Time for a New New Deal?

Nobel prize winner, economist and columnist Paul Krugman warns that the only thing that can help the United States now is a new New Deal but on a grander scale, perhaps, than the programme of FDR in the 30’s.

Krugman notes that the economic collapse has now spread beyond the financial sector and has metastasized throughout the general economy. This, he maintains, makes it essential to move past bank bailouts and start directing aid to state governments and those segments of the public that will be hardest hit.

“Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed’s manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish — and long.

How nasty? The unemployment rate is already above 6 percent (and broader measures of underemployment are in double digits). It’s now virtually certain that the unemployment rate will go above 7 percent, and quite possibly above 8 percent, making this the worst recession in a quarter-century.

And how long? It could be very long indeed.

Even if the ongoing efforts to rescue the banking system and unfreeze the credit markets work — and while it’s early days yet, the initial results have been disappointing — it’s hard to see housing making a comeback any time soon. And if there’s another bubble waiting to happen, it’s not obvious. So the Fed will find it even harder to get traction this time.
…In other words, there’s not much Ben Bernanke can do for the economy. He can and should cut interest rates even more — but nobody expects this to do more than provide a slight economic boost.

On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.”

The rightwingnuts will flap their wings and squawk “socialism” but that won’t change the problem and it certainly won’t make it one bit better either. It’s a lesson that will soon become needed on our side of the border also. Harper needs to realize that, much as it runs against the grain of his doctrinaire ideology, Canada’s most vulnerable, not just our record profit setting banks, will need help from the feds to get through this downturn just as we’ve always been there to help them in the past.

In a recession/borderline depression crisis, it’s not deficits that bother me but the purposes they’re put to – who actually gets help – that’s what matters. Canada’s infrastructure could also use a little help – from dilapidated bridges in Ontario and Quebec to the patchwork 401 Trans Canada highway to the crumbling water and sewer systems in Vancouver.

It’s a lot tougher to govern a country in the really bad times. So far Harper and his team have had a pretty easy ride. We may be about to learn what they truly think of the average Canadian. If Steve doesn’t prove up to the challenge I suspect the Canadian public might be very glad indeed that we’ve got a minority government.

 

Arms Race Update – Security Fallout of US Meltdown

The Great Wall Street Caper crash has spread around the world and in some troubling spots the locals are getting decidedly anti-American. One of them is Pakistan.

There’s some speculation that China is about to capitalize on America’s fiscal blunders to extend its own sphere of influence while its rival is in disarray.

Pakistan is said to be on the verge of debt default, a crisis that has sent President Zardari off, not to Washington, but to Beijing looking for a rescue in the form of a $6-billion bailout. In a world where trillion dollar bailouts are now a fact of life, $6-billion doesn’t sound like much but it can sure buy an awful lot of influence with a country such as Pakistan.

From the Washington Post:

“The Pakistanis like to call the Chinese their all-weather ally, and the U.S. their fair-weather friends,” said Daniel Markey, senior fellow at the Council on Foreign Relations. “This kind of loan could be seen as self-serving by the Chinese, and continue that impression.”

The paper reports that, in Pakistan, “the climate of crisis and public anger over domestic bailouts in the United States and Western Europe have made even a modest infusion from its Western allies politically difficult.”

With American intelligence agencies calling Afghanistan a “downward spiral,” a move by Pakistan away from the West and toward China’s sphere of influence cannot help but jeopardize America’s position in the region.

 

A Brighter Day for America and Everyone

It might last just a few years if we’re lucky, several more if we’re not, but the America that emerges from the meltdown that’s just beginning to take hold is bound to be a better, healthier, more dynamic country – more closely resembling a sophisticated version of what it was in the 60’s than the diseased stepchild of the Reagan era.

The United States of America spent 30-years getting sick, really sick. Today’s meltdown is just the fever of that long-cultivated illness.

