Nassim Taleb has finally lost it…

“The Reappointment Of Bernanke Is Too Much To Bear”

–Nassim Taleb

Wikileaks: Releasing secret documents on interrogations

Wikileaks has just released this announcement:

Destruction of US interrogation tapes: in a few days we will release secret docs about how Congress is being subverted

Well, at least he is creating jobs in Afghanistan…

If you had any illusions that the Messiah‘s jobs summit was anything more than a PR ploy, this should persuade you otherwise: 130 corporate types dressed in very expensive designer wear sitting in a room – each with their own agenda – recounting their experiences with unemployment. (Uh, none)

A one day dog and pony show for those who will be watching it from some homeless shelter in Pontiac, Michigan – even the homeless need entertainment. There will, no doubt, be an appearance by some unemployed mother of three to provide a human touch for the evening news.

MESSIAH: We need jobs! We must grow the economy!

CHORUS: JOBS JOBS JOBS! GROW GROW GROW!

Wash, rinse, repeat as needed…

Google, Disney chiefs due at Obama jobs summit

About 130 experts from unions, government, academia and other companies will seek ways to jumpstart job creation.

NEW YORK (CNNMoney.com) — Executives from Google and Walt Disney will join other company chiefs, academics, labor leaders and mayors at President Obama’s jobs summit this week, the White House said Sunday.

Google (GOOG, Fortune 500) CEO Eric Schmidt and Disney (DIS, Fortune 500) chief Bob Iger will be among about 130 people attending Thursday’s meeting, according to a partial guestlist.

Other prominent CEOs slated to attend include Randall Stephenson of AT&T (T, Fortune 500), Brian Roberts of Comcast (CMCSA, Fortune 500), James McNerney of Boeing (BA, Fortune 500) and Frederick Smith of FedEx (FDX, Fortune 500).

They’ll be joined by such experts as Paul Krugman, the Nobel Prize-winning economist and New York Times columnist, former Fed vice chairman Alan Blinder, United Steel Workers president Leo Gerard and San Antonio mayor Julian Castro.

Obama discussed the summit, aimed at helping solve an employment crisis that has cost the nation 7.3 million jobs since the start of 2008, during a cabinet meeting last week.

“We are going to be bringing together people from all across the country … to explore how we can jumpstart the hiring that typically lags behind economic growth, but we don’t want to wait,” the president said. “We want to see if we can accelerate it.”

“There stirs in Americans today a haunting sense of insecurity…”

In fitting tribute to the Messiah’s new shovel ready jobs program which is to be rolled out this week – 40,000 public employees digging foxholes in Afghanistan at the rumored cost of about $1 million per employee per year – Tom Walker has posted the full text of a remarkable yet almost forgotten 1952 speech by Dwight David Eisenhower exposing how Washington was solely responsible for inflation in the economy by using Cold War armament production to create a false prosperity under NSC-68.

As I said at the outset: all our problems today are tied to one another, and none can be solved by itself. With tens of billions spent on armaments, another six to seven billion yearly on foreign aid, we see again that the soundness of our financial health at home depends on the soundness of our foreign policy.

The blunt truth is this: we cannot bear this huge burden indefinitely. We cannot—year after year, decade after decade— both maintain our standard of living, finance huge armaments, and help to rebuild economies of nations all around the globe. We cannot, in short, win the peace with foreign policy of drift, makeshift, and make-believe.

We must ‘honestly face the fact that such a policy not only fails to secure the peace: it also places the hopes of the free world in jeopardy by the strain it puts on our economy., and by the confusion it creates in other lands.

There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might bring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression.

The vague odor of failure and defeat…

Leon Keyserling’s bastard offspring know they are losing the debate over unemployment and how to address it. There is growing odor of failure and defeat on the left of the Democratic Party as it becomes clear that the emerging Washington consensus believes it difficult, if not impossible, to continue the occupation of Iraq and Afghanistan, fix the long term problems of the failed health and retirement insurance systems, and still address the growing problem of a permanently unemployed mass of working families.

