year after the global downturn derailed Dubai’s explosive growth, the city is now so swamped in debt that it’s asking for a six-month reprieve on paying its bills — causing a drop on world markets Thursday and raising questions about Dubai’s reputation as a magnet for international investment.The fallout came swiftly and was felt globally after Wednesday statement that Dubai’s main development engine, Dubai World, would ask creditors for a “standstill” on paying back its $60 billion debt until at least May. The company’s real estate arm, Nakheel — whose projects include the palm-shaped island in the Gulf — shoulders the bulk of money due to banks, investment houses and outside development contractors.In total, the state-backed networks nicknamed Dubai Inc. are $80 billion in the red and the emirate needed a bailout earlier this year from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates.Markets took the news badly — with the Dubai woes and the continued fall of the U.S. dollar giving investors twin worries. Dubai’s move raised concerns about debt across the Gulf Region. Prices to insure debt from Abu Dhabi, Qatar, Saudi Arabia and Bahrain all rose by double-digit percentages Thursday, according to data from CMA DataVision.

GuestNovember 27th, 2009 at 4:02 am

How anyone could be shocked by this is beyond me. Dubai, the home of the most elitist non-reality-based BS the world has ever seen.And, lest folks completely miss how these things happen, consider that Halliburton had relocated to Dubai. That should have been the signal (anything with Dick Cheney’s fingerprints on it dies a horrible death).Just look around at other countries/cultures, look for absurd non-reality-based “realities.” The US and its Disneyland car culture can’t be too far behind…

GuestNovember 26th, 2009 at 8:14 pm

Tick – World’s first Sovereign wealth fund default looming in Dubai…Tock – Gold’s relentless climb to $1,200/oz…Tick – Fake gold bars in Fort Knox…Tock – Another hair turns gery on Obama’s head…

GuestNovember 27th, 2009 at 4:00 am

The scramble to identify entities with exposure to Dubai has begun. Almost as desperate as the rush by entities all over the world to reassure markets they have no exposure (or are minimizing it). (Credit Suisse, UniCredit and the Bank of China seem to be leading this race). Bloomberg is citing a JP Morgan report that Royal Bank of Scotland Group was Dubai World’s biggest loan arranger over the last two years. Uh oh. We are certain this is totally unrelated news today on Bloomberg:Royal Bank of Scotland Group Plc said it will issue 25.5 billion pounds of B shares and one dividend access share to the U.K. Treasury and State Aid Commitments.We love Samsung’s attitude (but wish they would have said something earlier):Samsung C&T Corp., builder of the world’s tallest tower in Dubai, said it stopped work on a $350 million bridge in the city after a unit of Dubai World halted payments. Construction of the half-finished bridge, to the man-made Palm Jebel Ali island, was suspended earlier this month after Nakheel PJSC made no payments for about two months, Cho Keun Ho, a spokesman for the Seoul-based builder, said today.RANSquawk is reporting that HSBC had $17 billion in loan exposure to UAE at the end of 2008 and foreign banks in general are up to their ears in some $47 billion of UAE debt.This isn’t to mention sovereigns like the Ukraine, Latvia and Greece. (How likely, exactly, is The Hun to loosen the monetary strings for Greece after the Cyprus stink? Zero Hedge says: “Not Very.”)

GuestNovember 27th, 2009 at 7:36 am

Yeah, Obama told me there’d be days like this…….When it’s not always raining there’ll be days like thisWhen there’s no one complaining there’ll be days like thisWhen everything falls into place like the flick of a switchWell my Obama told me there’ll be days like thisWhen you don’t need to worry there’ll be days like thisWhen no one’s in a hurry there’ll be days like thisWhen you don’t get betrayed by that old Judas kissOh my Obama told me there’ll be days like thisWhen you don’t need an answer there’ll be days like thisWhen you don’t meet a chancer there’ll be days like thisWhen all the parts of the puzzle start to look like they fitThen I must remember there’ll be days like thisWhen everyone is up front and they’re not playing tricksWhen you don’t have no freeloaders out to get their kicksWhen it’s nobody’s business the way that you wanna liveI just have to remember there’ll be days like thisWhen no one steps on my dreams there’ll be days like thisWhen people understand what I mean there’ll be days like thisWhen you ring out the changes of how everything isWell my Obama told me there’ll be days like thisOh my Obama told meThere’ll be days like thisOh my Obama told meThere’ll be days like thisOh my Obama told meThere’ll be days like thisOh my Obama told meThere’ll be days like thisVan Morrison

GuestNovember 27th, 2009 at 7:39 am

What is wrong with economics?

