Greg Hunter interviews Paul Craig Roberts on the fate of the US dollar, who will ultimately pull the trigger, and when.

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Fate of Dollar is the Fate of U.S. Power - Dr. Paul Craig Roberts

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4 NOVEMBER 2013

By Greg Hunter’s USAWatchdog.com 
Former Assistant Treasury Secretary Dr. Paul Craig Roberts says, “The fate of the dollar is the fate of United States Power.”  Dr. Roberts goes on to say, “The whole question of the dollar’s longevity depends on the willingness of other countries to continue holding dollars and dollar denominated assets while the Federal Reserve prints a trillion dollars a year to prop up the big banks and to finance the federal budget deficit.”  There are many ways countries are currently moving away from the dollar.  One of the most startling, says Dr. Roberts, “China is accumulating very large quantities of gold.  So, this does show that the dollar may have a limited life as the supreme currency.”  With global NSA spying scandals, if the dollar starts coming under attack in the currency markets, Dr. Roberts predicts, “All of this makes it very difficult if there is a run on the dollar for the Treasury and the Federal Reserve to call up these foreign governments and say help us stop this run.”  Don’t think the Fed is ever going to stop printing money because Dr. Roberts contends, “They’re trapped because you can’t expect them to say let’s blow up the world right now so we don’t have a crisis in the dollar next year.”  Join Greg Hunter as he goes One-on-One with economist Dr. Paul Craig Roberts.    

http://youtu.be/GIMiKBbdGzo

Greg Hunter, Creator of USAWatchdog

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The Sequester Is President Obama’s Fault

Dean Baker
Truthout, March 4, 2013
See article on original website

Now that we are counting up the days of the sequester instead of counting down, it would be a good time to cast blame. And my candidate is President Obama.

I’m not blaming Obama for the reasons that Bob Woodward came up with in his fantasyland. I am blaming President Obama and his administration for trying to be cute and clever rather than telling the public the truth about the economic crisis. The result is that the vast majority of the public, and virtually all of the reporters and pundits who deal with budget issues, does not have any clue about where the deficit came from and why it is a virtue rather than a problem.

The basic story is incredibly simple. Demand from the private sector collapsed when the housing bubble burst. We lost $600 billion in annual demand due to residential construction falling through the floor. We will not return to normal levels of construction until the vacancy rates return to normal levels. Vacancy rates are still near post-bubble record highs.

We also lost close to $500 billion in annual consumption spending due to the loss of the $8 trillion in housing-bubble-generated equity that was driving this consumption. This demand will also not come back.

This creates a gap in annual demand of more than $1 trillion. The stimulus, which boosted demand by roughly $300 billion a year in 2009 and 2010, helped to fill part of this gap, but was nowhere near big enough. Furthermore, stimulus spending fell off quickly in 2011 and the stimulus is now pretty much gone altogether. This means that we are still faced with a huge hole in private sector spending.

We know the Republicans love the Job Creators and President Obama has gone out of his way to show his love also. But in the real world, investment in equipment and software has never been much above its current share of GDP except in the days of the dot.com bubble. This means that unless we drug investors so that they are willing to throw hundreds of billions of dollars into the stock of worthless companies, we are unlikely to see any substantial rise in investment.

As a result we are stuck with an economy that is mired well below full employment. President Obama’s top economic advisers from his first term all claim that they understood this point. But they said that they could not get a bigger stimulus package through Congress.

That assessment may well be true, but the real issue is what President Obama did after the stimulus package passed. He could have told the country the truth. He could have said what all his advisers claim they told him at the time: the stimulus was not large enough and we would likely need more. He could have used his presidency to explain basic economics to the public and the reporters who cover budget issues.

He could have told them that we need large deficits to fill the hole in demand that was created by the collapse in private sector spending. He could have shown them colorful graphs that beat them over the head with the point that there was very little room for investment to expand even under the best of circumstances.

He could have also explained that consumers would not go back to their bubble levels of consumption since the wealth that had supported this consumption had disappeared with the collapse of the bubble. The public would likely understand this point since most homeowners had themselves lost large amounts of equity and understood that they were much poorer as a result of the collapse of the bubble.

In this context the only choice in the near term is between larger budget deficits and higher unemployment. The people who clamored for cuts in government spending and lower deficits are in fact clamoring to throw people out of work and slow growth.

We will never know if President Obama could have garnered support for more stimulus and larger deficits if he had used his office to pound home basic principles of economics to the public and the media. But we do know the route he chose failed.