Saint Paul leads us off with a dandy whiff:

There’s something disturbingly familiar about the current deficit hysteria. There’s the way that fear, and a demand for action against a supposed threat, has spread despite the lack of any solid evidence to support it. There’s the way that many news stories seem to present only one side of the argument, and suppress or neglect contrary evidence (e.g., writing articles about how nervous investors are turning on Japan while never mentioning that the current interest rate on Japanese long-term debt is, um, 1.3 percent).

And I suddenly realized what it is: it’s like the runup to the Iraq war, when all the serious people knew that Saddam was working on nukes and invasion was the only option, and anyone who pointed out that there was no evidence to that effect was a flake.

It’s amazing, and dispiriting, to see it happening all over again.

Apparently, the prospect of trillion dollar deficits as far as the eyes can see is not convincing enough for Paul. Given the prospects of 11, 12 or 13 percent unemployment next year, trillion dollar deficits might seem to him to be of far less consequence. Paul sees this onrushing freight train – the light at the end of the tunnel – and hopes to convince the Messiah that, in the words of the Great Dick (Cheney), deficits don’t matter compared to what will happen if and when the unemployment check is no longer in the mail.

Jimmy Galbraith too wonders at the willingness of Washington to ignore the warning signs of an impending apocalypse. And he knows exactly who is responsible for the impending wreckage:

I mostly don’t blame President Obama; he and his team went as far as they felt they could. I blame the head-in-the-sand politicians in Congress, the over-optimistic forecasters, the half-educated press, and the power of the financial lobby. I blame the avatars of fiscal virtue, the public debt scare-mongerers, the astrologers for whom thirteen significant digits (a trillion) for the stimulus package was just too much. I blame the Senate, which hands the balance of power to small states at the expense of disaster areas like California, Florida and New York. I do blame the Bush-Obama financial policy team, who either believed that “credit would flow again” if you stuffed the banks with money, or knew that it wouldn’t.

As against this crowd, Galbraith knows what needs to be done:

Technically it would have been fairly easy, 10 months ago, to get this bus back on the road. There could have been open-ended fiscal assistance to stop the budget hemorrhage of the states and cities. There could have been a jobs program and effective foreclosure relief. There could have been a payroll tax holiday. There could have been a strategy for sustained massive effort on infrastructure, energy and climate. There could have been prompt corrective action to resolve, instead of coddle, the worst of the banks.

And all of this could be done – we suppose – while the US continued to occupy Iraq and Afghanistan, threaten Iran and Pakistan, maintain a global carrier fleet, and pursue its stated objective of preventing the rise of any competitor.

Isn’t it interesting how Mr. Galbraith conveniently fails to mention those costs as well?

The problem, Jamie tells us – his friends call him Jamie, but if he is going to fuck us, we might as well take the liberty, as well – is the mindset of the Washington insiders and their Wall Street allies who are incapable of grasping the approaching disaster:

I’m tempted to say that the United States is plainly unable to cope with the economic crisis in a serious way. The barriers are philosophical, procedural, and constitutional. So long as economic thinking is mired in a world that disappeared with the collapse of the Bretton Woods system in 1971, so long as any action requires 60 Senate votes, and so long as political capital erodes from the start of a fixed four-year presidential term, we’re stuck.

The Party of Washington is trapped by outmoded thinking, anachronistic institutions, and political cowardice, says Jimmy. But, his real target is the view that somehow Washington’s debt load limits options in this crisis. Washington’s debt, Jimmy reminds us all, is an obligation written on paper, and carrying all the value inherent in the instrument. As long as suckers in China are willing to hold these pieces of paper – and interest rates show they still are willing to hold them – we can print our way out of the tidal wave of unemployment heading ashore:

Since the early 1980s, the world has held the Treasury bonds that the U.S. chose to issue. The system is fragile. But so long as it lasts, it doesn’t discipline our budget (and if it broke, we could replace it). Low interest rates prove this: despite all the dire predictions, there is no difficulty in placing Treasury debt. Hence, we are free to pursue high employment, if we choose to do it.

