Four More Years—of This?
In what The Washington Post called "a bold act of political defiance," President Obama Wednesday announced the recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau.
Cordray's nomination had been blocked by a Senate filibuster. There was no way he was going to win approval in 2012.
Enraged Republicans denounced the appointment as an affront and a usurpation of power, for the Senate had not formally gone into recess.
The White House airily dismissed the Republican rage, saying no Senate business is being conducted during the Christmas-New Year break, and to argue that the Senate is still in session is a sham.
Obama seemed to delight in his Trumanesque contempt:
"I will not sit by while a minority in the Senate puts party ideology ahead of the people they were elected to serve. ... Not at this make-or-break moment for middle-class Americans."
Cordray's appointment will be contested in the courts. Yet it will likely stand, though it's in-your-face aspect added appreciably to the bad blood bubbling in this city.
The Obamaites seem not to care.
Indeed, from year-end reports out of Hawaii, this is the new Obama strategy. He has given up on working with Congress and intends to run a year-long campaign modeled on Harry Truman's 1948 demagogic assault on the "no-good, do-nothing 80th Congress"—the one that passed Taft-Hartley and enacted the Marshall Plan.
Details of the Obama strategy were spoon-fed to the Post and New York Times. The Times lead: "President Obama is heading into his re-election campaign with plans to step up his offensive against an unpopular Congress, concluding that he cannot pass any major legislation in 2012 because of Republican hostility to his agenda."
The Post lead: "President Obama has a New Year's resolution that will shape his re-election strategy at the dawn of 2012: Keep beating up on an unpopular Congress."
Once he gets a year's extension of the Social Security payroll tax cut, said White House deputy press secretary Josh Earnest, that is the last "must-do" item, "the president is no longer tied to Washington, D.C."
But if the president is about to barnstorm the nation savaging Congress for a full year, where does that leave the country?
If Obama will be proposing nothing to deal with the fiscal crisis—trillion-dollar deficits as far as the eye can see—how does America avert the future that Italy faces? Italy's debt is 120 percent of gross domestic product; ours, at 100 percent of GDP, is not all that far behind.
The U.S. fiscal crisis can be simply summarized. Since 2009, the federal government has been spending 24 to 25 percent of gross domestic product, while tax collections have fallen to 15 percent. When his first four years end, Obama will have grown the debt by $6 trillion.
And if he is giving up on any solution in 2012, believing he can win re-election by vilifying the GOP as toadies to America's top 1 percent, who are icily indifferent to the middle class, what hope is there for any political cooperation, should Obama win?
As of today, Obama is running even with Mitt Romney. He has lost much of the enthusiasm of the young and the minorities that he had in 2008. College-educated whites who had hopes for him seem disillusioned.
Assuredly, he may still win. But should Obama win, how, after a campaign like the one he intends to conduct, does he unite the country?
How does he work with a Republican Party that will likely still hold the House and will have made gains in the Senate, after he has spent a year castigating that party?
And what happen to the nation if we have five more years of political gridlock?
If the president failed to broker a budget compromise with the GOP in 2011 and has given up on 2012, how does he work with a Republican House in 2013? How does he, in a second term, resolve this budget crisis when his bottom-line demand for higher taxes is poison to a party he has just trashed for 15 months as a tool of Wall Street?
Resolving our fiscal crisis seems today beyond the capacity of the U.S. government, as currently constituted. We appear to be in a crisis of the regime rooted in an irreconcilable ideological conflict between two parties of relatively equal strength.
Republicans who refused to raise taxes in 2011 are not going to agree to raise them in 2013 in response to a request from an Obama who defeated them by portraying them as the party of the 1 percent in 2012.
If Obama is re-elected, the crisis endures.
It will then be resolved when the world realizes that the U.S. deficit and debt are beyond the capacity of this U.S. government to bring under control.
At that point, the ratings agencies and world markets will begin to treat the U.S. debt the way they treat the debts of Italy and Spain.
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Resolving our fiscal crisis seems today beyond the capacity of the U.S. government, as currently constituted. We appear to be in a crisis of the regime rooted in an irreconcilable ideological conflict between two parties of relatively equal strength...