He apparently thought the best route to get more stimulus was to convince the deficit hawks that he was one of them. He proudly announced the need to pivot to deficit reduction after the passage of the stimulus and then appointed two deficit hawks, Erskine Bowles and Alan Simpson, to head a deficit commission.

This set the ball rolling for the obsession with deficit reduction that has dominated the nation’s politics for the last three years. Instead of talking about the 9 million jobs deficit the economy faces, we have the leadership of both parties in Congress arguing over the debt-to-GDP ratios that we will face in 2023.

This would be comical if lives were not being ruined by the charade. The unemployed workers and their families did not do anything wrong, the people running the economy did.

Now the sequester comes along throwing more people out of work, worsening the quality of a wide range of government services and denying hundreds of thousands of people benefits they need. Yes, this is really stupid policy and the Republicans deserve a huge amount of blame in this picture.

But it was President Obama who decided to play deficit reduction games rather than being truthful about the state of the economy. There was no reason to expect better from the Republicans in Congress, we had reason to hope that President Obama would act responsibly.

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Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The End of Loser Liberalism: Making Markets Progressive. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.

WITH REGARD TO THE SO-CALLED "FISCAL CLIFF," VIRTUALLY ALL ELECTED REPUBLICANS AND MOST ELECTED DEMOCRATS ARE EITHER TOTALLY IGNORANT OF ECONOMICS OR WILLFULLY DISHONEST IN CLAIMING THAT AUSTERITY IS THE ONLY WAY TO "SAVE" THE ECONOMY. HERE PAUL CRAIG ROBERTS, PERHAPS THE ONLY HONEST REPUBLICAN ECONOMIST OF TRUE STATURE, EXPLAINS IN GREAT DETAIL WHY CUTBACKS IN THE SOCIAL SAFETY NET WOULD BE A SURE-FIRE WAY TO *DEEPEN* THE PRESENT FINANCIAL CRISIS AND WOULD *INCREASE* PUBLIC DEBT. THIS ARTICLE IS WORTH READING AT LEAST TWICE.

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Our Collapsing Economy and Currency

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December 1, 2012 | Original Here

Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.

The fiscal cliff is the result of the inability to close the federal budget deficit. The budget deficit cannot be closed because large numbers of US middle class jobs and the GDP and tax base associated with them have been moved offshore, thus reducing federal revenues. The fiscal cliff cannot be closed because of the unfunded liabilities of eleven years of US-initiated wars against a half dozen Muslim countries–wars that have benefitted only the profits of the military/security complex and the territorial ambitions of Israel. The budget deficit cannot be closed, because economic policy is focused only on saving banks that wrongful financial deregulation allowed to speculate, to merge, and to become too big to fail, thus requiring public subsidies that vastly dwarf the totality of US welfare spending.

The hoax is the propaganda that the fiscal cliff can be avoided by reneging on promised Social Security and Medicare benefits that people have paid for with the payroll tax and by cutting back all aspects of the social safety net from food stamps to unemployment benefits to Medicaid, to housing subsidies. The right-wing has been trying to get rid of the social safety net ever since Franklin D. Roosevelt constructed it, out of fear or compassion or both, during the Great Depression.

Washington’s response to the fiscal cliff is austerity: spending cuts and tax increases. The Republicans say they will vote for the Democrats’ tax increases if the Democrats vote for the Republican’s assault on the social safety net. What bipartisan compromise means is a double-barreled dose of austerity.

Ever since John Maynard Keynes, economists have understood that tax increases and spending cuts suppress, not stimulate, economic activity. This is especially the case in an economy such as the American one, which is driven by consumer spending. When spending declines, so does the economy. When the economy declines, the budget deficit rises.

This is especially the case when an economy is weak and already in decline. A declining economy means less sales, less employment, less tax revenues. This works against the effort to close the federal budget deficit with austerity measures. Instead of strengthening the economy, the austerity measures weaken it further. To cut unemployment benefits and food stamps when unemployment is high or rising would be to provoke social and political instability.

Some economists, such as Robert Barro at Harvard University, claim that stimulative measures, the opposite of austerity, don’t work, because consumers anticipate the higher taxes that will be needed to cover the budget deficit and, therefore, reduce their spending and increase their saving in order to be able to pay the anticipated higher taxes.