High levels of unemployment will be tolerated by Washington, and the unemployed will be told to be patient as a hoped for recovery materializes. But, will it materialize? Who knows, since you being patient is the entire point of the exercise – as long as you are patient, Washington will ignore you. And when you are no longer patient, Jimmy fears it will be too late: Another failed Democratic Party administration will be washed away in a flood of anger:

So we’ll be told to wait, to be patient, and to make sure we don’t buy what we can’t afford. And double-digit joblessness will linger on, breeding frustration and anger — perhaps all the way through to the mid-term elections. After which, what will be possible is anyone’s guess.

Peter Dorman thinks that problems is even more depressing than articulated by either Krugman or Galbraith: The Messiah is an empty suit, a charlatan hiding behind the curtain pretending to be the Great and Powerful Oz:

… [T]here has been and is no program. Obama’s “program” in health care is to get a bill passed, whatever its content. His “program” on climate change is to get a bill passed, eventually, of some sort. His “program” on finance is to prevent a collapse and hope that the system will reform itself. His “program” on Afghanistan is to identify the minimum number of additional troops that will protect Democrats from the accusation that they are soft and unpatriotic. In short, he is likely to further hollow out the Democratic Party as a political enterprise and leave little legacy of social progress. The only reason the Democrats will not implode as their European counterparts have is that our system effectively excludes minority parties, and the Republicans are scarier than ever.

His solution is simple, if unspecified:

We need a dramatically different direction in politics.

Peter, there is term for people who propose to take you in a new direction without specifying the destination: Kidnapper.

In absence of specificity by Dorman, Brad DeLong provides both the destination and the road map for this new direction:

We could cushion the impact of another big downward shock by a lot more deficit spending–unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government’s money is as good as anybody else’s.

The problem with this scheme, DeLong admits, is that no one in position to implement it supports it:

But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing proble afrer (sic) 2030. The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments.

Here’s an argument Brad, Jamie, Peter and Paul neglected to advance: If all of this domestic spending were so important, why can’t it come out of the defense budget? Wouldn’t that address the problem of public debt that so preoccupies the Washington consensus?

By the way: How much do we spend on defense anyway? Have you ever seen two sources on this subject which agree? Did those sources include the cost of domestic and foreign suveillance – The CIA, NSA, DIA and the alphabet soup of hidden agencies? All those civilian jets taking kidnapped victims to the torture dungeons of Egypt or Bagram Airfield?

Just asking…

The continued focus on government spending as a means to increase employment by Krugman, DeLong, and Galbraith is nothing more than attempt to convince Washington that it can continue to occupy Iraq and Afghanistan even as it combats unemployment here at home. It is a warmed over regurgitation of NSC-68. The lack of imagination among these economists is shocking – but no more shocking than the realization that they are quite willing to prolong the agony of the peoples of Iraq and Afghanistan so long as it provides necessary boost to their full employment agenda.

Brad DeLong’s five percent solution… (2)

CONTINUED FROM HERE

Since you have now exhausted your capacity to absorb any more debt in the run up to this Great Recession, Brad Delong has a solution: It is time to max out the credit limit of the United States federal government as well.

That’s it – that’s the DeLong five percent solution. The federal government must step in for the indebted consumer and borrow even more money.

DeLong’s solution would be straining at credulity if it were simply a matter of the United States having the financial strength to service the debt accumulated in the present catastrophe, as well as the trillion dollar annual deficits which are projected hit in the coming years, AND, absorb another hit like the economy just took on the financial system.

But, if Dorman is right, that is only the beginning of what DeLong’s five percent solution would have to cope with

Picture the current economic problems, PLUS a second financial crisis, the likes of which we just experienced, PLUS, the long-term problem of stagnating wages for American families, who are deep in debt, and whose wages will continue to fall, since the process Dorman describes (off-shoring industrial work) has not slowed in the least, but is accelerating under the pricing pressures produced by households paying off their debt as unemployment explodes upward.

On this score, we could point out that DeLong’s s panacea for all of this – that government can offset these depressionary forces by accumulating still more than the 12 trillion dollars of debt it already has incurred – has never been shown to work; that it did not work in any sustained way to get the country out of the Great Depression; and, that when it does not work this time, and disaster ensues, good ole’ Brad will just waddle away from it as has every economist from his own discredited idea in a profession littered with grandiose claims for one failed theory after another, while its erstwhile proponents continued to be taken seriously.