It will then be resolved when the world realizes that the U.S. deficit and debt are beyond the capacity of this U.S. government to bring under control. -end quote
Seriously, I keep telling you, we don't owe them, they owe us. It's only a question of who has the army. And then I want it here at home in case the chinese get uppity via mexico or canada, although theirs is a legitimate debt and we'll pay that. ... (humor - we don't want to pithss me off, do we?)
Patrick Buchanan wrote: "The U.S. fiscal crisis can be simply summarized. Since 2009, the federal government has been spending 24 to 25 percent of gross domestic product, while tax collections have fallen to 15 percent. When his first four years end, Obama will have grown the debt by $6 trillion."
Where is this fictional fiscal crisis? Where is the US government struggling to pay interest on its debt?
Interest rates on 1 month bonds: 0.01% p.a.
Interest rates on 3 month bonds: 0.02% p.a.
Interest rates on 6 month bonds: 0.06% p.a.
Interest rates on 12 month bonds: 0.12% p.a.
........................24 month bonds: 0.24% p.a
........................36 month bonds: 0.40% p.a.
........................60 month bonds: 0.89% p.a
........................84 month bonds: 1.41% p.a.
.......................120 month bonds: 1.97% p.a
.......................240 month bonds: 2.67% p.a.
.......................360 month bonds: 2.98% p.a.
The bond market is giving away money to the US government for free. The private sector WANTS more government spending. The private sector WANTS government to spend more without raising the taxes needed to meet them. That's why they are buying 30 year US government bonds for higher and higher prices.
The US government can do a $12 trillion issue of 30 year bonds right now at 3% p.a. This will give them enough money to provide $388 billion for each year of the next 30 years, which can go to reducing tax collections and raising welfare spending for each one of those years. That's $400 billion for each year, less $12 billion for paying the annual interest right out of this very bond issue.
That's not a fiscal crisis.
That's being the most credit worthy government in the world.
The only way Obama can win re-election is if Romney runs against him. Pat knows that in American politics you can beat somebody with nobody. Whatever else Obama is, he is the President. Whatever else Romney is, he is not a challenger he is a manager from the East coast.
Pat knows that in American politics you can't beat somebody with nobody ...
The pathetic circus our election cycle in the US has become was clearly evident yesterday when the hapless war-mongerer, John McCain, having just announced his support for Romney, got up at a rally and thundered aloud, "President Obama will get us out of this crisis!" It took a few seconds before Romney and a couple of other handlers reached over to McCain and whispered to him to correct it to "President Romney."
What made it more ludicrous was that after his initial gaff, the remarks still drew a large amount of applause; it leads one to think these onlookers are just live versions of the laugh tracks that were used in the sit-coms of yore - they just respond on demand whatever was said!
Obama knows his only chance for re-election is to demonize and/or marginalize the Republican and Romney provides a perfect target. He refuses to release his tax records, likely because they would reveal him as a multi-millionaire paying minimal taxes between lavish dividends and tax shelters. Add in his chameleon-like approach to campaign issues and his personal appeal - about that of a warmed-over fast food hamburger - and voila! Road kill!
his chameleon-like approach to campaign issues and his personal appeal - about that of a warmed-over fast food hamburger - and voila! Road kill!
Yes, he was once described as a "Mormon TV Dinner." The sad thing is he is one of the worst servings of that variety -- A TV Dinner sold as fresh Caviar and imported Peking Duck, a glass of fine burgundy served in a recycled school milk box with a dollar off for purchases of ten or more! What might give him a chance, however, is the Obamas will claim they proposed that TV dinner to reduce obesity and health costs for the middle class, while Romney took the idea and profited from it. Such is the style of debate we can look forward to in the coming months.
It has worked up till now. While I agree with the sentiment conceptually, Prateek, $12 trillion issue. There is only a fraction of that amount around in cash, and soon there may not be any unless they resort in creating more fake deposits like they've done up till now. There is inflation although they are denying it, like they are denying unemployment, deindustrialization and everything else that matters. It has to catch up to them or can they continue with the smoke and mirrors forever?