In other words, the Keynesian effort to stimulate spending causes consumers to reduce their spending. I don’t know of any empirical evidence for this claim.

Regardless, the situation on the ground at the present time is that for the majority of people, incomes are stretched to the limit and beyond. Many cannot pay their bills, their mortgages, their car payments, their student loans. They are drowning in debt, and there is nothing that they can cut back in order to save money with which to pay higher taxes.

Many commentators are complaining that Congress will refuse to face the difficult issues and kick the can down the road, leaving the fiscal cliff looming. This would probably be the best outcome. As the fiscal cliff is a result, not a cause, to focus on the fiscal cliff is to focus on the symptoms rather than the disease.

The US economy has two serious diseases, and neither one is too much welfare spending.
One disease is the offshoring of US middle class jobs, both manufacturing jobs and professional service jobs such as engineering, research, design, and information technology, jobs that formerly were filled by US university graduates, but which today are sent abroad or are filled by foreigners brought in on H-1B work visas at two-thirds of the salary.

The other disease is the deregulation, especially the financial deregulation, that caused the ongoing financial crisis and created banks too big to fail, which has prevented capitalism from working and closing down insolvent corporations.

The Federal Reserve’s policy is focused on saving the banks, not on saving the economy. The Federal Reserve is purchasing not only new Treasury bonds issued to finance the more than one trillion dollar annual federal deficit but also the banks’ underwater financial instruments, taking them off the banks’ books and putting them on the Federal Reserve’s books.

Normally, debt monetization of this amount results in rising inflation, but the money that the Federal Reserve is creating in its attempt to manage the public debt and the banks’ private debt is hung up in the banking system as excess reserves and is not finding its way into the economy. The banks are too busted to lend, and consumers are too indebted to borrow.

However, the debt monetization poses a second threat that is capable of biting the US economy and consumer living standards very hard. Foreign central banks, foreign investors in US stocks and financial instruments, and Americans themselves observing the Federal Reserve’s continuous monetization of US debt cannot avoid concern about the dollar’s value as the supply of ever more dollars continues to pour out of the Federal Reserve.

Already there is evidence of central banks and individuals moving out of dollars into gold and silver bullion and into other currencies of countries that are not hemorrhaging debt and money. According to John Williams of Shadowstats.com, the US dollar as a percentage of global holdings of reserve assets has declined from 36.6% in 2006 to 28.7% in 2012. Gold has increased from 10.5% to 12.8% and other foreign currencies except the euro increased from 38.4% to 44.4%.

Russia, China, Brazil, India, and South Africa intend to conduct trade among themselves in their own currencies without use of the dollar as reserve currency. The EU countries conduct their trade with one another in euros, and although not reported in the US media, Asian countries are discussing a new common currency for trade among themselves.

The world is abandoning the use of the dollar to settle international accounts, and the demand for dollars is falling as the Federal Reserve increases the supply of dollars.
This means that the price of the dollar is threatened.

Concern over the dollar means concern over dollar-denominated financial instruments such as stocks and bonds. The Chinese hold some $2 trillion in US financial instruments. The Japanese hold about $1 trillion in US Treasuries. The Saudis and the oil emirates also hold large quantities of US dollar financial instruments. At some point the move away from the dollar also means a move away from US financial instruments. The dumping of US stocks and bonds would destabilize US financial markets and wipe out the remainder of US wealth.

As I have previously written, the Federal Reserve can create new money with which to purchase the dumped financial instruments, thus maintaining their prices. But the Federal Reserve cannot print gold or foreign currencies with which to buy up the dollars that foreigners are paid for their US stocks and bonds. When the dollars in turn are dumped, the exchange value of the dollar will collapse, and US inflation will explode.

The onset of hyperinflation can be as sudden as the collapse of a currency’s exchange value.

The real crisis facing the US is the impending collapse of the US dollar’s foreign exchange value. The US dollar’s value in relation to silver and gold has already collapsed. In the past ten years, gold’s price in US dollars has increased from $250 per ounce to $1,750 per ounce, an increase of $1,500. Silver’s price has risen from $4 per ounce to $34 per ounce. These price rises are not due to a sudden scarcity of gold and silver, but to a flight from the dollar into the two forms of historical money that cannot be created with the printing press.

