Multiplication Isn’t Stimulating and Stimulus Isn’t Multiplying

Right on Larry. I love how the goalposts are continually changing. First the stimulus was supposed to help right away, now it’s not really supposed to work until the end of next year. And if the economy doesn’t show a definate uptick by then, then they’ll be saying “the third year is when we expect to see real results” and so on and so on.

Prime Minister Thatcher said, “…and Socialist governments traditionally do make a financial mess. They [socialists] always run out of other people’s money. It’s quite a characteristic of them.”

So sooner or later the job and wealth creaters in this country will tire of working their butts off to only be called greedy and mean because they want to keep more than they pay in taxes. And if they don’t make the money, who is the government going to tax to get the money they need for their spending programs? Oh yah, the middle class!!!

I posted this in the radio area but it fits here. The Economic Stimulus is a succes according to Larry Summers the Director of the White House’s National Economic Council. See what he is using as his measuring stick.
http://military.rightpundits.com/2009/07/18/larry-summers-stimulus-success-economic-depression-google-searches-down/

Do not punish the private capital, but rather embrace it. Promote transparency across markets so the private capital is protected. Provide incentives for the private capital to work with currently distressed homeowners and business owners.

Sorry to disagree here but your solution seems tantamount to saying to the Guild of Thieves that is the private financial market: “Bad man! Don’t do that again!”

It is ludicrous to suggest that private enterprise in this country can be trusted to clean up this mess. Real world experience has just shown that they have absolutely no intention of changing their behaviour one little bit.

“Do not punish the private capital, but rather embrace it.” – are you kidding? These people should be drawn and quartered!
“Promote transparency across markets so the private capital is protected.” – Get real, all of these machinations were completely transparent, everyone knew the loans were rubbish, they just didn’t care.

“Provide incentives for the private capital to work with currently distressed homeowners and business owners.” – Are you nuts? They don’t give a rat’s ass about homeowners and business people, they’ll just fo waht they did before. In fact it turns out they’re still trading credit default swaps.

Sorry, Larry, the only way to cure this is to institute massive, overwhelming regulation of the financial markets in order to restore some small measure of public confidence that they aren’t all confidence men out there.

Because that’s the real problem: they’ve revealed themselves as the selfish, arrogant thieves they are and no one trusts them anymore. Until it is abundantly apparent that someone is watching their every deal, every transaction, every move… this re-depression isn’t going to go away no matter how much money you shovel into Goldman Sachs and their accomplices.

Who shoveled the money into GS? http://sonicninjakitty.wordpress.com/
Follow the trail to the bad guys. Now tell me if we should entrust them with MORE ‘regulations’ and decisions. No way–let market forces decide. Misallocated resources must be allowed to flow into other areas, not kept in the wasteful place. Prices must be allowed to readjust to normal, sustainable levels (until inflation caused by the increase in money supply start to affect them) In other words, if you run a business or bank badly, then you should fail. If you take out a big loan on a house when you should have rented, you must default and suffer all the accompanying punishments that go with it. That is the only way to prevent people who behaved responsibly from being punished.

LD, I am aghast, too. I think most people still assume the administration 1) knows what they are doing or 2) has the general welfare of the public in mind. (IMHO, it’s a negative on both counts.)

The reason that this happened is that the Reaganauts started to dismantle the FDR era regulations on securities trading and allowed the banks to become “financial services companies”. Clinton compounded the mistake by allowing the Republicans to take apart Glass-Steagal and Bush finished the job by destroying what was left of the regulatory apparatus and installing feckless blancmanges in any position of authority.

We’ve just seen what market forces will do if left to their own device: steal everything they can get their hands on.

If we now decide to let market forces ‘clean this up’ we will have fulfilled the definition of insanity: doing the same thing over and expecting different results.

I believe the stimulus is set up to help for 2010 midterms and the 2012 re-election of Obama. They could care less about us. They set it up to help them keep control during elections.

That is why so little of the money has been spent!