As far as Romney, one cheer or no cheer, he is not going to win. if an opposition party does not have an alternative, and republicanos are not really serious about any issue and are only planning to show token opposition to anything that matters, well there is no reason to vote for them. An that is the bottom line.
More humor unlimited to break monotony, but seriously along with the Bible I'm prescribing Plato's recounting of Socrates' last dialogue PHAEDO. First and foremost we're all going to need to remain spiritually calm, resting then in whatever action may need to be taken. This is at least my own advice to take every evening before shut-eye, myself. These times are *needlessly one horribly long emergency.
'So, till the judgement that yourself arise, You live in this, and dwell in lovers' eyes.' -W.S.
Mr. Bailey, basically you are asking, "How long can we keep kicking the can down the road?"
The answer is forever.
The British incurred massive debts for the Crimean War. They never paid them back. They just kept borrowing more money to pay back old Crimean War debts. This went on for generations and generations and generations and Crimean War debts still exist on the British balance sheet. Only, they are now a smaller part of British debts. Are these unsustainable? Of course not. Each generation services a small part of that Crimean War debt through taxes or tiny loss of private sector investment, and the burden per person keeps getting smaller by the generation.
Same for World War 2 debts incurred by the United States. Supposedly, all those public debts should have made Americans poorer. But no, Americans just went on after World War 2 to have an enviable standard of living.
The can keeps getting kicked on forever. Nobody has to stop and pick it up. Some people may say that a government debt is an intergenerational transfer of a financial burden, but each generation indefinitely gives it away to the next generation. No generation picks up the whole tab for it. Which generation loses? No generation.
Government debt is not household debt. Why pretend it is? Besides, a solvent government requires an insolvent public, which receives no benefit of any welfare spending or infrastructure spending and yet still pays huge taxes for services it doesn't receive - all this so that a government stays in surplus. The question we must ask is: Do we want a solvent government or do we want a solvent public?
"College educated whites who had hopes for him seem disillusioned."
These people need to get far more than merely disillusioned. They need to get their noses rubbed in their folly. Four more years is light punishment compared to what they deserve. Just maybe, during the coming four years, they will be stirred to examine their former "hopes for him", and end up with some appreciation of the absurdity of such hopes; just possibly, they may begin to understand who "him" was. I don't know if this redounds to the favor of the country, much less to that of people like Chronicles readers - some of the disillusioned may just look for someone even more radical next time - but it will be most entertaining to see their pain.
"We appear to be in a crisis of the regime rooted in an irreconcilable ideological conflict between two parties of relatively equal strength."
No, we are witnessing two thieves with their hands in the same till fighting over who gets to empty it.
I'm surprised PJB thinks congressional gridlock is bad for the country.
Mr. Sanjay,
You seem not to worry about the effects of inflation. The monetization of debt through bond sales and the corresponding increase in the money supply is a prime inflationary force. A pound at the time of the Crimean War had about 75 of today's pounds value in purchasing power, while a dollar from that time could buy $25 worth of goods today. People may not be made poorer by servicing the debt, but they - especially the older ones on fixed incomes - are certainly impoverished by inflation.
Mr. Jacobi, I would wager to guess that the effects of inflation are a short term concern, but not a long term one.
In the US, wage rates are 25 times what they were in 1948. On the other hand, prices are 10 times what they were in 1948.
However way we look at it, the American worker earns 2.5 times more than what his grandparent's generation would have earned. In real terms. So inflation has not hurt his earnings. Would he have earned more without rising prices?
In US, labour share of income regularly fluctuates to close to 60%. As a rough approximation, we know that of all the incomes earned in every given year, 60% of it goes as wages and salaries to workers. The rest are rent, interest, dividends,.etc. So wages always rise along with total output and income, in the exact same proportion.
Because the real output in US has risen by 2.5 times since 1948, so have wage rates in US risen by 2.5 times. And this would have been the case whatever the level of price inflation in any given year. Because wages are a constant proportion of US national income, even if US never had any radically rising prices, worker's real wages would have still risen by 2.5 times. And if US had close to 10% price inflation every year, real wages would have still risen by 2.5 times.