And what a sickness it was. It was a disease of both body and mind. The predisposition to this malady has been around since the country’s earliest days. It came in the form of what’s known as “American exceptionalism.” It’s the sort of mass delusion that comes to the fore when Americans (such as Sarah Palin) talk about the “City on the Hill.” It works its way through the American system in manifestations such as state rights, the every man a king sort of thing. It is infuriated by the perceived threat to liberty in central authority and any restraint on the notional “land of opportunity.”

Most of that has been pretty thoroughly trashed over the past generation although the myth of exceptionalism dies hard. Look at recent videos of angry crowds lined up to get into McCain/Palin rallies. They seem to sense that the myth is over and they’re both afraid of and furious at the uncertainty ahead.

American exceptionalism began its slow death when its Calvinist foundation began to erode during the Reagan years with the acceptance of debt and deficits as permanent governing principles of the country, its states, even its towns and cities – and, of course, its people. It died when, as Lewis Lapham put it, Americans came to, “equate wealth with virtue.” That set off a generational orgy of consumerism that quickly led to a nation, its states, its cities and its people living beyond their means.

It’s not entirely the Americans’ fault. Foreign lenders were all too happy financing this bachannal, especially the Chinese who watched America’s indentured wealth being siphoned off to grow China’s economy.

But those days of greed and madness are coming to a close. China is weaning itself off its heavy dependence on American consumers. They’ll still play a major part in China’s economic ascendancy but the Chinese are now creating their own markets out of their own domestic affluence. The story is similar for India. The Euros, likewise, are looking to expand and cement their trade ties into alternate markets.

But it’s not just the markets and fiscal policy that will bring America back to sanity. It’s also the country’s social policies and the looming crisis of its state and municipal governments’ neglect.

I did a post about a year ago detailing how India is opening 29-new science and technology universities every year. China, too, is churning out legions of mathematicians, scientists and engineers. America, by contrast, is lurching backward in training its next generation of leaders. The New York Times’ op-ed columnist Bob Herbert focused on the double whammy coming America’s way from the failure of its education policies and the looming collapse of its decayed infrastructure:

‘“The United States is failing to develop the math skills of both girls and boys, especially among those who could excel at the highest levels, a new study asserts, and girls who do succeed in the field are almost all immigrants or the daughters of immigrants from countries where mathematics is more highly valued.”

The idea that the U.S. won’t even properly develop the skills of young people who could perform at the highest intellectual levels is breathtaking — breathtakingly stupid, that is.

Meanwhile, the country is going down the tubes. Felix Rohatyn, who helped lead New York City out of the dark days of the 1970s fiscal crisis, had an article in a recent issue of The New York Review of Books (with co-author Everett Ehrlich) lamenting the sad state of the U.S. infrastructure. Most Americans are oblivious on this issue. We’re like a family that won’t even think about fixing a sagging, leaky roof until it collapses on our heads.
New Orleans was nearly wiped from the map in the Hurricane Katrina nightmare, and 13 people were killed when a bridge in Minneapolis broke apart during rush hour, hurling helpless motorists 60 feet into the Mississippi River. Neither of those disasters was enough of a warning for us to think seriously about infrastructure maintenance, repair and construction.

Could these types of disasters happen again? They’re going to happen again. Mr. Rohatyn reminds us that nearly 30 percent of the nation’s bridges are “structurally deficient or functionally obsolete.”

We haven’t even got sense enough to keep an eye on the water we drink. Citing a report from the American Society of Civil Engineers, Mr. Rohatyn and Mr. Ehrlich write: “Current funding for safe drinking water, amounts to ‘less than 10 percent of the total national requirement.’ ”

A country that refuses to properly educate its young people or to maintain its physical plant is one that has clearly lost its way. Add in the myriad problems associated with unnecessary warfare and a clueless central government that wastes taxpayer dollars by the trillions, and you’ve got a society in danger of becoming completely unhinged.”

