Friday, July 16, 2010

Fix the Economy? Are Deficits Necessary or More Poverty Expected By Any Measure: Building An Aristocratic U.S. Base (Give Back the Bonuses!!!)

(FEELGOOD EXTRA! Ken Feinberg Mulling Over Having A Little More Fun With Wall Street - Bess Levin (emphasis marks added - Ed.)

His time here is almost over but before he takes off for a little maxing and relaxing, the Compensation Cop is apparently thinking about having some fun with bonuses that were paid out that for “the bailout year of 2008″ by all banks that took TARP funds and not just the ones who’ve yet to pay back the blood money. So not just fuck-ups like Citi and Bank of America but also institutions such as, to name a few, JPMorgan, Morgan Stanley and, gird your loins, Goldman Sachs. Feinberg has just finished a “look back” at the cheddar paid out by those institutions and according to Charlie Gasparino, “does not like what he saw.”

Sources say that Feinberg, in concluding his study, and one person with knowledge of Feinberg’s thinking says he is “leaning” toward forcing at least some of the big banks that he reviewed to give back bonus money.

Of course, there is the slight issue of Feinberg not exactly having the “authority” to force anyone to do anything but Chaz thinks there’s a chance the banks may just give the money back anyway to “escape public scrutiny” (one might argue that public scrutiny as it relates to the banks giving a golden sack about it is so last year but same diff, diff). Also, when it comes down to it, it’s not actually up to Feinberg at all but rather Tim Geithner who has the final say, which means there’s gonna be only one way to settle this, and it involves Blankfein working on his jump shot.

Rethuglicans and fake "conservative-progressives" are having the last laugh on the U.S. population, which is proving their bottom-feeding level of educational preparation (emphasis marks added - Ed.).

. . . conservative leaders believe that today's high unemployment is the right vehicle to continue their assault on government. How else to explain the resurrection of Arthur Laffer in the Wall Street Journal last week, he of the now-discredited "Laffer curve." This time, he was not only asserting, with no obvious basis in fact, that extending unemployment benefits makes "being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment," but he was suggesting that the government should instead "declare a federal tax holiday for 18 months," which he says would cut federal revenues by $2.4 trillion annually.

The entire federal budget in 2010 was $3.5 trillion. You see what he's up to. (The Seminal, like me, found it "hard to know where to begin in tackling the various strawman and out right fallacious arguments Laffer uses in this opinion piece.")

Laffer may be on the edge of conservative thought on his tax holiday idea, but basically Laffer and conservatives holding up unemployment extension and job-creation legislation in the Senate are on the same twisted wavelength. Arizona Sen. Jon Kyl, a member of the unemployment-checks-make-you-lazy coalition, on Sunday said that while extended unemployment benefits should not be allowed to add to the federal deficit, tax cuts should. He said this in response to a question about continuing the Bush tax cuts for the wealthy, which if Congress opts to cancel their planned expiration would add $678 billion to the deficit.

There you have it. Benefits totaling $35 billion to keep unemployed people from being evicted from their homes for facing some other financial calamity is an expense we can't afford. But we can afford to let wealthy people and corporations continue to escape paying $678 billion in taxes. Or we can afford to eliminate the estate tax, another conservative obsession. Or we can afford to continue to tax billionaire hedge-fund managers and other Wall Street gamblers at a lower rate than the five-figure secretaries in their offices.

But can we actually "fix the economy?" Or is it as the no-economics-educations Congresscritters of the "conservative-progressive" rightwing spout (who are in love with the many times discredited Laffer Curve): that the market must right itself after eliminating all help to those at the bottom and increasing help to those at the top? (Emphasis marks added - Ed.)

Fix the Economy? We Have Know-how

Mike Whitney July 12, 2010

There are remedies for recession, and the remedies are well known. But fixing the economy requires special medicine, fiscal stimulus, and if the patient does not take the medicine, he will not improve. It's not enough to have the medicine sitting on one's nightstand. It must be ingested before recovery can begin.

Opponents of stimulus say that it doesn't work. But before Obama launched his $787 billion recovery program, the economy was shedding 750,000 jobs per month for 6 consecutive months. Manufacturing and exports were plunging faster then during the Great Depression. Now unemployment has leveled off at 9.5% and manufacturing, exports, retail and personal consumption have all rebounded. This did not happen by accident. The economy is responding to government spending. Stimulus works.