According to David Andolfatto of the St. Louis Federal Reserve, it's a sign that rising prices have short term effects. If prices rise, then wages rise. As a matter of fact, rise in wages are the prime driving force behind rise in prices, since wages are the largest component in national income of US. So why should rising prices matter when rise in wages accompany them?
When we talk about low price inflation or deflation, what we really mean is stagnation of wages or fall in wages of working people. There's probably two ways we can ensure long-term prosperity. We can attack the wages of workers, attack the standard of livings of workers, by forcing down wages to force down cost of production, so that there is more output produced for lower prices. That's deflation or low inflation. Or we can boost the price of production and boost wages of workers responsible for that production, so as to increase demand for what is produced and ensure factories keep producing at full capacity. That's inflation.
Which scenario is more terrifying?
I believe it's the former. Weimar Hyperinflation didn't produce Adolph Hitler. The Weimar Depression following the Weimar Hyperinflation produced Adolph Hitler - who promised to protect worker's wages and stop them from falling.
Yes, deflation is in the grand scheme much more dangerous than inflation, for a number of reasons (as Martin Hutchinson pointed out, if you can invest in specie at 100 percent liquidity and prices are falling 3 percent every year, why would you invest in anything else?).
However, deliberately engineered inflation over a long period of time, such as that which we have seen since the 1970s, can become a highly corrosive form of wealth confiscation and a cover for bad policy.
The average standard of living in the United States is currently high, by world standards but it is based largely on global hegemony and past capital rather than real production. And since the U.S. is set to lose its geopolitical preeminence over the next 30 years, that spells disaster for quality of life.
Already young people entering the work force (usually with a great deal of educational debt) spend a long time unemployed and when they do find their first job they tend to be highly underpaid and often underemployed. That spells demographic disaster, as well, since youths tend to be conditioned to put off starting families until they are able to begin constructing a familial patrimony.
Mr. Sanjay writes:
"In the US, wage rates are 25 times what they were in 1948."
That would be a 2,600% increase.
..."the American worker earns 2.5 times more than what his grandparent's generation would have earned. In real terms."
That is, a 350% increase.
Which is it?
I'd like to know where you get these figures from. If they were right, I should have no trouble paying my property taxes, utility bills, paying for music lessons for my children, for tuition, for an annual fishing trip, guns and ammo for hunting (and today for self-defense), car insurance and maintenance - all things that my dad, a mere postal worker, afforded, if not easily, at least without misery.
Every chart I look at shows wages flat or lower over several decades. And wages are at their LOWEST level since 1929 as a share of the national income, while corporate profits are at their HIGHEST. (Source: Center On Budget And Policy Priorities) All this while productivity, that is, HOW HARD and EFFICIENTLY I WORK, has soared 80% since 1979. Thus, your contention that wages are the main driver of inflation is highly dubious.
Speaking of inflation, official inflation indicators are notoriously understated, and now are even more deceptive due to the change from a fixed basket model to a substitution model. Using this method, the rise in price does not appear, since it is assumed that the consumer substitutes a lower priced good, thereby keeping overall expenses the same. It's just tough luck for you that you now are trying to chew round steak rather than that strip steak you thought you deserved after your sixty hour week.
Hitler was "caused", first and foremost, by having his bell rung daily for four years by French 75s and watching his country fight the world to a stalemate until an honorable peace was snatched away from them by the last-minute snookering of America onto the side of his enemies.
As for which is the most dangerous, inflation or deflation, this is a moot point given big finance's total control. Since they can't make money on deflation, it's not gong to happen.
Moreover, and underlining Mr. Moses' point about inflation covering bad policy, here is what Paul Craig Roberts has to say about government debt and inflation:
"As the US government is controlled by financial and armaments interests and not by the people, the government responded to the financial crisis [the bursting of the housing bubble] by shoveling more debt and more hardships on the American people in order that financial interests did not have to pay for their own mistakes and crimes. Instead of blaming the responsible parties, “our” government handed the bill to the American people.