Similarly, it goes without saying Hayek’s thesis was extremely selectively applied. It is strange to see, for example, Conservative politicians clutching Hayek’s Road to Serfdom with one hand and using it to defend cutting the welfare state while, with the other, implementing policies which give billions to the Military Industrial Complex. Apparently “planning” is only dangerous to liberty when it is in the interests of the many. Luckily, defence spending (for example) has no such problems. As Chomsky stresses, “the ‘free market’ ideology is very useful — it’s a weapon against the general population . . . because it’s an argument against social spending, and it’s a weapon against poor people abroad . . . But nobody [in the ruling class] really pays attention to this stuff when it comes to actual planning — and no one ever has.” [Understanding Power, p. 256] That is why anarchists stress the importance of reforms from below rather than from above — as long as we have a state, any reforms should be directed first and foremost to the (much more generous) welfare state for the rich rather than the general population (the experience of the 1980s onwards shows what happens when reforms are left to the capitalist class).This is not to say that Hayek’s attack upon those who refer to totalitarian serfdom as a “new freedom” was not fully justified. Nor is his critique of central planning and state “socialism” without merit. Far from it. Anarchists would agree that any valid economic system must be based on freedom and decentralisation in order to be dynamic and meet needs, they simply apply such a critique to capitalism as well as state socialism. The ironic thing about Hayek’s argument is that he did not see how his theory of tacit knowledge, used to such good effect against state socialist ideas of central planning, were just as applicable to critiquing the highly centralised and top-down capitalist company and economy. Nor, ironically enough, that it was just as applicable to the price mechanism he defended so vigorously (as we note in section I.1.2, the price system hides as much, if not more, necessary information than it provides). As such, his defence of capitalism can be turned against it and the centralised, autocratic structures it is based on.To conclude, while its open and extreme support for free market capitalism and its inequalities is, to say the least, refreshing, it is not remotely convincing or scientific. In fact, it amounts to little more than a vigorous defence of business power hidden behind a thin rhetoric of “free markets.” As it preaches the infallibility of capitalism, this requires a nearly unyielding defence of corporations, economic and social power and workplace hierarchy. It must dismiss the obvious fact that allowing big business to flourish into oligopoly and monopoly (as it does, see section C.4) reduces the possibility of competition solving the problem of unethical business practices and worker exploitation, as they claim. This is unsurprising, as the Austrian school (like economics in general) identifies “freedom” with the “freedom” of private enterprise, i.e. the lack of accountability of the economically privileged and powerful. This simply becomes a defence of the economically powerful to do what they want (within the laws specified by their peers in government).Ironically, the Austrian defence of capitalism is dependent on the belief that it will remain close to equilibrium. However, as seems likely, capitalism is endogenously unstable, then any real “pure” capitalism will be distant from equilibrium and, as a result, marked by unemployment and, of course, booms and slumps. So it is possible to have a capitalist economics based on non-equilibrium, but it is unlikely to convince anyone that does not already believe that capitalism is the best system ever unless they are unconcerned about unemployment (and so worker exploitation) and instability. As Steve Keen notes, it is “an alternative way to ideologically support a capitalist economy . . . If neoclassical economics becomes untenable for any reason, the Austrians are well placed to provide an alternative religion for believers in the primacy of the market over all other forms of social organisation.” [Keen, Debunking Economics, p. 304]Those who seek freedom for all and want to base themselves on more than faith in an economic system marked by hierarchy, inequality and oppression would be better seeking a more realistic and less apologetic economic theory.

GuestNovember 27th, 2009 at 7:51 am

Nov. 27 (Bloomberg) — ThyssenKrupp AG, Germany’s largest steelmaker, plans to cut about 20,000 jobs this fiscal year as the economic recovery is “fragile” and there won’t be a “self-sustaining” improvement in 2010.

FEDupNovember 27th, 2009 at 8:12 am

Say Goodbye to Dubai! Huge commercial space overcapacity priced for the ridiculously rich has hit the wall: no one is buying or renting highly overvalued properties anymore. And this is a surprise-maybe only to those who rely on MSM for their information and how to think. I think it is time to say enough is enough and draw the line in the sand: IF ANY U.S. BANK NEEDS ONE PENNY MORE OF BAILOUT, THEY SHOULD BE SHUT DOWN, DIVIDED UP INTO SMALLER PIECES AND SOLD OFF!

Pecos BankerNovember 29th, 2009 at 9:47 pm

Didn’t Cheney move to Dubai? He probably lives in the apartment at the top of the worlds tallest building. That way, our dear former VP with his “frown and wrinkled lip and sneer of cold command” can stare out over the desert as the Palm Island sinks and “round the decay of that colossal wreck (viz Dubai, or perhaps more symbolically, the US), boundless and bare, the lone and level sands stretch far away.”

blindmanNovember 27th, 2009 at 8:30 am, November 11, 2009Calling ArchimedesWithin 6 hours deserts receive more energy from the sunthan humankind consumes within a year..Please keep this simple maxim in mind:* Energy is the biggest business of them all, by a long shot.(If you have any doubts, I strongly urge you to read The Prize ,Daniel Yergin’s Pulitzer Prize winner about how oil companiesand producers came to dominate our world.)