This is the price exacted of a country that equates education with elitism and believes that taxation is nothing short of robbery. I recall a case from several months back where Louisiana voters, whose state is about as impoverished and backward as you can find in the Lower 48, introduced and passed a proposition to slash funding for education for no reason other than to shave a couple of points off the tax rates.

Astonishing, absolutely astonishing. But now, finally, this drunken orgy is coming to an end. The era of 4,000 sq. ft. homes for everyone is over. America is about to enter a period of sustainable retreat and, in that, lies its salvation. For despite all the excesses of the past decades there remains within the United States a core of vitality that has survived by staying low key, mainly in the halls of academia. It’s from America’s top universities that a new generation of clear thinkers will emerge, free of the now utterly discredited dogma and jingoism that has brought their country to its knees.

These are the people who understand the need to again invest their country’s wealth in rebuilding America’s economy, not China’s – in the need to reward effort, production and innovation, not bogus paper shuffling and coupon clipping. They don’t need to be told that America’s strength lies in the health of its blue and white collar working and middle classes, not the rentiers.

We will see these people come forward over the next decade to cure the madness that is today’s America. It’ll be a long road back and there’ll be a lot of potholes along the way but there’s no other option if America is to maintain its place in the community of nations.

 

Krugman Wins Nobel

Princeton economist and New York Times columnist Paul Krugman has been awarded the Nobel Prize in Economics.

Krugman, routinely castigated by America’s rightwing, is a self-described liberal. He has used his column and books to repeatedly show how his country was on a path to the meltdown that has consumed it today.

In “The Great Unraveling” Krugman assembled a selection of his columns going back to the arrival of George w. Bush in Washington that depicted the madness that has been Republican economic and social policy in the 21st Century.

 

Sticking It To The Poor – Again

If America’s rightwing vermin have learned anything during the Era of Reagan, it’s how to deflect responsibility for their own greed and manic indulgence.

Now that America’s richest of the rich have sent Wall Street collapsing under the weight of their boundless avarice they need someone to blame, someone, right now. And who better to blame than the poor.

Here’s the narrative that I’ve heard oozing out from different corners of the uber-right recently. It’s all the poor folks fault. They took advantage of a government programme, the Community Reinvestment Act, to wrangle subprime mortgages out of reluctant lenders. The poor are, in other words, not merely the victims of their own misfortune but the authors of everyone else’s misery.

As the Boston Globe explains, the programme the real bandits are trying to hide behind had nothing to do with the US meltdown:

The law applies specifically to commercial banks, which in recent months have been the least volatile part of the financial-services industry. The measure was passed in 1977 to combat redlining, the practice of banks refusing to write mortgages in poor neighborhoods – even when they were taking deposits from residents of those neighborhoods.

To meet Community Reinvestment Act requirements, banks do make loans to low-income homebuyers – often in concert with community groups that provide financial advice and other crucial training. … One key initiative of this sort, the state’s SoftSecond mortgage program, has a delinquency rate of 1.8 percent – compared with about 5 percent for all mortgages in Massachusetts.

The subprime mortgages that have failed left and right are the antithesis of the carefully designed, well-supervised loans provided by tightly regulated banks. No law forced a mob of unregulated lenders to make loans in poor neighborhoods. Rather, mortgage companies and Wall Street financiers saw a business opportunity in subprime lending, where the risk of default was high but so were the interest rates.

Never mind that subprime mortgages were once considered as disreputable a business as check-cashing stores and payday loans; big-time investors took a keen interest once the potential rewards became clear. When financial firms began buying up and bundling mortgages, redividing them into securities, and selling them off, individual brokers had no incentive to make sure any given mortgage would be sustainable if housing prices fell.

Far from being forced to write new loans, brokers competed to sell home mortgages to lower-income customers.

In …many of today’s mortgage horror stories, the lender wasn’t a traditional bank. According to Callahan, 98.4 percent of the subprime mortgages in Massachusetts in 2006 were made by lenders whose operations in the state are not subject to the Community Reinvestment Act.