There's nothing mysterious about stimulus. It's quite simple and does not require a degree in economics to understand. Spending creates economic activity; economic activity creates growth. Full stop. The economy does not care if households are spending or if the government is spending. It doesn't matter. The result is the same - more economic activity, more growth. The opposite of spending is saving. When consumers save - as they are now because their balance sheets are underwater - and businesses save - because consumer demand drops off; then the economy can shrink very fast unless the government steps in and keeps the economy running with deficit spending. Thus, personal savings equal government deficits.

This is what British economist John Maynard Keynes figured out;how to soften the business cycle, how to make capitalism less savage and less crisis prone. Keynes developed his theories during a period when many intellectuals and workers groups had given up on capitalism altogether and turned to Marxism as an alternative. These people saw a version of capitalism that we see today, where bankers and corporate chieftains control the political system and use it to rip off investors with toxic mortgages, or drag the country to war on a pack of lies, or despoil the environment with impunity.

Every generation has its Tony Haywards and Goldman Sachs. Keynes dignified capitalism; elevated it (perhaps more than it deserved). He believed that free markets created a better environment for personal liberty and happiness. But he did not believe that the market was "self correcting", or that markets operated best when left alone.

Government has a role to play in the business cycle, and when it performs as it should, a great deal of pain and human suffering can be avoided.

Keynes believed that governments should try to keep their budgets in surplus. It's true; Keynes was not the "Big spender" that his critics think. In Robert Skidelsky's timely and invaluable book, Keynes: The Return of the Master, the author dispels many of the illusions about Keynes. Skidelsky believes that Keynes would have opposed the "financial innovations" which led to the present meltdown. As he notes, "Complexity for its own sake had no appeal for him."

. . . So there is a way out of recession, a way to sidestep the excruciating downward spiral of debt deflation, high unemployment and social unrest. There are ways to tame capitalism so that a criminal elite are not killing people in foreign countries, or fleecing investors with their garbage securities, or poisoning entire sections of the country with their pollutants. But fixing the system requires medicine: regulation, stimulus (when needed) and accountability.

Right now, demand is weak, Obama's stimulus is running out, and the economy is beginning to teeter. Housing prices have begun to fall (again), consumer spending is off, businesses are hoarding, consumer credit is shrinking by nearly 5% per year, manufacturing has begun to slow, bank lending is down, and the Fed has ended its bond purchasing and liquidity programs. Without additional government spending, the economy will slip back into recession. The recovery is stimulus driven; it is not self sustaining.

Austerity measures are precisely the wrong remedy, just as cutting off unemployment benefits or slashing federal aid to the states is the wrong remedy. These actions reduce spending, weaken the economy and clear the way for depression. Again, this is already "settled" economics. The GOP needs Obama's recovery plan to fail to improve their chances for a landslide in the November midterms. It's all politics.

The fearmongering about the deficits is more of the same: politics. Belt-tightening is not the way out of a slump. Principled conservatives believe that "the bad debt must be purged" before the economy can recover. But this is economics, not religion. The economy functions according to some very basic principles and doesn't care about our moral pretensions. Some conservatives are too focused on the money supply. But in a liquidity trap - where interest rates are already "zero-bound" - the Fed can pump up the money supply (the Fed has increased banks reserves by over $1 trillion) and the economy will still contract.

Milton Friedman was wrong; money supply does not drive the economy.

Spending does. The money must get into the hands of the people who will spend it, which is why the economy runs better at full employment. What's needed now, is more investment. But businesses have set aside a record amount of cash because there's no need to increase capacity when the health of the consumer is in doubt. Who will buy their products, that's the question?

That's is why Keynesians focus aggregate demand rather than on money supply. Consumption and investment are both spending and - as we noted earlier - spending generates activity and grows the economy. Money sans velocity (the rate of spending) achieves nothing; the economy will continue to languish.

Presently, there is no suitable outlet for investment because households are cutting back to patch their balance sheets. Government can help by increasing deficits and putting people to work. Then business investment will resume, state revenues will increase, and the economy will rebound. Deficits work.

Fearmongering about the deficits is a political calculation to win elections and strangle popular social programs. It has no economic value. If deficits were a problem, the yields on government debt (US Treasuries) would go up. But yields are historically low and headed lower. The GOP says that deficits are a problem. The market says that deficits are not a problem. Who is right and who is wrong? Smart people will trust the market and ignore the political opportunists.

There is no danger of inflation. Repeat. There is no danger of inflation. The inflationists are wrong, just like the deficit hawks are wrong. They have been wrong for the last three years and they will continue to be wrong for the foreseeable future. The CPI is falling, commodities are teetering, gold is hanging by a thread. Without fiscal stimulus the economy will contract. And Fed chair Ben Bernanke is likely to let the economy contract by suspending quantitative easing (the bond purchasing program) until after the midterm elections. Why?