An important part of the bill is the huge number of new dollars being created in order to keep “banks too big to fail” afloat and in order to finance the federal government’s enormous budget deficit from its illegal wars. Sooner or later, the proliferation of dollars will cost the American people sharply higher prices."
Finally, what can you possibly be thinking when you say "we can ensure long-term prosperity [by] attack[ing] the wages of workers, attack the standard of livings of workers, by forcing down wages to force down cost of production, so that there is more output produced for lower prices" This is precisely what has already happened, via the immigration and open borders disasters of the past forty-six years, and where's the prosperity?
Mr. Jacobi, the 2600% rise is in nominal wages, and the 350% rise is in real wages.
The data are all from David Andolfatto's column known as Ron Paul's Money Illusion, through which he nicely slams down Ron Paul's views on the Federal Reserve.
Big Finance can make a lot of money from deflation. If the coupon rate on a bond is 5% p.a. and price inflation is at - (2%) p.a., the bondholder makes 7% p.a. as the total effective return after adjusting for fall in prices.
Lastly, I don't believe in attacking standards of livings of workers. I merely point out that deflation results in attacking of worker's standards of living. If deflation causes long-term prosperity by lowering cost of production (i.e. wages), then it has a very nasty short-term cost. My position on how morally wrong this is is the same as yours.
PS: I am surprised that you, as a supporter of the protection of American manufacturing and manufacturing worker's wages would be more for low inflation. Inflationary regimes allow manufacturers to reduce their real debt burdens by lowering their real interest rates, and they allow their goods to be more competitive abroad. An extremely deflationary, hard money regime in Argentina, pegging a 1 dollar = 1 peso rate, had smashed domestic manufacturing by making it cheaper to import from abroad.
Prateek. while I tend to agree with you conceptually. that they can continue to do whatever they want as long as they want, a number of your constructs are problematic at best, but not worth delving into for the purpose of this discussion. However for one, of course the Fed will find a way to go against Ron Paul,but as for you going along with it, it goes against what your main argument is, that is, they can do whatever they want and that is I believe what Ron has foremost in his mind when he attacks them.
Forthermore, this time around there is no solution ala supplyside,which is why a Republican president becomes an impossibility.
Someone mentioned that no so long ago, a person with average income could afford all the necessities and stay solvent. Nowadays to maintain such standard people need to declare bankruptcy every 7 years or so, until they put a stop to that or relieve Obama the Disasterous from office.
Mr. Sanjay,
Yes, I'd forgotten about the profitability of deflation for those lucky enough to be locked into long term bonds. I realized as I wrote big finance "can't make money on deflation" that something didn't sound right - there's probably little, short of our complete destruction, they can't make money on. My understanding, however, is that big finance likes inflation and an up market more because they make more money on the increased volumes, trading, loans, etc.
I favor a very low inflation rate, if some inflation must be allowed to avoid the so-called "liquidity trap". This is better for me as an older person - make that old coot - and I think better for the country as it encourages savings, if I remember my theory right.
As for protection, I'm not so much a protectionist as a nationalist, fraught though that position is. I don't like giving my money to foreigners and I want to see Made In The USA on what I buy.
Just getting back to what precipitated this discussion, I felt it was worth pointing out that the British government, the Japanese government, and the American government all can borrow from bondholders at record low rates. None of them are in a budgetary crisis of any kind.
I am going to use a bad analogy here.
If two men are walking down the road, one may see $100 of cash notes lying on the ground. But if the first man tells the other there is a $100 on the ground, the other doesn't believe it. The second man says, "If there were a hundred dollars of cash on the ground, somebody would have picked them up". He does not bother looking down on the pavement, and moves ahead.
Similarly, most of us would not believe we can get something for nothing. But if you are living in under one of those three governments, you have that golden opportunity where you can get something for nothing. You can get more welfare spending from the government, get a fat temporary tax rate cut, and still have your government remain solvent. That's because the US government can borrow for nearly free in the past few years and perhaps years to come.