The subsequent meltdown of the nation’s entire financial system could not have happened without a huge – and entirely voluntary – inflow of money from Wall Street into a sketchy sector of the mortgage market. Nobody forced investment firms to wager billions of dollars directly on these loans, or to build an elaborate web of complex financial transactions dependent upon their continued performance. But they did.

The recent animosity over the Community Reinvestment Act, in short, simply can’t be explained by the facts. Among the law’s critics, there’s more than a whiff of social Darwinism – the certainty that only a government policy aimed at helping losers could lead the whiz kids of Wall Street so far astray. Hogwash. The current financial crisis grows out of loose regulation that gave big investors plenty of freedom to make foolish bets, and then force their losses upon the taxpayers.”

So, there’s no basis, none whatsoever, for blaming the meltdown on the poor exploiting a government benefit programme. The blame lies entirely at the top of the heap, not the bottom. So what? In a nation where some 10% believe Barack Obama is a Muslim, this lie will find traction and spread. In a nation that reveres abject ignorance, even in its executive branch (Hi Sarah), this ugly little narrative is a magical bundle of absolution for those who deserve approbation and the enormous comfort these types always get from scapegoating.

 

Canada’s Economy Just Keeps Getting Stronger and Stronger, $25-Billion At a Time

Doing his best Martha Stewart impersonation, our Furious Leader has assured the voting public that his government’s $25-billion bank bailout is “good for the economy.” It’s a “good thing” eh Steve? Maybe not quite as good as if the fundamentals of the Canadian economy were really strong and we didn’t have to spring for $25-billion to unclog the credit drains but these days good things come in several flavours, all of them bitter.

Steve says he wants to ensure “greater liquidity” for Canadian banks. Does that mean the banks had a liquidity problem? Why, that would mean that the fundamentals of the Canadian economy really weren’t strong, eh Steve? You were just screwin’ with us, weren’t you?

Just think how much better we’re going to be when you spring for your next bailout. I’m sure that too will be a good thing for Canada.

I’d like to know a bit more about these mortgages we’re buying. You say they’re CMHC guaranteed. If the banks are holding mortgages that are 100% backed by CMHC guarantees why would they be desperate to flog those to you, Steve? Are these definitely Canadian mortgages or are these those miserable, subprime derivatives from the States?

Okay, Steve, one more time. Tell us that the fundamentals of the Canadian economy are strong.

 

Why Americans Still Venerate Ronald Reagan

Over the past 30-years, Americans have come to revere Ronald Reagan as the guy who restored their country and their pride. I suspect the Reagan magic has as much to do with how Americans saw only his achievements and not the downside he inflicted, the very hens that are now coming home to roost.

Ronald Reagan did transform the United States. When he took charge America was the world’s largest creditor nation. That’s right, America was a country that loaned money to other, poorer countries. When Reagan finally left eight years later he had transformed the United States into the world’s largest debtor nation.

Ronald Reagan launched America onto the path of continuously living beyond its means. Every previous president since WWII had reduced the government debt as a percentage of GDP. Each and every one of them, Republican and Democratic. Reagan changed all that, sending the debt/GDP ratio soaring.

I think the secret of Reagan’s veneration, however, is that when he sold out his nation’s real wealth, its fiscal integrity, he left a country that was able to continue to borrow vast sums for decades to come. It was in pursuit of Reagan’s fiscal legacy that Bush Jr. managed to double the federal government’s debt to what will be a staggering $11-trillion by the time he packs up his crayons in January.

It was Reagan who tought the American people that paying for their government was wrong, that taxes were bad. It was Reagan who, with the aid of his conjurer Stockman, pulled the wool over his people’s eyes with nonsense about “supply side economics” and the “trickle down” theory of tax cuts for the rich.

