Tuesday, June 16, 2009
ECONOMICS
Short-term: Krugman on Obama: While still concerned about our economy, he’s more bullish on the President’s performance, including the financial.
I'm increasingly happy with him. I was unhappy; I think they could have gotten a bigger stimulus coming out the gate. But they've become more forceful. I would have been more aggressive on the banks; we'll see if we need to re-fight that battle later on.
Healthcare is looking really good. I'm getting increasingly optimistic on healthcare reform. Climate change looks like it's going to happen. So my odds that this will in fact be the kind of New Deal I was hoping for are rising. I had my scepticism, but he is smart. He's impressive. And it is such a relief to have somebody whom you can respect in the White House. – Paul Krugman http://www.guardian.co.uk/business/2009/jun/14/economics-globalrecession
Simon Johnson is less sanguine as to the financial policies:
We are back to the Greenspan fallacy here – if financial firms have an incentive not to screw up on a massive scale, they won’t.
Their view: “[T]he administration will offer a stronger framework for consumer and investor protection across the board.” This sounds incredibly vague and may be the worst news today. It looks like they are backing away from the idea of a Financial Products Safety Commission, for example as proposed by Elizabeth Warren.
And of course the complete omissions from this document are breathtaking. No mention of executive compensation or the structure of compensation within the financial sector. Not even a hint that the complete breakdown of corporate governance at major banks contributed to excessive risk taking. And no notion of regulatory capture-by-crazy-ideas of any kind.
There are a couple of positive notes towards the end. The administration will seek a resolution authority for dealing with failed banks, but we knew this already. And the authors recognize the need to change how financial systems operate around the world; unfortunately, there is zero detail on this crucial point.
Overall, there are no surprises here. Brick by brick, we are building the foundation for the next financial crisis; by all indications, it will be more disruptive and a great deal more damaging than the crisis of 2008-09. But presumably by then the authors will be out of office. http://baselinescenario.com/2009/06/15/todays-foundation-tomorrows-crisis-the-geithner-summers-proposals/#more-4070
Economic Decline: Some observers fear that we are heading for an (inevitable) decline. Our piddling away the past 3 decades in a spending binge / cut of taxes for the rich has left us deeply in debt and no longer producing. I’ll hold the facts and figures, but only note a symptom: China is now Brazil’s major trading partner, replacing the U.S.
And, the Federal Reserve, since September, has created $9 trillion and refuses to tell anyone what that’s about. Are they trying to prevent a crash? Is it theft?
I’m not prone to hysteria, but recall that last September the financial system was admittedly ‘on the brink.’ Our debt is monstrous, we have no hope of producing ourselves out of it. This has been almost 30 years in the making, beginning with the Reagan Era of massive deficits and cutting the federal income tax rate on the very wealthy from 70% to 29%. [Yet, Obama and other Democrats still refuse to cite Reagan’s culpability.] Serious economists only debate whether we’re headed for a soft or a hard landing. A soft landing means gradually rising taxes and lowered value of the dollar, i.e. a gradual decline in our standard of living. A hard landing means it happens speedily, if not precipitously.
Michael Leonhardt noted in Sunday’s Times:
What, then, will happen?
“Things will get worse gradually,” Mr. [Alan, economist at the University of California] Auerbach predicts, “unless they get worse quickly.” Either a solution will be put off, or foreign lenders, spooked by the rising debt, will send interest rates higher and create a crisis.
The solution, though, is no mystery. It will involve some combination of tax increases and spending cuts. And it won’t be limited to pay-as-you-go rules, tax increases on somebody else, or a crackdown on waste, fraud and abuse. Your taxes will probably go up, and some government programs you favor will become less generous.
That is the legacy of our trillion-dollar deficits. Erasing them will be one of the great political issues of the coming decade. http://www.nytimes.com/2009/06/10/business/economy/10leonhardt.html?_r=1&sq=David%20Leonhardt&st=cse&scp=2&pagewanted=print
Very Important meetings were held Monday-Tuesday that addressed the growing discomfort with our currency.