The price of oil has risen from $20 a barrel ten years ago to as high as $120 per barrel earlier this year and currently $90 a barrel. This price rise has come about despite a weak world economy and without any supply restrictions other than those caused by the attempted US occupation of Iraq, the Western assault on Libya, and the self-harming Western sanctions on Iran, impacts most likely offset by the Saudis, still Washington’s faithful puppet, a country that pumps out its precious life fluid in order to save the West from its own mistakes. The moronic neoconservatives wish to overthrow the Saudi Arabian government, but what more faithful servant has Washington ever had than the Saudi royal house?

What can be done? For a number of years I have pointed out that the problem is the loss of US employment, consumer income, GDP, and tax base to offshoring. The solution is to reverse the outward flow of jobs and to bring them back to the US. This can be done, as Ralph Gomory has made clear, by taxing corporations according to where they add value to their product. If the value is added abroad, corporations would have a high tax rate. If they add value domestically with US labor, they would face a low tax rate. The difference in tax rates can be calculated to offset the benefit of the lower cost of foreign labor.

As all offshored production that is brought to the US to be marketed to Americans counts as imports, relocating the production in the US would decrease the trade deficit, thus strengthening belief in the dollar. The increase in US consumer incomes would raise tax revenues, thus lowering the budget deficit. It is a win-win solution.

The second part to the solution is to end the expensive unfunded wars that have ruined the federal budget for the past 11 years as well as future budgets due to the cost of veterans’ hospital care and benefits. According to ABC World News, “In the decade since the Sept. 11, 2001 terrorist attacks on the World Trade Center, 2,333,972 American military personnel have been deployed to Iraq, Afghanistan or both, as of Aug. 30, 2011 [more than a year ago].” These 2.3 million veterans have rights to various unfunded benefits including life-long health care. Already, according to ABC, 711,986 have used Veterans Administration health care between fiscal year 2002 and the third-quarter of fiscal year 2011. http://abcnews.go.com/Politics/us-veterans-numbers/story?id=14928136#1

The Republicans are determined to continue the gratuitous wars and to make the 99 percent pay for the neoconservatives’ Wars of Hegemony while protecting the 1 percent from tax increases.
 
The Democrats are little different.

No one in the White House and no more than one dozen members of the 535 member US Congress represents the American people. This is the reason that despite obvious remedies nothing can be done. America is going to crash big time.

And the rest of the world will be thankful. America along with Israel is the world’s most hated country. Don’t expect any foreign bailouts of the failed “superpower.”

Permalink

Tuesday, October 11, 2011



THE SEVEN BIGGEST ECONOMIC LIES

The President’s Jobs Bill doesn’t have a chance in Congress — and the Occupiers on Wall Street and elsewhere can’t become a national movement for a more equitable society – unless more Americans know the truth about the economy.

Here’s a short (2 minute 30 second) effort to rebut the seven biggest whoppers now being told by those who want to take America backwards. The major points:

1. Tax cuts for the rich trickle down to everyone else. Baloney. Ronald Reagan and George W. Bush both sliced taxes on the rich and what happened? Most Americans’ wages (measured by the real median wage) began flattening under Reagan and have dropped since George W. Bush. Trickle-down economics is a cruel joke.

2. Higher taxes on the rich would hurt the economy and slow job growth. False. From the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were far higher than they’ve been since. Yet the economy grew faster during those years than it has since. (Don’t believe small businesses would be hurt by a higher marginal tax; fewer than 2 percent of small business owners are in the highest tax bracket.)

3. Shrinking government generates more jobs. Wrong again. It means fewer government workers – everyone from teachers, fire fighters, police officers, and social workers at the state and local levels to safety inspectors and military personnel at the federal. And fewer government contractors, who would employ fewer private-sector workers. According to Moody’s economist Mark Zandi (a campaign advisor to John McCain), the $61 billion in spending cuts proposed by the House GOP will cost the economy 700,000 jobs this year and next.

4. Cutting the budget deficit now is more important than boosting the economy. Untrue. With so many Americans out of work, budget cuts now will shrink the economy. They’ll increase unemployment and reduce tax revenues. That will worsen the ratio of the debt to the total economy. The first priority must be getting jobs and growth back by boosting the economy. Only then, when jobs and growth are returning vigorously, should we turn to cutting the deficit.

5. Medicare and Medicaid are the major drivers of budget deficits. Wrong. Medicare and Medicaid spending is rising quickly, to be sure. But that’s because the nation’s health-care costs are rising so fast. One of the best ways of slowing these costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to reduce costs, and to move from a fee-for-service system to a fee-for-healthy outcomes system. And since Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone.