Pecos BankerNovember 29th, 2009 at 9:50 pm

Blindman, I read somewhere that the oil companies will not permit alternative forms of energy until every last drop of oil is sold.

blindmanNovember 27th, 2009 at 10:23 am

Music: It’s Beginning to Look a Lot More Riskless. “IT’S BEGINNING TO LOOKA LOT LIKE CHRISTMAS”(Words and Music by MEREDITH WILLSON)Parody Lyrics by Marcy ShafferIt’s beginning to look a lot more riskless.At least for guys like me.It’s neat being this elite.The government makes it sweet.Complete with robber baron guarantee!It’s beginning to look a lot more riskless.Chill has turned to thrill!We converged, now our flanks give thanks.We merged all the ranks of banks.That we did not kill!When liquidity trapsslid to maps of collapse?We heeded Treasury’s pleas.Leapt to the call, and adept-er than all.Kept the stall from becoming a freeze.And since what cracked is still intact?We act like regencies!It’s beginning to look a lot more riskless.Unemployment’s popped!Though I know how the bleeding hearts.Show their misleading charts.Neighbor, all my labor costs have dropped!It’s beginning to look a lot more riskless.Bonuses restored!When up yon in this monarchy.Echelon-esty, you see.Is its own reward!Parades of more aidesfor high frequency trades.Since brigades want into our pools.Incentive retentivefor those thought inventive.Who plot augmentive new tools.So abstruse that we’re let looseto go produce new rules!It’s beginning to look a lot more riskless.As we nurse the purse.There’s such fun in disastering.When you’ve won the mastering.Of the universe!There’s such fun in disastering.When you’ve won the mastering.Of the universe!.

Regan LinNovember 27th, 2009 at 11:55 am

Whether the economy recovery resembles a U or a V shape should not be the main concern here. In either scenario, the US economy is moving out of the bottom and is climbing the slope on either side of the shapes. The velocity of and driver behind the recovery should be more important to us.Consumer: It is evident that the recent rising in private consumption is driven by temporary policy effect. It accelerates consumer’s purchase decision. But if demand picks up in the next year, this reduction of demand brought on by the temporary policy will be cancelled out. But the main driver of consumption will be housing price as housing contributes to majority of the asset value. The wealth effect from the equity market can’t be sustained because people are just recovering from the loss they incurred from the crash. They are not getting wealthier. So the economy needs for the housing price to stabilize and move higher. Furthermore, the economy still needs time for the market to clear the labor market. The overhang of unemployment will decrease the potential level of consumption. So I believe consumption will be subdued for 1 or 2 years.

ChrisLNovember 27th, 2009 at 12:41 pm

So the economy needs for the housing price to stabilize and move higher.

That’s exactly the kind of sloppy thinking that got us into the mess we’re in : that the people get the impression they are getting artificially wealthier because they got a house that’s getting more expensive, and then can go and spend their head off in useless chinese made junk bought at Walmart for Christmas.What a whole load of nonsense.

gAntonNovember 27th, 2009 at 2:41 pm

“But what is the real meaning of what is going on in Dubai? It’s the story of the collapse of the financial industry. Dubai has no oil…no natural resources…and no real industry. The rulers tried to turn it into a financial center. Entirely financed by debt. And now finance itself is falling apart.”(Thank you, Bill Bonner)Does anyone else think that this sounds like USA in general and Ben Bernanke and Wall Street in particular?

blindmanNovember 27th, 2009 at 3:18 pm

g,keen and hudson explain it me it is ,( “real meaning” ) hubris, iow.all dubai needs is a bail out, unfortunately thechosen site for the development was in the ocean,therefore the required bailout will be ongoingand have a global impact and implications.( to remove several feet of sea level ) anda tsunami of debt predicated on exponential globalgrowth sans any rise in sea level, never mind the foundationbuilt on shifting sands.the poetry, metaphor, is so ridiculous that it is almost, well,it is just stupid. hence, is a central office location only a defense contractorwould be stupid enough to consider and then budget.and what agency would actually contract to theseimbeciles? that would be us, hence the term doomedbecomes operationally relevant, as in “we are doomed”.that is if we don’t figure this out and fix it fast.

Michael Fabisiak, Stern NYUNovember 29th, 2009 at 7:28 pm

I think the U-shaped recovery is already well “discounted” in market prices and may carry nil capital for market prices ahead.What is not yet discounted is the (unlikely) prospect of an inverted-V shaped outlook. This minority view has suddenly gained some currency, given the emergence of debt-related “triggers” like Dubai world’s credit default. The UK and UK banks would be watched very closely, as the UK economy is at risk of any big slide down the growth curve!mf1660

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