Because Wall Street is mad that Obama criticized the banks publicly. The financial sector has its shifted support to the GOP. As an agent of the big banks, Bernanke will act on their behalf and withhold support until after the elections. That will ensure two years of political gridlock until Obama steps down in 20(12).

The reason that so many professional economists (Stiglitz, Baker, Reich, Thoma, Weisbrot, Krugman etc) are frustrated with policymakers, is not because they are "ideological" or "Keynesian" or narrow minded, but because the matter has already been settled.

We know what needs to be done to revive the economy. It's just a matter of doing it.

Did you know that there's been a steep rise in the poverty rate (I can vouch for this personally)?

Depend on it to continue (emphasis marks added - Ed.).

More Poverty By Any Measure By Christine Vestal

WASHINGTON — It’s not 1932 all over again. But new poverty figures to be published in September are expected to look grim. More than 15 million Americans are unemployed, homelessness has increased by 50 percent in some cities, and 38 million people are receiving food stamps, more than at any time in the program’s almost 50-year history. Evidence of rising economic hardship is ample. There’s one commonly used standard for measuring it: the U.S. Census Bureau’s poverty rate. It guides much of federal and state spending aimed at helping those unable to make a decent living.

But a number of states have become convinced that the federal figures actually understate poverty, and have begun using different criteria in operating state-based social programs. At the same time, conservative economists are warning that a change in the formula to a threshold that counts more people as poor could lead to an unacceptable increase in the cost of federal and state social service programs.

When Census publishes new numbers for 2009 in September, experts predict they’ll show a steep rise in the poverty rate. One independent researcher estimates the data will show the biggest year-to-year increase in recorded history.

According to Richard Bavier, a former analyst for the federal Office of Management and Budget, already available data about employment rates, wages and food stamp enrollment suggest that an additional 5.7 million people were officially poor in 2009. That would bring the total number of people with incomes below the federal poverty threshold to more than 45 million. The poverty rate, Bavier expects, will hit 15 percent — up from 13.2 percent in 2008, when the Great Recession first started to take its toll.

Still, the U.S. Census Bureau’s new numbers will offer only a partial picture of how the nation’s sputtering economy is affecting the poorest Americans — a problem state officials and the Obama administration want to address.

The current formula for setting the federal poverty line — unchanged since 1963 — takes the cost of food for an individual or family and multiplies the number by three, under the assumption that people spend one-third of their incomes putting meals on the table. While the formula may have been a good way to estimate a subsistence cost of living in the early 1960s, experts say food now represents only one-eighth of a typical household budget, with expenses such as housing and child care putting increasing pressure on struggling families.

In addition, the official measure fails to account for regional differences in the cost of housing, it doesn’t include medical expenses or transportation, and at $22,000 for a family of four, the poverty line is considered by many to be simply too low.

Read on for the rest of the story. And how is America building an aristocracy? Wait, you mean, it's not enough for them yet? Not really, Virginia! (Notice how all the fun started (strangely enough) during the Raygun Revolution?) (Emphasis marks added - Ed.)
America Builds an Aristocracy AMERICANS have always assumed that wealth comes and goes. A poor person can work hard, become rich and pass his money on to his children and grandchildren. But then, if those descendants do not manage it wisely, they may lose it. “Shirtsleeves to shirtsleeves in three generations,” the saying goes, and it conforms to our preference for meritocracy over aristocracy.

This assumption is now being undermined, however, through the increasing use of so-called dynasty trusts.

These estate-planning instruments enable affluent people to provide their heirs with money and property largely free from taxes and immune to the claims of creditors. And rather than benefit only children and grandchildren, dynasty trusts provide for generations in perpetuitytruly creating an American aristocracy.

Congress is feeling pressure to deal with taxes on inherited wealth, which have fallen to zero this year thanks to lawmakers’ inaction. In the process, it should address the more pernicious problem of dynasty trusts.

This type of trust is new because until very recently most states had a “rule against perpetuities,” which limited the term of any family trust to about 90 years, after which time the family members would own the property outright. This rule derived from the idea that property is best controlled by the living.

In the mid-1990s, however, many states repealed the perpetuities rule, and now any wealthy American can set property aside for his heirs forever, simply by hiring a trustee from one of these states. What caused state legislatures to abandon a rule that had existed since the late 1600s? Banking industry lobbyists persuaded them that it would be a lucrative move because it would bring business to their states. But it was Congress that set the stage nearly 25 years ago.