I had been a registered dem my whole voting life. I have filled out the form to change to independent. The 2008 election showed me the Dems are exactly what they always accuse the republicans of being. I don’t think they have ever been for the people. They were just better at hiding it.

I do plan to vote republican 2010 mid terms because we need a balance of power to stop the democrat nutcases currently in power.

Agree. This was a giant, Chicago style pay-to-play scam benefitting Democratic mid-term elections. Hide and watch.

Craig, I do respect your opinions. I have never heard of Glass-Steagal and will look it up. I would like to learn as much as possible and look to every ‘side’ for their insights. Seriously, I am a registered Dem but consider myself independent as I truly believe BOTH parties are letting the American people down–tremendously. There is no more Dem & Republican. There is the Ruling Class and The Rest of Us (aka The Suckers).

That said, I also would like to share something I recently discovered. It’s a book called The Politically Incorrect Guide to the Great Depression and the New Deal by Dr. Robert Murphy. It is fascinating. It takes the snippets we all learned in school about the 30′s and ties them into what brought them about and what their effects where. It was a decade of unprecedented government action and the economy could not recover until after the war when industries were able to totally reset and reallocate resources. Prosperity then returned to the US. I would like know if you ever read it and what you think about it.

I believe in market forces because they do not favor race, class, gender or sexual orientation. They favor those who think ahead, work, and persist. We also need a safety net for the truly indigent but market forces are the only just and blind forces. Our rulers are too tied into lobbies and ideologies anymore–there is no justice today. They are puppets of the lobbies, especially the banking lobby! Our rulers are totally disconnected from the American people.

In terms of the housing bubble, Clinton and Bush (and Congress whether Dem or Republican controlled), partnered with the Federal Reserve, created regulations and such easy credit as to cause people who would not normally (in a regular market) buy a house do so. So, in effect, the rules and regulations WERE the cause of the bubble. We need to remove the bad rules and regulations that caused the pain and replace them with the correct ones (that work with the market’s self correcting nature).

It seems likely. Has Ozero EVER done or said anything that was not for the single purpose of assuring that the gullible would vote for him? Fortunately, some of them don’t stay gullible.

LD,

Thanks for the great (as usual) post. I’m learning my way in this area of understanding. Many derivatives are already traded on open commodities boards.

I’m asking this: (1) Are all OTC trades off any trading board by definition?; (2) Aren’t ‘off public trading boards’ derivatives trading where systemic risk is created and breeds?; (3) while I understand that huge profits may be made in trading OTC derivatives, if the entire system fails (thus the social structure surrounding it) what is the incentive for brokering this? Am I just thinking two moves ahead and those brokers are coke addled immediate return types who can’t focus upon consequences?

Is this actually a drug addled, immediate return, f-consequences mentality at work? Is there a more cogent answer to the self defeating greed of brokering in this way? I’m genuinely asking, not making a statement.

Viking,

If you have the time, I actually addressed the derivatives business on Wall Street in the last ten to 15 minutes on my radio show last evening. The show is archived and you can listen to it here.

I discussed standard derivatives which will likely be moved to an exchange and then customized derivatives which the banks are fighting to keep as “business as usual.”

Additionally, I discussed an outfit, Markit, owned by Wall Street banks, which processes trade pricing and information but only disseminates on a ‘paid’ basis.

Lastly, I introduced the concept that ALL Wall Street transactions should be reported via TRACE. Please see my post, Can We ‘TRACE’ JP Morgan’s Business?

Glad you are learning. Happy to help now and as we move forward!!

The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation.[1] Some provisions such as Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts, were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act.[2][3]

From Wikipedia – note the last sentence: banks owning other financial institutions; that’s what created, in large part, the Great Depression and when Phil Gramm and the Republicans forced that repeal through, the banks did the same thing all over again.

Sonic Ninja Kitty: I also respect your opinions and your quest for truth. The problem here is that ideologues and propagandists (of all stripes) have taken over the debate. Also, the subject is huge and merits real attention and study to see it all.