Michael Hudson:
Challenging the American empire will be the focus of meetings in Yekaterinburg, Russia, today and tomorrow for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other leaders of the six-nation Shanghai Co-operation Organisation. The alliance comprises Russia, China, Kazakhstan, Tajiki-stan, Kyrgyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia.
The attendees (who will be joined on Tuesday by Brazil for trade discussions) have assured American diplomats that dismantling the US financial and military hegemony is not their aim. They simply want to discuss mutual aid - but in a way that has no role for the US or for the dollar as a vehicle for trade among these countries.
The meeting is an opportunity for China, Russia and India to "build an increasingly multipolar world order", as Mr Medvedev put it in a St Petersburg speech this month. What he meant was this: we have reached our limit in subsidising the US military encirclement of Eurasia while also allowing the US to appropriate our exports, companies and real estate in exchange for paper money of questionable worth. http://www.ft.com/cms/s/0/16e9f3e8-5944-11de-80b3-00144feabdc0.html
The Times had a mild take on the meetings:
Leaders of some of the world’s most powerful economies gathered Tuesday to discuss how they can exert more control over the global financial system as it takes its first wobbly steps toward recovery.
Yet not an American or Western European was in the bunch.
The first summit meeting of the so-called BRIC group — Brazil, Russia, India and China — was intended to underscore the rising economic clout of these four major developing countries and their demand for a greater voice in the world. And Russia, the group’s host and ideological provocateur, was especially interested in using the summit to fire a shot across Washington’s bow.
Shortly before the BRIC summit opened, a senior Kremlin economic adviser told reporters that Russia was considering moving some of its currency reserves out of dollars and into bonds issued by the other three BRIC countries.
“The issue is that the system of managing these institutions must be more fair and reflect the weights of the countries in the global economy more correctly,” Arkady Dvorkovich said.
All four countries have expressed varying degrees of discomfort with Washington’s financial stewardship, and are particularly concerned about the value of the dollar at a time of rapidly mounting indebtedness in the United States. At the same time, most economists say the BRIC countries can do little to change the current architecture of the global financial system, and that the outcome of this meeting will be largely symbolic.
The BRIC countries comprise about 15 percent of the world economy and, perhaps more important, have about 40 percent of global currency reserves. Brazil, India and China have also weathered the financial crisis better than the world as a whole.
While they are far from a monolithic group, they are generally united in their frustration with the dollar’s status as the world’s reserve currency, which enables Washington to run budget deficits without fear of facing the kind of budgetary day of reckoning that other countries risk.
The excess dollars pile up in foreign central banks, leaving those countries with a difficult choice: reinvesting the dollars in United States securities or holding them and facing an increase in the value of their own currencies, making their products less competitive in world markets.
While there have been periodic complaints about the dollar through the years, the criticisms from the BRIC countries have become more frequent and more acerbic lately, and have included calls for a supranational currency to replace the dollar.
In March, the prime minister of China, Wen Jiabao, expressed concerns about United States budget deficits, suggesting they might lead to inflation, a weaker dollar and rising yields on Treasuries, any one of which would hurt China’s $1 trillion investment in American government debt. Later that month, the head of the Chinese central bank called for a new international currency to replace the dollar.
For the Kremlin, undermining the dollar as the prevailing medium of exchange reflects a broader Russian belief that the United States exercises a dominance in global affairs that exceeds its diminishing power.
“What we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries, will not dominate,” Russia’s president, Dmitri A. Medvedev, said this month.
Mr. Medvedev repeated his criticism Tuesday, saying that reserve currencies in addition to the dollar are needed to stabilize the world financial situation. http://www.nytimes.com/2009/06/17/world/europe/17bric.html?_r=1&ref=world&pagewanted=print
Chris Hedges reads the tea leaves and pulls no punches. Hold your hats:
This week marks the end of the dollar’s reign as the world’s reserve currency. It marks the start of a terrible period of economic and political decline in the United States. And it signals the last gasp of the American imperium. That’s over. It is not coming back. And what is to come will be very, very painful.