A real recipe for disaster, huh?

Oh, but we’re not finished yet – not by a long shot

Do you remember that bottomless reserve of cheap rural labor in China?

Well, they are still there. In fact they’re pouring into China’s cities by the millions looking for work. And, as with all other things Chinese, we are talking huge numbers of unemployed peasants searching desperately for work. An estimated 20 million rural migrant workers lost their jobs as exports fell last winter, forcing millions back to their rural homes for lack of work – which is precisely where there is no work.

And, the solution of the PRC leadership?

Well, like almost every other country on the planet – with some notable exceptions like Germany – China implemented a strong stimulus package to boost the economy. And, unlike the United States, they did not have to borrow the money because they actually have a trade surplus to draw down on in times of economic dislocations. (You see, Brad, it helps if you actually produce things people need in the goods times – times when the US is sailing aircraft carriers around the Persian Gulf trying to intimidate Iran, or piling up the bodies of wedding guests in Afghanistan.)

As a very poor country, with hundreds of millions still living in conditions not much different than an American sharecropper at the end of the 19th Century – absent a cell phone or two – the Chinese need everything, in huge quantities; and, to pay for everything, they have adopted the US development strategy of export-led development.

And, they are pretty damned good at it. Unfortunately, and through no fault of their own, this has led to a situation where there is a global condition of excess capacity in virtually every area of the world economy. While it is beyond the scope of this piece to go deeply into this problem, let it be sufficient to say this:

For Brad DeLong’s five percent solution to work, Washington would have to spend enough not simply to offset a too long work week here in the United States, which is the underlying cause of the financial crisis, another financial crisis, the collapse of American consumption under the weight of the debt brought on by decades of manufacturing offshoring, AND, THE ALMOST DAILY ADDITION TO THE GLOBAL PROBLEM OF A TOO LONG WORK WEEK CREATED BY CHINA’S DEVELOPMENT STRATEGY.

Every factory built, every mile of road laid, every power plant finished, every export contract entered into in China adds to the growing glut of global excess capacity. And, China is pouring most of its resources into expanding precisely this activity: most of the 8.9 percent growth of China’s GDP in the most recent quarter took this form.

You can add to this, huge populations like that of India, Brazil and a host of other countries which are also growing at an astounding rate in the middle of the worst global economic crisis since the Great Depression!

Brad DeLong’s five percent solution ultimately rests on the notion that the five percent of the human race residing in the United States can continue to absorb the surplus output of the rest of the planet, as it has under the American system – the Dollar Empire. And, when he is proven wrong – as he must be – he too will waddle away from this insanity which passes for economic policy to receive his Nobel Prize in Economics, while you starve.

Latoya Egwuekwe shows us how an economy crumbles…

Click the picture to begin.

The Geography Of A Recession

Brad DeLong’s five percent solution…

Brad DeLong thinks there is about a five percent chance we will see a second Great Depression and there is little or nothing which can be done to avoid it:

For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it–that we know what to do and how to do it and will do it if things turn south.

I don’t think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy–a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more–are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d—– thing about it.

The problem is the political, rather than the possible: First, deficit hawks in the Party of Washington do not want to add to the outrageous pace of public debt accumulation. Second, the bailout of Goldman Sachs and the rest of Wall Street has so broken popular support for Washington’s financial manipulations, “… that there is no coalition anywhere for a repeat or anything like a repeat of propping-up the banking system …”

The center cannot hold against both the market-oriented right, and the anti-corporate left, the rough beast slouches.

Without being able to incur still more debt, to expand phony make-work employment, and to throw at the banks to cover their bad bets, DeLong believes there is no way to prevent any additional “shock” to the system which may push it into a depression.

We think there is a problem with DeLong’s reasoning here. The problem is not with his pessimism that there is a lack of support for measures to avoid a depression; it is his belief that a depression can be avoided by increasing public debt in the first place – even under the best of circumstance and with strong public backing for the measures necessary.