It was Reagan who launched the transformation of the American economy from an industrial driven engine to a financialized economy in which financial services – banking, stocks and insurance – became the largest component of the American economy while its industrial base was packaged up and shipped abroad.

It was Reagan who pushed for massive federal deregulation, a mission that was taken up with gusto by Bush/Cheney. It was the union rep Reagan who turned union buster and drove American labour into the ground.

Debt, deficits, foreign borrowings, deregulation, de-industrialization, financialization, tax cuts for the rich – everything Reagan mapped out has brought America to where it is today. His directing hand is in everything that has gone so horribly wrong today in the United States.

And yet the American people continue to revere Ronald Reagan and venerate his legacy. Astonishing.

 

Whatever Happened to "The Economy Is Strong?"

So Flaherty’s opening bet is $25-billion to buy “insured mortgage pools” in order to keep Canada’s credit pipes from gumming up.

But, it’s not a bank bailout. No it isn’t. No really, you need to understand that the fundamentals of the Canadian economy are strong. That’s straight from our Fuhrious Leader.

Let’s just do a little math. Yesterday we were told that the Afghanistan mission bill will come in at $18-billion (excluding buried costs) which means about $1,500 per household. That would put the bank bailout at about $2,000 per household. Now if you’re watching your retirement investments melting at the same time, those figures look even larger, more dismal.

But what happens if the bailout turns out to be as ineffective at unclogging the credit drains as the American bailout? Are we going to be throwing more of the Canadian taxpayers’ money into this and, if so, how much more, Mr. Flaherty?

And what have you got in mind for when the Canadian public – not the banks, the working people – take the trade hit that’s coming our way out of the south? Have you got a cash cushion tucked away for them or is it just the banks who’ll get bailed out?

Now I know you don’t want to talk about this, not with an election just days away. Too bad because we certainly deserve a little openness, a little transparency, a good dollop of accountability from this government right now.

 

America Isn’t Finished, Far From It

The US meltdown underway and now spreading globally may usher in a new day but it won’t see America falling to its knees, at least not for very long.

Think of it more as a rationalization of statehood. It’s the doing away with a degree of madness inculcated by Ronald Reagan when he pitched America onto the path of unsustainable policies and practices. That’s a real mental disorder which, left untreated, will cause enormous damage.

It was Reagan who transformed the United States of America in the brief window of one administration from the world’s largest creditor nation into the world’s largest debtor nation. It takes a certain mentality to see greatness in a leader who does that and yet the American people embraced the myth of this character’s greatness. It was Reagan who Cheney claimed had proved that “deficits don’t matter.”

For three decades America has defied fiscal gravity, relying on levitation to hover safely above the mountain of debt that was building below. Now America is going through the first spasm (there will be more) that marks a beginning to the end of that lunacy.

There’s a lot of promise in the changes that are coming to the US. It takes an enormous amount of money and effort to dress up as the world hegemon. Imagine one country with only five percent of the world population that spends more on its military than the next, what is it, I don’t know – say the next 20 nations combined? (Trivia – who’s #2? Why, that’d be Japan, at least by 2002).

America needs to step down from its perch as the self-proclaimed world policeman if only because it is spent and needs the rest. At home it needs a new New Deal for its working and middle classes. Abroad it needs a new, co-operative relationship with its traditional allies, one in which America is not necessarily always the leader but, at times, just an equal.

I really think Americans will be far happier when they learn to back off a bit and focus on returning their government’s attention to the American people first, not America’s corporatism first. My guess is that would restore a tremendous amount of vitality and confidence that has largely been sapped by globalization and the rise of multinationals that wield undue economic and political clout in Washington. (Look how Germany came back when their companies began re-investing their revenue and their nation’s wealth into German companies again instead of Asian. That relatively little country just, I mean just, lost top exporter bragging rights to China.)

