The Titanic sails at dawn - politics, economics & culture
The most pronounced development in banking today is that executives have become bolder as their business has gotten worse.
The economy is clearly weaker than expected, and housing prices are falling throughout the land, eroding bank asset values. Yet regulators are on their heels in Washington as bankers and their lobbyists push back against the postcrisis regulations, even publicly condemning the new rules.
In a well-covered exchange, Jamie Dimon, JPMorgan Chase’s chief executive, challenged Ben S. Bernanke, the Federal Reserve chairman, about the costs and benefits of the Dodd-Frank rules. More attention has been paid to the banker’s audacity, but the response of the world’s most powerful banking regulator was more troubling. Mr. Bernanke scraped and bowed in apology without mentioning the staggering costs of the crisis the banks led us into.
So this is a good occasion to step way back to understand just how good the banks have it today.
The federal government, in ways explicit and implicit, profoundly subsidizes and shelters the banking industry. True since the 1930s, it is much more so today. And that makes Mr. Dimon no capitalist colossus astride the Isle of Manhattan, but one of the great welfare queens in America.
In the ongoing debate over raising the debt ceiling, one option has not had much prominence: whether the Obama administration could ignore it altogether, and just spend the money it owes anyway. Would that be legal?
Matthew Zeitlin at The New Republic spoke with a few political scientists, budget wonks and constitutional scholars who argue that it would be. An excerpt:
At a single address in this sleepy city of 60,000 people, more than 2,000 companies are registered. The building, 2710 Thomes Avenue, isn't a shimmering skyscraper filled with A-list corporations. It's a 1,700-square-foot brick house with a manicured lawn, a few blocks from the State Capitol.
Neighbors say they see little activity there besides regular mail deliveries and a woman who steps outside for smoke breaks. Inside, however, the walls of the main room are covered floor to ceiling with numbered mailboxes labeled as corporate "suites." A bulky copy machine sits in the kitchen. In the living room, a woman in a headset answers calls and sorts bushels of mail.
A Reuters investigation has found the house at 2710 Thomes Avenue serves as a little Cayman Island on the Great Plains. It is the headquarters for Wyoming Corporate Services, a business-incorporation specialist that establishes firms which can be used as "shell" companies, paper entities able to hide assets.
Debt Limit Stakes
So, here’s where we are on the debt limit discussions: Democrats have agreed to large spending cuts, but are holding out for doing something about
a rule that lets businesses value their inventory at less than they bought it for in order to lower their tax burden, a loophole that lets hedge-fund managers count their income as capital gains and pay a 15 percent marginal tax rate, the tax treatment of private jets, oil and gas subsidies, and a limit on itemized deductions for the wealthy.And Republicans walked out.
Think about it. There’s a significant chance that failing to raise the debt limit could provoke a renewed financial crisis — and Republicans would rather take that chance than allow a reduction in tax breaks on corporate jets.
What this says to me is that Obama cannot, must not, concede here. If he does, he’s signaling that the GOP can extract even the most outrageous demands; he’s setting himself up for endless blackmail. A line has to be drawn somewhere; it should have been drawn last fall; but to concede now would effectively mean the end of the presidency.
Does underscoring the sense of urgency simply give strength to dark forces who are trying to leverage the threat of default for their political gains? Perhaps so, but the other way lies madness.
We’ve got to talk truth about the stakes here because they’re so high...
(W)hy do interest rates remain low? Why are investors in ten-year US treasury bonds accepting 2.93% interest today instead of insisting on a big rate premium the way bond investors in, oh, I don’t know…GREECE are??
Because they assume we’ll get our act together and raise the debt ceiling well in advance of Aug 2. That’s the date when the Treasury will have exhausted their ability to move money around to cover their obligations while staying under the debt limit.
But what if that assumption should weaken?
It’s important, yes, and must be addressed. But by a wide margin, it’s not the nation’s most pressing economic problem. That would be the widespread and persistent joblessness that has plagued the labor market since the Great Recession began in 2008.