I think the one salient point is that many of the proponents of ‘free’ trade, including Mr. Doyle, are hopelessly naive about human nature: they make the fatal assumption that the market will somehow police itself to ensure that fairness is the order of the day. Time after time we have been shown by events that this simply is not true, if left to its own device the ‘free’ market will be overwhelmed by cheats, thieves and con men. This happens every time we relax the rules. The answer is obvious: a ‘free’ market for entrepreneurs and traders, yes, but under severe regulation with draconian punishments for transgressions, very strictly enforced.
If they don’t like it, they can go somewhere else and wreak havoc, I, for one am tired of cleaning up their messes.

1) Reinstate the Glass-Steagall act of 1933.

2) Take these all-powerful manipulative mega-financial outfits like Goldman Sachs by the scruff of their beastly necks and rub their noses in it.

This is a idealogue response.

The Gramm-Leach-Billey Act did not cause our current situation. The issue was the Community Reinvestment Act 0f 1977 and the subsequent changes in 89, 92, 94, 95 etc. forcing banks and mortgage companies to lend money to poor people who should not qualify meeting the social engineering impulse of liberals. It was exasperated by the irresponsible lending to the unqualified by Freddie and Fannie controlled by the government. These people who could not afford the loans and therefore should not have received them began defaulting causing massive hemorrging in the housing and credit markets. The situation was made worse by the devaluing of financial institutions by mark to mark passed by Dems.

It didnt matter that banks held the mortgage or mortgage companies held the mortgage. The loaning to the unqualified would have artificially inflated the housing market and the defaults would have caused the deflation and the credit crunch. When republicans called for INCREASED OVERSIGHT of Freddie and Fannie the Dems blocked it.

The Gramm-Leach-Billey Act did nothing to cause this problem but blaming reduced oversight of private citizens while trusting government agencies to run rampant fits liberal ideology.

Actually, not true. The damage was not caused by The Community Reinvestment Act 0f 1977 and its subsequent alterations. the damage was caused by Goldman Sachs, Lehman Bros, and all the other ‘investment’ banks who packaged the bad loans together with a sprinkling of good loans and sold them as together as vetted and accredited financial instruments – this was fraud on a massive scale. And to make matters wirse these same financial institutions then re-packaged the risks on these fraudulent securities as Credit Default Swaps so they could pass the hugely risky bad mortgages on to to oher institutions.
It was, in fact, lack of any kind of government regulation – encouraged and supported by Bush & Co (I remind you: a Republican administration) that allowed this massive fraud to go on.
This is not Liberal cant, these are the facts, your inability to see them is part of the problem.

The stimulus has had limited impact so far because it has only been 4 months out of a two year plan, with most of the jobs part of the plan coming in the next 18 months. So far the money going to the states and tax cuts have had a big part in stabilizing state governments and the consumer.

To talk about a real impact in only 4 months is a bit of a joke.

The real question you should be asking is where would the economy be now if there was not stimulus?

You can argue about the base number, but the stimulus was designed to lead to an unemployment rate 1.5 to 2.0 points lower than would otherwise be the case. Another words if unemployment ends up reaching 10%, it might have very well been 11.5% or 12% without the stimulus.

There is evidence the stimulus programs can work and do what they are designed to do, stimulate. See this article in the WSJ on China’s stimulus.

http://online.wsj.com/article/SB124768125855446621.html

Here is the first quarterly review report:

http://www.newsweek.com//frameset.aspx/?url=http%3A%2F%2Fwww.recovery.gov%2Fsites%2Fdefault%2Ffiles%2FFINALQ1_ARRA_Report.pdf

To attack the stimulus at this point so early in the game is nothing but pure politics.

The only new challenge is the decline in jobs has been much greater than most have estimated (a good argument for a second or larger stimulus). Bush basically left the country in worse shape than people thought.

Craig–Thanks for the info. I also found it in my book (pp 122-124–I recently started it and so had not gotten that far yet).