America has always considered democracy and capitalism as conjoined. It was the dogma we all learned during the Cold War. You can see its lasting impact in the way Americans misunderstand even mild socialism and use the word as an epithet. Yet China has shown that capitalism hardly needs democracy to flourish, it actually can do better away from democracy. All those industries that have run off to the People’s Republic prove that capitalism and corporatism do not find totalitarianism repugnant.
Capitalism benefits enormously from autocratic rule.

When Americans come to demand that their interests prevail over capitalist agendas, they’ll hardly become a more backward nation. To the contrary, freed from slavish adherence to the harshest precepts of free market capitalism, Americans will probably advance as a people as they haven’t since the early 70’s.

Is this too great a tide change to hope for anytime soon? Who can tell? Despite their resistance to change, Americans have undergone some fundamental changes since the advent of Reagan, changes that are now coming home to roost and, in the process, shattering a lot of preconceived notions about the strength and resiliance of their country and its economy.

The changes underway now in the United States appear seismic but, stripped of illusion, are really just a reckoning, a return to sanity. America was in a state of lunacy before the meltdown. Too many people believed that their houses were the real life equivalent of the Golden Goose. The movers and shakers of Wall Street were positively deranged by greed.

Look at the tax burden America’s baby boomers have bequeathed to the generations of taxpayers to follow. Imagine the state of penury this most profligate and self-indulged generation would be struggling with today had their parents and grandparents and great-grandparents’ generations done the same to them? But those generations didn’t do that. They built and grew and preserved, leaving America greater from one generation to the next. And then the madness set in. An entire generation, two in fact, caught up in the imbecilic notion that they could have the wealth of their own making plus a good hunk of the wealth of those who would follow. That perversion, more than anything else, is what has brought America to its knees today.

It’s a perversion that’s being kept alive and well by the Republicans above all else. They have the notion that their government can spend freely but must not tax, especially not the most privileged. The idea of this generation having to surrender taxes to pay its way is now treated as anti-American heresy, virtual treason.

They mask this charade with the notion of “trickle down” economics. Cutting taxes for the rich actually benefits those beneath. You can only accept that delusion if you ignore that those tax cuts are funded, not by enormous economic activity below, but by vast sums borrowed from foreign lenders.

It’s a disease of the mind, one that has seen America’s federal debt, under just one addled administration, actually double to reach utterly ruinous heights. It truly is a disease of the mind because it’s illogical, totally dysfunctional and ultimately self-destructive.

It all sounds so apocalyptic, so hopeless, but I don’t believe that. I had the opportunity to do my undergrad in the States back when they were in the tumultuous throes of Vietnam. I’ve seen that nation rent with dissent, even hatred of the very same venomous type yelled today at Republican rallies against Obama. And yet the nation recovered, licking its wounds.

The veteran war correspondent and author, Chris Hedges, has said that America was at its best when it came away humbled by Vietnam. He’s probably right but then along came a giant of a snakeoil salesman, Ronald Reagan, offering a false return to greatness and laying the path for what besets America today.

We all know that Americans are profoundly patriotic people. There are those who’ve learned the power to be had in exploiting that fervor. I believe the American people will eventually catch on to that. In fact, roughly half the American population already has so, if the tipping point hasn’t been reached it’s awfully close. For the sake of the American people, for the sake of us all, I hope it’s not too much longer in arriving.

 

America’s Debt Clock Has Run Out of Digits

BBC News reports that the National Debt Clock in New York has been overrun by Bush economics.

The digital counter marks the national debt level, but when that passed the $10 trillion point last month, the sign could not display the full amount.

The board was erected to highlight the $2.7 trillion level of debt in 1989.

The clock’s owners say two more zeros will be added, allowing the clock to record a quadrillion dollars of debt.

A “quadrillion” dollars of debt? But relax, it’s not a British quadrillion, which is a 1 followed by 24 zeroes, but merely an American quadrillion which is 1 followed by just 15 zeroes:

As in: $1,000,000,000,000,000.

Who cares? That’s too many zeroes to fit onto a cheque anyway.