In 1986, Congress instituted the generation-skipping transfer tax. This closed a loophole in the estate tax by ensuring that property would be subject to tax as it passed through each generation, even if it would otherwise have avoided estate taxes because it was held in trust. (It prevented “generation skipping.”) However, in enacting this tax, Congress gave each taxpayer a $1 million exemption, which was raised over the years to $3.5 million.

Naturally, estate planners began to create trusts that could take advantage of the exemption, and avoid taxes for the term of the trust. The term, however, was limited by the rule against perpetuities. Bankers then realized that if they could persuade their state legislatures to repeal that rule (as well as state income taxes on trusts), they could attract business. And in more than a dozen states the banking lobbyists were successful. The rule against perpetuities was repealed, and dynasty trusts — tax-exempt trusts that could benefit generation after generation of heirs — were born.

This did generate business. One study found that nearly $100 billion in trust funds moved to states that repealed their rule against perpetuities. Dynasty trusts can grow much larger than the $3.5 million exemption amount would suggest. A couple can, for example, put $7 million (their two $3.5 million exemptions) into a life insurance policy owned by the trust. They apply their exemption at the start, and the trust is forever free from taxes — even when, after the death of the second spouse, the life insurance policy pays off at $100 million.

Alternatively, a trust can use the $7 million as seed money for a profitable business that the trust then owns. An ordinary trust dissipates as money is distributed to the beneficiaries. But a dynasty trust can avoid this by discouraging outright distributions and instead encouraging trustees to buy, for the use of the beneficiaries, things like houses, artwork, airplanes and even businesses. Because the trust retains ownership, the assets can pass tax-free and creditor-proof to the next generation. Beneficiaries don’t pay taxes on the use of this property. In contrast, a worker whose employer provides housing or other benefits is taxed on those benefits.

But tax breaks are not the only special advantages that dynasty trusts provide. Even more troubling, they commonly include a “spendthrift clause,” which provides that trust assets cannot be reached by a beneficiary’s creditors. If a beneficiary causes a car accident, for example, the victim cannot be compensated with assets from the trust, even if they are the driver’s only resources. So beneficiaries are free to behave as recklessly as they like, knowing that their money is forever protected for themselves and their heirs.

Surprisingly, dynasty trusts can also be bad for the beneficiaries themselves. Many wealthy people agree with Andrew Carnegie and Warren Buffett that it is not in their children’s best interest for them to be given so much wealth that they don’t need to work. Dynasty trusts rob future parents of the ability to decide this for their children, because the ancestor creating the trust is the one who determines how much wealth each generation of his descendants will receive.

What can be done to eliminate these trusts? A state-level solution is unlikely, since all 50 states would need to act in unison. But Congress could fix the problem by limiting the generation-skipping-transfer exemption to trusts that last no longer than two generations. After that, beneficiaries of a trust should be subject to tax, like everyone else. Then America would not have to face the uncontrollable growth of a new aristocracy.

Ray D. Madoff, a professor at Boston College Law School, is the author of Immortality and the Law: The Rising Power of the American Dead.

And finally, a tribute to a very important man (self-determined, of course). (Emphasis marks added - Ed.)

CLARENCE THOMAS - BASTARD Owner of a lonely heart

Supreme Court Justice Clarence Thomas had a reality check today:

A nephew of Supreme Court Justice Clarence Thomas suffered a seizure after he was beaten and shocked during a scuffle with security guards at a New Orleans area hospital, relatives alleged Friday.

Derek Thomas, 25, was immobilized with a stun gun Thursday after he tried to leave the emergency room at West Jefferson Medical Center in Marrero, La., his sister told WDSU, a local television station. Security responded after Thomas refused a doctor's request to put on a hospital gown and started to leave, Kimberly Thomas said.

While this action by the security guards is deplorable, maybe this is a teachable moment for Justice Thomas, who once found such thuggish behavior less than awful:

Back in 1992, just after joining the court, Thomas dissented in the 7-2 decision that upheld a $800 award for damages for a Louisiana inmate who, from behind his locked cell, argued with a prison guard. Three guards took the inmate out of his cell, put him in handcuffs and shackles, and dragged him to a hallway where they beat him so badly that he suffered a cracked dental plate.

The lower court ruled that the beating had nothing to do with acceptable prison discipline. But Thomas all but laughed off the beating, saying the injuries were ''minor.'' Thomas said the ''use of force that causes only insignificant harm to a prisoner may be immoral, it may be tortious, it may be criminal, and it may even be remediable under other provisions of the Federal Constitution, but it is not `cruel and unusual punishment.'''