6. Social Security is a Ponzi scheme. Don’t believe it. Social Security is solvent for the next 26 years. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. That ceiling is now $106,800.

7. It’s unfair that lower-income Americans don’t pay income tax. Wrong. There’s nothing unfair about it. Lower-income Americans pay out a larger share of their paychecks in payroll taxes, sales taxes, user fees, and tolls than everyone else.

Demagogues through history have known that big lies, repeated often enough, start being believed — unless they’re rebutted. These seven economic whoppers are just plain wrong. Make sure you know the truth – and spread it on.

                                                                              --*--

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including The Work of Nations, Locked in the Cabinet, Supercapitalism, and his most recent book, Aftershock. His "Marketplace" commentaries can be found on publicradio.com and iTunes. He is also Common Cause's board chairman.

PERMALINK

Choreographed Budget Cave In - The Money Party Stabs Citizens in the Back

Submitted by Michael Collins on Fri, 07/08/2011 - 02:09

So this is how it is going to be:

"After putting controversial cuts to Social Security and Medicare on the table in negotiations with congressional Republicans over a plan to raise the nation's debt ceiling, President Obama still doesn't have a deal in the works." Chris Moody, Yahoo News, July 7

Who told President Obama to put "controversial cuts on Social Security and Medicare on the table"? Hasn't the president seen his public opinion polling numbers lately? He is consistently at or below 50% job approval. (Image)

Didn't he pay attention to the special congressional election in the highly conservative, long-time Republican upstate New York district that elected a Democrat for the first time in years?

Isn't the President Obama aware that there's an election coming up; that many of the people he is so willingly and openly betraying rely on Social Security to live and Medicare to stay alive?

What planet does he live on? (Unless this is what he truly desires.)

We expect just this sort of behavior from his negotiating partner, Republican House Speaker John Boehner of Ohio. Boehner is part of the unashamed corruption that is the Ohio Republican Party. He learned at the feet of disgraced former Governor Robert Taft, jailed Representative Robert Ney, and voting machine magician, former Secretary of State Kenneth Blackwell. Boehner will get reelected no matter what he does the way they count votes in his home state.

The president's behavior over the coming weeks (and past years) will make little sense unless you view the Democrats and Republicans as the distracting sideshow of the ruling elite. Obama, Boehner, and the rest of them are in place to play democracy, make us think we have some say in things. They make it look so complicated and difficult to address problems rationally and equitably. How could we, the mere citizens, ever do better, we are supposed to think.

The bipartisan sideshow exists to crush all hope that anything will change. That's just fine with The Money Party. The more things change, the more they stay the same. The rake off by the very top fraction of a percent continues unimpeded, a mighty flowing river of cash into their gated communities.

They make it look like conflict but there's no real conflict. Benefits will be cut. How much more obvious do they have to be? It was Obama, after all, who cozied up to Peter Peterson, the decade's long foe of Social Security. Peterson's deficit commission worked in tandem with Obama's hand-picked deficit commissioners to produce this conclusion - Social Security and Medicare will be cut.

The government will continue to use payroll taxes to fund the deficit. It will continue to write IOUs for future repayment of that money to those who rightfully deserve it. But the benefits will dwindle and vanish, by design.

If there was one ounce of sincerity and intellectual honesty in this budgeting process, we would know that war is expensive. The current two are at $4 trillion right now. That's a big chunk of the federal deficit. We would know about the extensive, expensive, and unnecessary subsidy and give away programs for corporate farms. We would hear that the Bush tax cuts plus the defense increases account for a huge portion of the current deficit. And we would hear all about how both parties gave away millions of jobs through "fair trade" deals and by encouraging flight of good jobs to places with slave wages and no labor regulations.

But we won't hear that. The corporate sponsors of team democracy won't stand for it.

Over the past three decades, at least, the leaders of the United States and Western Europe have failed at governance at an accelerating rate. At this point, to varying degrees, the primary strategies of the US and its transatlantic partners are: wage war; demolish the middle class; swindle large groups of people and entire nations through no-win financial schemes; and pollute at a breathtaking rate in full awareness of the outcome.

The level of incompetence is stunning. It can't be tolerated any longer.

END

This article may be reproduced entirely or in part with attribution of authorship and a link to this article.

THIS KINDA SAYS IT ALL...

MSNBC's Dylan Ratigan interviews James K. Galbraith on "The Largest Swindle in American History"

Visit msnbc.com for Breaking News, World News, and News about the Economy

Paul Krugman: "Notice ... how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy."