Almost 14 million people — 9.1 percent of the labor force — were officially counted as unemployed last month. But that’s just the tip of the iceberg. There were almost 9 million part-time workers who wanted, but couldn’t find, full-time jobs; 28 million in jobs they would have quit under normal conditions; and an additional 2.2 million who wanted work but couldn’t find any and dropped out of the labor force.
If the economy could generate jobs at the median wage for even half of these people, national income would grow by more than 10 times the total interest cost of the 2011 deficit (which was less than $40 billion). So anyone who says that reducing the deficit is more urgent than reducing unemployment is saying, in effect, that we should burn hundreds of billions of dollars worth of goods and services in a national bonfire.
(Republicans) are willing to risk the good faith and credit of the federal government, rather than accept so much as a single penny of tax increases as part of a deal.
Given all that, it seems almost redundant to mention that federal tax receipts as a percentage of GDP are near a historic low:
Federal receipts as % of GDP(T)he GOP never cared about the deficit — not a bit. It has always been nothing but a club with which to beat down opposition to an ideological goal, namely the dissolution of the welfare state. They’re not interested, at all, in a genuine deficit-reduction deal if it does not serve that goal.
Deficits can impede economic growth. No borrower is safer than the government. So when the government wants to borrow a lot of money and investors start charging it a high interest rate, the borrowing costs for everyone else go up. This “crowds out” lots of potentially useful economic activity. A business expansion that’s profitable at a 5 percent interest rate may be far too risky to invest in at a 7 percent interest rate. But as you can see here on the right, the interests rates being charged by the market to lend money to the US government are low and falling...So why is there a "deficit panic" when the impact of deficits on federal borrowing vs. availability of low-interest investment capital is nil? And how does cutting the deficit - especially with an emphasis on cutting spending to balance the budget - produce economic growth and jobs ? Of course it doesn't.
Note that 10-year interest rates were never below 3 percent at any point during the Johnson, Nixon, Ford, Carter, Reagan, Bush, Clinton, or W. Bush administrations. So why is this on the agenda now?
"(Attacking deficits and cutting spending) wouldn't square with the way we normally think about economic activity in a depressed economy," (according to) Andrew Samwick, a former chief economist on President Bush's Council of Economic Advisers... When the economy suffers from a lack of demand, as it does now, Samwick explained, most economists think increasing spending is the more effective way to generate that demand and get things moving again.
"BoehnerCare"
Why has the opposite view begun to take hold?
If Congress lets the Bush tax cuts expire or offsets their extension, implements the Affordable Care Act as scheduled and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which (the Congressional Budget Office) calls the “extended baseline scenario” — the national debt will be totally manageable.
If Congress passes laws extending the Bush tax cuts without offsetting the cost, repealing the Affordable Care Act and its cost controls and protecting doctors from Medicare cuts without making up the savings elsewhere — the “alternative fiscal scenario” — the national debt will be totally out of control:
"The Myth of Job-Killing Spending" ... House Speaker John Boehner and other Republicans regularly rail against "job-killing government spending." ... Using the same illogic, employment should soar if we made massive cuts in public spending—as some are advocating right now.
Acting on such a belief would imperil a still-shaky economy that is not generating nearly enough jobs. So let's ask: How, exactly, could more government spending "kill jobs"? ...
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| Woody Guthrie: "Some men rob you with a fountain pen..." |
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| Brooks, who has read a lot of books. |
With all the talk of a possible double-dip recession in the U.S. economy—here’s my own little contribution—it’s surprising (and somewhat scandalous) that more attention isn’t being paid to what is happening in Britain, where a second economic downturn began last fall and shows few signs of relenting.
About a year ago, with the British economy seemingly recovering fairly well from the financial crisis of 2008, David Cameron’s Conservative-Liberal coalition embarked on a vigorous policy of deficit reduction, raising taxes and cutting government spending in an effort to balance the budget by 2015. How this experiment in pre-Keynesian economic policy turns out obviously has important implications for the fiscal debate on this side of the Atlantic.
So far, the results aren’t looking very favorable.