So why aren't Messrs. Buchanan and co. fighting for their interests? Why are they demanding everyone (including themselves) to bear a sacrifice that is not needed? They should be demanding lower taxes AND higher government spending, because it is currently possible. You win, government wins, bondholders win.
Who loses?
Savers and wage earners lose. When our government borrows, the money has to be "created". This action is no different than what counterfeiters do. This devaluation of our currency is theft. Wages rarely keep up with inflation and savers always lose. The only option for most people is to risk their savings by investing, which in reality is gambling. Just ask folks who have lost a large chunk of their retirement "investments" since the banking bubble burst. People shouldn't have to trust their savings with the sharks of wall street just to beat inflation.
Inflation can be considered a serious problem if you are living in Latin America, North Africa, Middle East, and South Asia.
People in the Third World would consider price inflation in the US to be surprisingly low. It has never reached above 5% p.a. except in rare occasions across the 2000s. The time of high inflation was a long long time ago when OPEC raised prices and caused a global supply shock. The sources of highest price rises are always food and energy. Remove them, and you may even see a general price level fall during certain periods.
Anyway, I'd like to disclose something, in the name of honesty. Yes, I do have a group stake in seeing the US government spend more and tax its citizens less. If it does so, then American consumers would spend more on purchases, and a small portion of those purchases could go to the part of the world where I live - India. And as foreign investments and purchases here rise, the general condition of the Indian worker could improve. And I would have a reason to cheer as the poor, the unemployed, and the manufacturers in South Asia raise their production, and have their standards of living rise.
Conversely, I imagine that if the US government does go for serious spending cuts and tax hikes, the condition of the average South Asian worker could rapidly deteriorate, as the American consumer spends less in a time of austerity. I don't imagine the condition of the domestic worker here would raise international sympathies, but there seems to be clear win-win in an expansionary fiscal regime and a clear lose-lose in austerity.
The thing is, M. Sanjay, that what you are talking about is in effect the financing of a trade deficit. In the short run this might well help India, but in the long run there WILL be a day of reckoning for so long as the U.S. continues to consume more than it produces. At some point the purse runs dry. Do you really want the Indian laborer to be dependent on a large U.S. market suddenly gone bankrupt?
Prateek Sanjay,
" I am going to use a bad analogy here.
If two men are walking down the road, one may see $100 of cash notes lying on the ground. But if the first man tells the other there is a $100 on the ground, the other doesn't believe it. The second man says, "If there were a hundred dollars of cash on the ground, somebody would have picked them up". He does not bother looking down on the pavement, and moves ahead."
Yes, that is not a very good example. Perhaps this one is better : A wealthy man puts a used appliance on the market for free, but has no willing takers. He then puts a "For Sale" sign on it, and the very next day the appliance is stolen. This is, as I see it, the true direction of our economy based upon a growing resentment from the lower class, an arrogant stupidity from the upper class and the dwindling stablizing force of the middle class.
There is also something of a moral dimension in here. We are, as conservatives, supposed to be interested, after all, in the truth. Calling a spade a spade, a Chicagoan a Chicagoan, a dollar a dollar and an insolvent, lying, cheating passel of villains, otherwise known as a government, and financed by unseen keyboard alchemists otherwise known as bankers, - an insolvent, lying ....
Where we to take the route of trying to get something for nothing - "demanding lower taxes and higher government spending" - we become accomplices in this march into debauchery. I'll gladly trade some austerity just to see the truth come out and the money changers get properly punished for once.
Right, in the long run, it could be said that nothing in economics matters at all, since it all sort of smooths out into an abstract average. But as an unwise economist once said, in the long run, we're all dead.
A better analogy might be that a small gaggle of completely detached technocrat group-thinkers are playing fantasy football with the lives of real people and making a ton of money whether each iteration of the game produces real losers or real winners.
I do agree that we should caution against the current idea of going full force into austerity measures to solve the deficit problem in an attempt to turn our economy around, because it is probably not going to work. However, the only reason we are in this mess to begin with is the lack of scruples and restraint of our politicians, and I believe that most people at least want to see the federal budget suffer at least as much as we are, or, that these people have the slightest shred of worth by showing they can cut even a lousy dollar out of the budget.