Just taking this section and summarizing (with merciless chopping by me), it says the following:

1) Glass Steagall Act of 1933 established the FDIC. Purpose: to prevent bank runs.
2) It asks ‘why wasn’t there private insurance on banking activity available’ like there is/was in auto, home, etc?
3) It describes the concept of “moral hazard” whereby certain types of events cannot be insured against because the very act of providing insurance would make the event more likely to occur.
4) It points out that banks had/have it “within their power to guard against a bank run” in the first place–they can have keep up to 100% reserves in the vault, doing business only by charging fees for checking and storage services.
5) When banks choose to keep a tiny amount in reserves, they are taking a huge risk. (These days they only have to keep 10% in reserves.) Bank runs become highly likely.
6) No insurer in their right mind would insure a bank that is so exposed to risk.
7) By the government creating the FDIC, it circumvented market forces that otherwise would have forced banks to be more conservative. Now the taxpayer is forced to be the insurer and the banks can take more risk because government bails out the goofballs that miscalculate risk and screw up.

The whole argument is that it’s not a free market when the government is intervening, which makes sense to me.

Please spare us. The Dems were in complete control of congress two years before the Obama destruction machine took over. Dems voted overwhelmingly for every Bush initiative and stopped or obstructed reforms at Fannie and Freddie. There is enough blame to go around. And the stimulus package was specifically supposed to target saving jobs and job creation—immediately—it was passed as emergency legislation. Money for states was actually cut. Why wasn’t money for shovel ready jobs projects targeted for the first 4 months????????????????? Why was this emergency “stimulus” bill spread out over 3 years? No. The plan was purely political and purely about keeping political power. If you believe the crap you have written above, you are in serious trouble. In fact the report on the stimulus bill by the person charged with that oversight supports the reality that it has not been spent as intended. Newsweek is Obamaweak.

Amen, oowawa. And I’m sure you read Denninger’s 4-point plan to restore the economy [with pain] but with reasonable and absolutely necessary approaches:

1) Bringing the housing market to a durable bottom,

2)Usury regulations,

3)Bankruptcy reform, and

4)Restore Glass-Steagall

As Denninger wrote over the weekend:

“Do not be fooled – the crisis is not over, and we have solved nothing – we have merely been granted a short reprieve in which to do so, or suffer the consequences of our failure to act.”

Why is common sense so frequently overlooked or pooh-poohed? Or maybe it goes back to that old Will Rogers quote:

“Common sense ain’t so common, otherwise more people would have it.”

You have no idea what you are talking about. The stimulus was a two year program. 2.5 to 3 million jobs through 2010. See:

http://www.usnews.com/articles/news/stimulus/2009/02/05/cbo-stimulus-bill-could-meet-obamas-job-creation-goal-in-short-term.html

Some money for states was cut by the Republicans, but billions still went to the states. It kept teachers, policemen and firemen in their jobs. See: http://news.yahoo.com/s/ap/20090718/ap_on_re_us/us_governors_convention

I am not sure you really understand what was done. From the begining it was planned that the stimulus job creation would take time to kick in. It still takes time to get the shovel ready infrastructure jobs going.

“In his weekly radio address on Jan. 10, 2009, Barack Obama said the No. 1 goal of his economic stimulus plan is to create 3 million new jobs in the next two years. Less than 20 percent of them will be government jobs.”

WHAT PART OF “TWO YEARS” DO YOU NOT GET?

http://www.msnbc.msn.com/id/28695368/

Maggie Thatcher was a dumb twit who gussied up the Falkland Islands to save her political career. She’s also the reason why no major woman has ever made it very far inside either political UK party since (not so sure about Lib-Dems though).

What I really dislike is how people use these clever little sayings, highly reductionist, yet has no justification in reality. If we take the provinces of Saskatchewan and Manitoba in Canada, two stellar examples, it took two socialist parties to clean up the mess previous Conservative governments made. Maggie Thatcher, as she always has been, has it totally B-A-C-K-W-A-R-D-S. You can even add the province of British Columbia into the mix. As bad as the NDP and Glen Clark was, he was definitely no Bill Van Der Zalm when it came to corruption level and leaving a boondoggle mess.

