Entries in Ben Bernanke (7)


The Global Economy Burns, While its Leaders Fiddle 

China is by no means a panacea of economic equality or perfect policy. It has a fast growing portion of billionaires and accounts for nearly a third of the world’s luxury goods consumption, while its per capita GDP ranks 125th globally, and 2.8% of Chinese live below the poverty line (according to ‘official’ stats).

In contrast, the US has an official poverty rate of 14%, though think tanks like the Economic Policy Institute, consider this estimate low. Still, in its latest 5-year economic plan, the Chinese government at least gave lip service to how to deal with its growing inequality - by increasing certain wages by 40%, decreasing taxes on the poor and increasing them on the rich.

The US government has no such strategy, except in campaign speeches, as reflected by our anemic economy. Instead, we witness inane partisan prattling over the deficit and what mini-budget modifications are needed to bring it into line, most of which would disproportionately detract from the people that had the least to do with inflating it. (i.e. anyone not running a bank or hedge fund.)

Yet, like our own, inequality figures will worsen for China, which will ultimately destabilize its economy. The result of attracting that menacing, mercurial entity called ‘global capital’ is inflated growth figures predicated on bulging service sectors and population wealth gaps. The more capital sloshing around a country, the more destabilized it becomes, and the more its leaders pretend that’s not the case. 

Global speculative capital (the kind flowing through any major financial entity) is cunning, aggressive, greedy, shortsighted, and yes, cowardly (it doesn’t stick around when things get shaky.) If it were a person, it would smack down minions of grandmothers and infants to get to the door of a fiery building first, and then deny burn victims healthcare. It hates rules, which is why it likes promoting the notion of markets free of them.

Individual investors in silver are the latest casualties of speculative capital’s fickleness. People that invested their own money in silver were snuffed by the entities that borrowed or invested other people’s money to do the same. The COMEX found the anti-speculation religion it never sought during run-ups of commodities prices for items like food and fuel, and raised silver trading margins.  Though those hikes were the prevalent reason for silver’s price plummet, all they really did was give fast capital a chance to book profits and alter course.

Any investment is subject to fundamental forces, like supply and demand or how much US economic policy is devaluing its currency. But, it’s more subject to speculative whims, like who's in and out, by how much and how fast, whether its a fund or an entire nation.

The time-honored scheme in which controlling capital cons ordinary people (or governments) to join it before crashing or heading for the hills has devastated many individuals and economies. That ploy ran rampant during the crash of 1929. Banks put up their ‘own’ capital, which was really borrowed capital, to spur individuals to do the same with their savings. When banks pulled out, people were hosed thrice – through the loss of their savings, the decimation of their bank accounts that the powerhouses used for speculative purposes  -  under the guise of – serving their clients, and by a raging Depression that killed jobs and hopes.

Not much has changed. Matt Taibbi’s recent excoriation of Goldman Sachs reveals how gray the line is between screwing and screwing, one’s clients. Only now, when banks lose money, governments and central banks reward them with trillions of dollars of subsidies, using the excuse of aiding the population and avoiding larger catastrophe. They say things like - it takes time to increase employment, but we can waste no time in propping up our financial system. Or - pensions and teachers caused budget failures, but we’ll keep holding excess reserves, borne of debt, for banks in case they need it, and pay interest on it.

We are in an ongoing global economic depression. The signs are everywhere, even as they are lost on economic leaders that put private banks and short-term speculative capital before citizens and long-term working capital. Central banks use other people’s future money in the form of debt to do this. No central bank holds, and thus enables, more national debt than the Federal Reserve.

I hate to keep repeating this, but until someone of some ability to do anything gets it, I’m going to keep going. Last week, Fed chairman, Ben Bernanke, co-enabler with Treasury Secretary, Tim Geithner (among others) of our ballooning debt and mis-prioritized economic policy, urged Congress for another debt cap increase, or else.  The guy holds about  $2.5 trillion of debt on his books, being used for – nothing helpful to the general economy. A simple transfer would solve the debt cap problem in a nanosecond. Going a step further, a simple exchange of any of the $1.5 trillion of excess bank reserves receiving interest from the Fed, would do the same.  Instead of defaulting on, how about retiring, some debt? Thinking outside the box.

All around the world, the bodies and countries with the most power keep screwing people (some like IMF head, Dominique Strauss-Kahn, literally) and entire nations, while supporting their banking systems.  Last week, S&P announced it would downgrade Portugal if it didn’t play ball with the IMF and EU over its 4-year 78E billion-bailout program in return for hacking public programs.

Echoing our own Congressional goons spewing spending cuts in the face of inadequate revenues and for-bank-manufactured mega-debt, the S&P noted, “Two-thirds of the projected savings in [Portugal’s] 2012 budget will likely come from spending cuts.”

On a roll, the IMF also declared Italy needs ‘structural reform’, meaning labor market reform, less public ownership and more private investment to “unlock its growth potential.” (aka invite more speculative capital at its earliest convenience.)

Meanwhile, thousands of people are again striking in Greece, as the IMF and EU discuss more austerity measures, following the bank bailout that provoked public outrage a year ago, and a rating downgrade by S&P. The EU remains more concerned with investors regaining confidence in Greece than economic stability of its citizens. Then, there’s Ireland, for whom its last bailout didn’t dent its 14.5% unemployment rate, or fill in the gaping holes its banks dug.

In short, the global ‘remedy’ for depressed economies and debt-bloated banking sectors remains to do  – more of the same - and pretend  this will beget a different outcome. Yet, there is no way this strategy will result in more stable economies.  What we can expect instead is further widespread deterioration.