Perspective, dude.Why do so many on the right lack the ability to intellectualize about awful treatment of other human beings? This shouldn't be that hard. But until it happens in their close circle of family & friends, it remains an abstraction (in)comprehensible.

Of course, Thomas might still not understand what empathy is:

To the Editor:

Your July 7 article about Judge Clarence Thomas's intellectual journey on the path of self-help reports his oft-repeated quotation about his sister, then on welfare: "She gets mad when the mailman is late with her welfare check. That's how dependent she is." The rest of the quotation condemns her children: "What's worse is that now her kids feel entitled to the check, too. They have no motivation for doing better or getting out of that situation."

This is an appallingly callous statement and contrary to the facts. As reported in The Los Angeles Times on July 5, Judge Thomas's father deserted the family when the children were small. The mother supported the family by picking crabs at 5 cents a pound. When a fire destroyed their home and belongings, the mother, who could no longer support the children cleaning houses at $15 a week, sent the boys - not the girls - to live with their grandfather, an independent small-business man.

Judge Thomas's sister, Emma Mae, stayed home and graduated from high school. She got married and had children, and then her husband deserted her. While the judge was attending Yale Law School, she supported her family with two minimum-wage jobs. Her mother worked as a nurse's aide at the local hospital, and an aunt took care of the children.

Then the aunt suffered a stroke, and Emma Mae Martin had to quit work to take care of her. This was when she went on welfare. She was on welfare about four and a half years. Now she works as a cook at the local hospital, reporting to work at 3 A.M. She has three children. One works as a carpenter; one was just laid off, and the 15-year-old is in school.

This is hardly a story of welfare dependency. The women of this household worked hard at low-paying jobs, took care of one another and raised their children. It is a story not only of race and poverty, but also of sexism -- desertion by husbands, lack of child support, giving boys, not girls, the opportunities to get ahead.

And when the elderly aunt needed care, it was the adult female relative - again, typical - rather than the men who assumed the burdens. This was when Emma Mae Martin had to go on welfare. What was she to do? Can you imagine the long-term care that might have been available to an elderly African-American woman in rural Georgia?

Ms. Martin then left welfare, again works hard, and her three children are in the labor market or in school. In other words, in the face of great odds, she did exactly what Charles Murray and other conservatives have asked: she completed school, she worked, she got married. She has suffered because of irresponsible men, male preferences, lack of an effective child-support system, lousy jobs and a lousy health-care system.

What can we say about her brother? He had the advantages. Yet he cruelly distorted her situation and publicly humiliated her and her children. Is this the kind of person we want as a Justice of the Supreme Court? In contrast, Emma Mae Martin has retained her dignity, her tolerance and generosity - qualities one would like to see in a Justice. It's too bad she was not nominated for the Court.

JOEL F. HANDLER Prof. of Law, University of California Los Angeles, July 8, 1991

Read on for the judgment of the author of this essay. And for one more (but waaaayyy too much) note of interest: what we get when first we develop the habit of greed.
Do you use ibuprofen, tetracycline or heparin? Or any others that come in large part from China where the standards are not the same as they are in the U.S.? How do you like those "conservative" safeguards?
I didn't think so.

Suzan _______________

5 comments:

libhom said...

What we really need is income redistribution. We need to make the rich pay their fair share in taxes. We need to end the wars in Afghanistan and Iraq ASAP. That huge pool of money should be used to reduce deficit spending, increase social welfair spending, pay back the Social Security trust fund, and improve our infrastructure, especially public transportation.

Suzan said...

Couldn't agree more, Lib!

That's where I live.

Thanks for commenting.

S

Greendayman said...

There is a club and we're not in it. Hi Suze - hope you are well. We make quite a pair - financial misfits with 6 figure skills and a 3 figure job.

TomCat said...

Suzan, you said nothing with which I disagree. Marx was correct in his estimation that unbridled capitalism would eventually concentrate wealth in so few hands that the economy would grind to a halt. Regulating capitalism to tame its predatory qualities and softening the business cycle with Keynesian economic policy saved capitalism from such a fate until we abandoned that approach. We must return to it.

Suzan said...

Hi GDM,

I wish I had a 3-figure job!

You are right on the money otherwise, sweetheart. Hope you are well.

financial misfits with 6 figure skills and a 3 figure job

TC,

I remember reading Marx and Engels in college and thinking "What's wrong with this thinking?"

I had to have it explained to me.

By demagogues.

Still doesn't make sense.

Love you guys!

S

Marx was correct
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