Right now in BC, we have yet another conservative government (don’t let the Liberal name fool you) that is making a mess of things, and I’m not just referring to the 2010 Olympics here! They’ve been taking cost-cutting measures that will unbelievable defer costs into the near future so they can push their silly tax cut agenda. As always, it’s going to take a socialist government to clean the mess these “freemarket” disciples leave behind…

Now, back to the topic at hand, Obama. This guy is about as socialist as Pat Buchanan, and during the primaries when I read up on Obama, I was literally amazed at how much more progressive Hillary was than Obama ever had been. I have to say that Clinton was definitely not my first choice, but when it came down to Hillary and Obama, the choice was clear. Actually it wasn’t even a choice at all. I tried to warn people but I guess they thought that a black male Democrat HAD to be a liberal.

Where am I going?

Look at the health care “debate”. It’s now making the rounds that Obama is looking for support from the Left, even after all the repeated slaps in the face he gave them. His commission had to be shamed into allowing a SINGLE single-payer advocate in.

What I’m seeing is a bit of desperation as the far-right in the US is driving the agenda ever more to the right, with complicity from the MSM. Obama, trying to play the centrist, is trying to stoke up his “base” so he can compromise … exactly where the health-care industry PAID Obama and other key Democrats to be.

Anyway this works out, the health-care industry wins. If the “Democrats” win, things will pretty much be status quo. If the Republicans win, the health-care industry just wins a little bit more…

There is another, easier solution.

Reinstitute usury laws. One legal approach would be to extend financial services regulation by using trade across state lines, but I guarantee you I’d have better luck crossing the Grand Canyon on a thread of dental floss. That has to be done. Once the moneylenders get going, they cannot be stopped.

Adam Smith warned of it. Thomas Jefferson warned of it. Heck, no major religion allows for it. If you read Leviticus (if memory serves), one can be punished by stoning if you collected interest on loans.

The repeal of usury in 1979 is what has eviscerated American manufacturing and brought on the need for bubble after bubble to create the illusion of “growth”.

Agreed, Fannie Mae and Freddie Mac were examples of a much broader problem in American industry.

That is, using money to make money, in lieu of actually delivering goods and services.

The US financial industry is based on faith, whether you like it or not. It’s probably the biggest bubble in all of human history. The only thing that keeps it going is the goodwill and sacrifice of the Chinese people.

The whole argument is that it’s not a free market when the government is intervening, which makes sense to me.

That is so very true. What’s funny is how those who continually preach “market forces” to their employees and customers are always the first to run to government for taxpayer help.

The important question is which side does the government favour? The broader public, or vested self-interest that has curried favour through lobbying (legal corruption) of public employees.

The Republicans and Democrats are converging in all but name. Obama has shown that.

The question is do you reward the behaviour? I suggest either voting third party, or spoiling your ballot.

Better still, consider find any group that proposal Electoral College reform (assuming you do not live in Maine or Nebraska). The two-party system has a scam where all they need to get is 50% + 1 vote, thereby cementing themselves bastions and “free” electoral college votes. By forcing state electors to based on vote percentages, goes a long way to making the US electoral map more purple.

Maggie Thatcher was wrong.

In actual real-world tests, it’s been the the socialist governments that have fixed problems left, unsurprisingly, but Conservative governments. I can think of three examples in Canada ALONE.

First, we had the Romanow government in Saskatchewan, that finally got the government’s books in order. The Doer government in neighboring Manitoba, also from the same “socialist” party, who managed to fix the disaster that was the Gary Filmore government. The more stellar example of “socialist” cleanups was the Liberal government under Jean Chretien, though I grant you that much of the cleanup was done by screwing the poor and shifting many problems to the provincial level.

I could add the Glen Clark NDP government in BC as another, as they managed to fix much of the mess Van Der Zalms SoCred’s left, but Clark was hounded out of office for rather petty corruption (got a kitchen remodel).

People think of Canada as some liberal bastion. It’s not. It’s rather more adherent to “market disciplines” than even the US, which is why Obama can slam forward gobs of subsidies for US industries but our government steadfastly refuses to do the same, or even retaliate (because Harper, like Ignatieff is a Yankee tool).