Barack Obama, and the criminal class on Wall Street, aided by a corporate media that continues to peddle fatuous gossip and trash talk as news while we endure the greatest economic crisis in our history, may have fooled us, but the rest of the world knows we are bankrupt. And these nations are damned if they are going to continue to prop up an inflated dollar and sustain the massive federal budget deficits, swollen to over $2 trillion, which fund America’s imperial expansion in Eurasia and our system of casino capitalism. They have us by the throat. They are about to squeeze.
There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, “the most important meeting of the 21st century so far.”
It is the first formal step by our major trading partners to replace the dollar as the world’s reserve currency. If they succeed, the dollar will dramatically plummet in value, the cost of imports, including oil, will skyrocket, interest rates will climb and jobs will hemorrhage at a rate that will make the last few months look like boom times. State and federal services will be reduced or shut down for lack of funds. The United States will begin to resemble the Weimar Republic or Zimbabwe. Obama, endowed by many with the qualities of a savior, will suddenly look pitiful, inept and weak. And the rage that has kindled a handful of shootings and hate crimes in the past few weeks will engulf vast segments of a disenfranchised and bewildered working and middle class. The people of this class will demand vengeance, radical change, order and moral renewal, which an array of proto-fascists, from the Christian right to the goons who disseminate hate talk on Fox News, will assure the country they will impose. http://www.truthdig.com/report/item/20090614_the_american_empire_is_bankrupt/
Health: U.S. Life Expectancy #50
The World Health Organization has rated our system as #37 over the past many years, but that position is slipping. One weak spot: life expectancy:
The United States ranks 50th out of 224 nations in life expectancy, with an average life span of 78.1 years, according to 2009 estimates from the CIA World Factbook.
Some argue part of the problem stems from the privatized nature of the U.S. health care system, whose reform is being vigorously debated on Capitol Hill.
"What we are able to find in the industrialized world is that life expectancy will be influenced in a beneficial manner to the extent that health care expenditure is publicly financed," said Harvey Brenner, professor of public health at the University of North Texas Health Science Center and Johns Hopkins University. "The higher the government expenditure on health care, the lower will be the mortality rate."
In countries where individuals pay for their own care, people often don't get treatment until their symptoms have become serious, Brenner said. There is also less emphasis on preventative care in those countries, he said.
An analysis by Bianca Frogner, postdoctoral fellow at the University of Illinois at Chicago's School of Public Health, supports the view that a single-payer system may be associated with higher life expectancy. The federal governments of countries such as Norway, Sweden, Denmark, Australia and Canada are the payers for the respective systems, and these countries have some of the highest life expectancies in the Organization of Economic Cooperation and Development. http://www.cnn.com/2009/HEALTH/06/11/life.expectancy.health.care/index.html
Secrecy Creep: The Obama Administration is continuing the practice of guarding the White House logs. More importantly, they flirt with keeping secret more details about military actions in Afghanistan
Defense Department officials are debating whether to ignore an earlier promise and squelch the release of an investigation into a U.S. airstrike last month, out of fear that its findings would further enrage the Afghan public, Pentagon officials told McClatchy Monday.
The military promised to release the report shortly after the May 4 air attack, which killed dozens of Afghans, and the Pentagon reiterated that last week. U.S. officials also said they'd release a video that military officials said shows Taliban fighters attacking Afghan and U.S. forces and then running into a building. Shortly afterward, a U.S. aircraft dropped a bomb that destroyed the building.
However, a senior defense official told McClatchy Monday: "The decision (about what to release) is now in limbo."
Pentagon leaders are divided about whether releasing the report would reflect a renewed push for openness and transparency about civilian casualties or whether it would only fan Afghan outrage and become a Taliban recruiting tool just as Army Lt. Gen. Stanley McChrystal takes command of U.S. forces in Afghanistan. http://www.mcclatchydc.com/homepage/story/70130.html
Iran: On Hold Demonstrations continue, and despite justifiable suspicions, there had been polls as recently as the second week of May that had Ahmadinejad well ahead. The Mullahs have tried to ban most traditional media, but “new media” continue to relay activities. Almost 3,000 videos have been posted on YouTube and tens of thousands of pictures of pictures.
Iran’s leaders failed on Tuesday to halt a second day of huge demonstrations against last week’s election results but, placed on the defensive, offered another concession to the sustained rage here, saying they would allow a limited recount.