Obama's Budget Banter Omission: The Banks Broke the Bank

Since the White House announced its 2012 budget, the requisite punditry stream has been breaking down its specific pluses and minuses. I could grab illustrative quotes from various places and people, or add to the analytical details, but for the most part, it boils down to something like this:

GOP and GOP supporters: Obama didn't make enough spending cuts, he's not taking this whole budget thing seriously. Oh, and about the cuts he did suggest with regard to corporate tax benefits, high-end mortgage-holder deductions and (his-own) extension of wealthy individual Bushian tax breaks - well, that's just plain anti-American and - will kill jobs. (The fact that corporations were contributing just 6.6% and 7.2% in 2009 and 2010, of the total federal tax receipts, a 50% drop relative to the rate before the financial crisis, or about $150 billion per year, isn't relevant in the scheme of things.) Now, where can we cut another $100 billion? 

DEMs and DEM supporters: Obama inherited a bum economy, bum budget and bum deficit from Bush. And, he's turning around the crap hand he was dealt, slowly.  That means he has to cut back on some important programs, but he's gonna champion a high-speed railway, electric cars (to drive along side the high-speed railway?), and clean energy initiatives, and those will most certainly put millions of people back to work. Yes, he appointed Tim Geithner, one of the lead bank bailout builders, whose Treasury department colluded with the Fed, under Ben Bernanke, the other guy Obama kept on deck to help the economy, to increase the amount of US Treasury debt to $9.4 trillion from $5.4 trillion since the financial system began inhaling subsidies in the fall of 2008, and went on to post record bonuses and profits. But, he had no choice.

The intent of the actual discourse kind of makes me imagine a burning building across the street, raging flames, engulfing smoke, crumbling over its foundation, and there are two people watching, one's a Democrat and one's a Republican. While the fire intensifies, they are arguing over whether it's better to use a thimble or a teaspoon of water as an extinguisher aid. Somewhere, off in the distance, is an engineer trying to figure out how to rebuild the building over its ashes.

The sad truth is that the budget deficit is a direct outcome of the economic policies that were adopted by both parties over the years. National debt nearly doubled under Bush, and continued to grow under Obama, while the financial system pillaged the country for trillions of dollars twice - first, during the leveraged build-up to the economic collapse, and then, via a stockpile of creative subsidization awards afterwards, the underlying debt build-up for which, lingers like a bad hangover.

Unless the real economy becomes healthier, more people are employed and we institute a far more progressive tax and distribution structure, there is simply no mathematical way, to balance this budget.

So, there is no silver bullet amount of spending cuts that is sufficient to balance it either, particularly as long as we are only looking at, and debating about, the spending side of the US balance sheet, and only a portion of the non-discretionary component, at that. Quibbling over whether Obama is cutting enough or not enough, is quibbling over the wrong question. Obama showcasing just the cuts as these 'hard choices' that will get us more towards balance, is meaningless. It is equally misleading for the GOP  to focus on a separate subset of potential spending cuts, and conclude that this extra $100 billion will do the trick. Making $1.1 trillion of cuts over ten years, all things equal, with a projected deficit per year that's higher than that, won't balance any budget, for any political party.

You know what would have been really cool?

If Obama had just said - you know what - the budget can't be balanced, deal with it. And you know why? Because over the past two years, the economy, that was trashed by the banking sector, still sucks. And, during the entirety of the Bush administration, while prepping the economy to suck, debt to pay for wars and tax cuts kept growing. And, when the banking system was facing the abyss, we opened our checkbooks, we stimulated the hell out of it, but we did it mostly through issuing Treasury debt and the magical Fed printing machines - so it doesn't show up in the budget that we're all debating, except for a couple hundred billion to Fannie and Freddie and what remains of the stellar TARP project. And you know what? I admit that was a stupid thing to do. It was stupid when it started under Bush, and it was stupid when it continued under me and the economic team I appointed to keep it going. The bailout binge increased our public debt by 50% under my reckless economic advisors, Treasury Secretary, the Federal Reserve. And, hell if other countries decide to dump Treasuries in bulk, and their interest rates rise, and Bernanke can't QE them down fast enough, our budget deficit will gap like the Grand Canyon. 

Meanwhile folks, we need revenue. Just like banks need profits to pay bonuses. And, that's something that can only be remedied through a healthier economy - not just for corporations, stock market investors and banks - that are sitting on $2 trillion in cash, with $1 trillion parked at the Fed  - but for the general population that still counts 26 million people under or unemployed, not to mention a historically high 48.9% unemployment rate for youth, rising food and basic needs costs, continued foreclosures on entire families, and health insurance rates that will double within the next three years. You know what, when this country needed revenue in the past, Republican presidents and congresses did the math. Now, it's my turn. Let the GOP explain exactly how a lower corporate tax contribution created more jobs in the past two years, and while they're trying to figure that out, I'm gonna show some real leadership, and do everything I can - not to balance the budget - but to balance our economy.

Oh well.





Break up the Megabanks: My take in the New York Times debate

Across the globe, we continue to feel the repercussions of negligent, reckless, and dangerous banking practices rewarded for screwing up so broadly and decisively. And it's far from over. Here in the US, the biggest banks are bigger, riskier, bloated with federal subsidies, and more of a threat to us than ever before. Thank you, Ben Bernanke, the Fed, Tim Geithner, Hank Paulson, the Treasury Department, Barack Obama, Larry Summers, George Bush, Jamie Dimon, Lloyd Blankfein, John Thain and all the other pillagers who took part in this national and international travesty. 

We aren't done with this crisis. It's just in remission given the epic stimulus the big banks received. We shouldn't have to wait for the other shoe to drop to pull a Glass-Steagall. 

Read the rest of my comment, along with those of Simon Johnson, William Black and others, in the New York Times Debate Forum.