August 19, 2010

Appeasing the Bond Gods

By PAUL KRUGMAN

As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Hey, I told you it was over the top. But bear with me for a minute.

Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits.

Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.

The skeptics countered that Greece is a special case, trapped by its use of the euro, which condemns it to years of deflation and stagnation whatever it does. The interest rates paid by major nations with their own currencies — not just the United States, but also Britain and Japan — showed no sign that the bond vigilantes were about to attack, or even that they existed.

Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.

This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.

But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.

And, yes, we are talking about sacrifices. Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland.

Maybe those countries had no choice in the matter — although it’s worth noting that all the suffering being imposed on their populations doesn’t seem to have done anything to improve investor confidence in their governments.

But, in America, we do have a choice. The markets aren’t demanding that we give up on job creation. On the contrary, they seem worried about the lack of action — about the fact that, as Bill Gross of the giant bond fund Pimco put it earlier this week, we’re “approaching a cul-de-sac of stimulus,” which he warns “will slow to a snail’s pace, incapable of providing sufficient job growth going forward.”

It seems almost superfluous, given all that, to mention the final insult: many of the most vocal austerians are, of course, hypocrites. Notice, in particular, how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy. But that won’t stop them from continuing to pose as deficit hawks whenever anyone proposes doing something to help the unemployed.

So here’s the question I find myself asking: What will it take to break the hold of this cruel cult on the minds of the policy elite? When, if ever, will we get back to the job of rebuilding the economy?

So Is The Economy Finally Turning Around? ...Depends on How Well You Read Graphs.

Source: New York Times

Source: Rock Creek Free Press

Choice of Two Roads

Eponymous painting by Viktor Mikhailovich Vasnetsov in the Russian Museum in St. Petersburg.

Choice of Two Roads

Thanks to Wall Street bankers gone bonkers the entire world’s economy is in a tail spin ...which will not be fully ironed out until the last of $500 trillion worth of credit default swaps are unwound. But no one talks much about CDSs at the moment, because now is the time to do something that will at least pull the U.S. economy out of its present nose dive. Indeed, when an aircraft is in such dire straits the pilots don’t get into an argument as to whether the wings will come off if they pull back too hard on the stick...

In fact, bickering pilots in an out-of-control airplane is the perfect metaphor for the way Congress is delaying Obama’s economic stimulus plan. Republicans (and some Democrats) contend that “all deficits are bad” and therefore that any increased government spending to stimulate the private-sector economy should be offset by cuts in ongoing government programs ...like science. That’s right, science! Take a look at all the national science programs that Senators Ben Nelson (D-NE) and Susan Collins (R-ME) propose to strip from the Senate American Reinvestment and Recovery Act as a part of a $77.9 billion deficit reduction! And they propose this at a time when it has been projected that under present conditions in just 5 years 90% of all scientists and engineers will live in Asia! What are they thinking?

Even cave man didn’t take the road of eating his seed corn during the long ice-age winters ...or homo sapiens sapiens would already be extinct!

So exactly what road SHOULD Obama and the Congress be taking? Well, the best answer that anyone could hope for would be the recommendation of a Nobel-Prize-winning economist who is untainted by having worked either on Wall Street or at the Fed while these bodies were planting the seeds of the present economic melt-down. Of course, that economist is Paul Krugman, and fortunately he has written many columns on this very subject. Here is an earlier one, and here is his column from today’s New York Times ...from which I take the following excerpts:

Just to be clear, I’m not arguing that trying to reduce the budget deficit is always bad for private investment. You can make a reasonable case that Bill Clinton’s fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.

What made fiscal austerity such a bad idea both in Roosevelt’s America and in 1990s Japan were special circumstances: in both cases the government pulled back in the face of a liquidity trap, a situation in which the monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity.

And we’re in the same kind of trap today — which is why deficit worries are misplaced.

One more thing: Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run.

Apropos of the absolute urgency for Congress to pass an un-watered-down stimulus bill ASAP, I call your attention to an excellent column by Joan Walsh on what Obama should be now telling the public...but hasn’t quite yet.

N.B. Here is a wonderful 11-min TV interview with (1) the whistleblower who tried to expose Madoff's $50-billion ponzi scheme to the hear-no-evil-see-no-evil-speak-no-evil SEC and (2) Paul Krugman regarding the current subject matter.