They received a resounding refusal — first from reformist politicians who said they would accept only a new election and then on the streets of the capital, Tehran. Supporters of the defeated opposition presidential candidate Mir Hussein Moussavi jammed into a line more than a mile long. They marched mostly in silence, some carrying signs in English asking, “Where is my vote?”
The numbers of opposition protesters did not match those on Monday, when hundreds of thousands of Iranians joined in the largest public demonstration since the Islamic Revolution in 1979, enraged that the conservative president, Mahmoud Ahmadinejad, was declared the winner of Friday’s election with 63 percent of the votes.
Fear, many said, was a factor. Seven protesters were killed overnight. Gritty and uncensored images, some taken by cellphone cameras were beamed around the world via various Web sites. http://www.nytimes.com/2009/06/17/world/middleeast/17iran.html?hp=&pagewanted=print
Conyers: “Family Trouble” for the Judiciary Chair
Detroit City Councilwoman Monica Conyers has been offered a plea deal by the federal government in connection with a corruption investigation at City Hall, four sources with knowledge of the deal confirmed.
The federal authorities have told Conyers they want an answer by the end of today, but the wife of U.S. House Judiciary Committee Chairman John Conyers hasn't made up her mind, sources said. The bribery-related charge that Conyers could plead to carries a maximum sentence of five years in prison, although she probably would receive less time.
Two sources who have spoken with Conyers said she is reluctant because she doesn't want to serve time in jail. http://www.detnews.com/article/20090616/METRO/906160407/Sources--Monica-Conyers-considers-plea-deal-in-City-Hall-corruption-case
Torture: More CIA Documents Released, but still heavily redacted But the general thrust of documents released and the IG Report expected Friday is that “coercive techniques” did nothing to help us stop any potential attack on the U.S., a claim often made by the previous Administration:
The CIA today released still-highly redacted documents in which Guantánamo Bay prisoners describe abuse and torture they suffered in CIA custody. The documents were released as part of an American Civil Liberties Union Freedom of Information Act (FOIA) lawsuit seeking uncensored transcripts from Combatant Status Review Tribunals (CSRTs) that determine if prisoners held by the Defense Department at Guantánamo qualify as "enemy combatants." In previously released versions of the documents, the CIA had removed virtually all references to the abuse of prisoners in their custody; the documents released today are still heavily blacked out but include some new information.
"The documents released today provide further evidence of brutal torture and abuse in the CIA's interrogation program and demonstrate beyond doubt that this information has been suppressed solely to avoid embarrassment and growing demands for accountability," said Ben Wizner, a staff attorney with the ACLU National Security Project and lead attorney on the FOIA lawsuit. "There is no legitimate basis for the Obama administration's continued refusal to disclose allegations of detainee abuse, and we will return to court to seek the full release of these documents." http://www.aclu.org/safefree/torture/39868prs20090615.html
War Funding Approved: Some Democrats Held Out
The House today passed a $106 billion bill funding the wars in Iraq and Afghanistan through September, as House Democrats backed President Obama despite misgivings among the ranks about his strategy in Afghanistan.
The 226 to 202 vote came after Obama and Treasury Secretary Timothy F. Geithner had called some reluctant Democrats during the day imploring them to back the bill, and Speaker Nancy Pelosi (D-Calif.) had strongly pressed her colleagues in a closed-door meeting to vote for the bill in a show of support for Obama, even if they oppose his strategy for increasing troops in Afghanistan. In the end, 221 Democrats voted for the bill, while 32 opposed it.
All but five Republicans opposed the bill after the White House inserted money to fund a line of credit for the International Monetary Fund, which the GOP said amounted to a "global bailout."
…In the end, 19 House Democrats backed the bill who had opposed it the first time, although some cited loyalty, not agreement with Obama's plans, as their reason.
"I want to support my president," said Rep. Jan Schakowsky (D-Ill.), who changed her no vote to a yes. http://voices.washingtonpost.com/capitol-briefing/2009/06/house_approves_106b_bill_to_fu.html?hpid=topnews
-R