In DeLong’s thinking, and the thinking of most economists, an economy slips into depression as a result of being hit by some external shock which destabilizes otherwise mostly stable economic activity. This is not say economies are not subject to their own transient internal problems – like avarice, scams, bubbles and income inequality, or such political problems as the lack of effective regulatory oversight – but the kind of unnatural shock that sends an economy spinning into a depression goes beyond these flaws to persistently reduce economic activity to some level below its normal growth path – causing it to stagnate for an extended period of time.

This time the alleged trigger to that kind of event was the collapse of the housing market, which produced a run on major banks and a string of failures of investment banking giants Bear Stearns and Lehman Brothers. Alleged tightly interconnected global financial markets transmitted these failures like some nasty virus to other economies in quick succession.

Moneyman saves the world from Doctor Depression

Ultimately, the collapse was stemmed when the Federal Reserve and the Treasury Department stepped in to backstop the entire global economy.

That’s a great story: lots of heroism, square-chinned American heroes, lots of excitement, and a thrilling ending as the heroine is saved in the nick of time from the careening global collapse Indiana Jones-style. The world almost came to an end, but our magnificent hero, Moneyman, enters in the last scene and foils the deadly plot of Doctor Depression.

We close with the final embrace between our hero and his fair swoon as the credits roll – and, wrap!

Fortunately, it is total bullshit – a Grimms’ fairy tale with just enough danger and excitement to entertain the unsophisticated rubes in Kansas.

Peter Dorman, who writes on Econospeak blog, has suggested (pdf) that this depression has been brewing at least since 1982 when the United States and the International Monetary Fund, “established a policy regime that permitted, and to some extent required, debtor nations in the developing world to transform themselves into export platforms for acquiring hard currencies. Central to this regime was an opening of consumer markets in the wealthy countries and the deregulation of cross-border production and finance.”

Nations like Mexico were converted into huge sweatshops, while Washington pushed through NAFTA and other agreements to open the US markets to inexpensive imports. Industrial jobs went overseas, and the era of Walmart was born. Eventually, says Dorman, China adopted this export-led development strategy and American companies had an orgasm as they anticipated the profit possible from a market with a seemingly bottomless reserve of cheap rural labor.

Brought into direct competition with the abysmally low Mexican and Chinese wages – which were necessary to offset superior American labor productivity – working families here suffered decades of stagnant wages. As American real wages fell, Washington and Wall Street provided easy credit at low interest rates funded, of all things, by recycling the torrent of money leaving the United States to purchase goods made in China, Mexico and other nations.

Even as the United States was being stripped of its industrial infrastructure, the ungodly profits being generated for Wall Street by producing in low wage countries and selling in the US was being lent to the very families being impoverished by this process in order to keep them spending.

What Delong calls a shock turns out to be the deliberate policy by Washington and Wall Street to starve American families. It crashed, and had to crash, not because it was a flawed strategy, but because it worked as planned.

TO BE CONTINUED

16 over Ten, 12 over Eleven, and 6 over Twelve…

(Click for larger image)

Source: Bureau of Labor Statistics

Richard Trumka: How a tired old union hack misses the point completely

Once upon a time, the union boss was hated and feared on Wall Street, now he or she is just ridiculed or ignored – or propped up in front of the TV cameras to serve as a convenient scapegoat for why you’re paying for Wall Street failures.

Little does the Party of Wall Street suspect that, indeed, they are right – union hacks like Trumka are precisely the reason why you are footing the bill for GM mismanagement, and Goldman Sachs’ venality. The unions sold you out to cash in on the virtuous cycle of ever bigger defense budgets, rising employment fueled by wars and economic predation, and an ever growing slush fund of union dues.

Now the bills have come due, and Goldman Sachs wants to blame the UAW because Ford, GM and Chrysler can’t build a decent automobile at a competitive price – a price that requires that an American standard of living be readjusted to conform to Chinese wage levels.

Watch below as Richard Trumka whines like a bitch for a return to the good old days when American union bosses marched hand in hand with corporate predators in support of the Johnson-Nixon carpet bombing of Vietnamese villages.

Richard L. Trumka’s remarks at the Spotlight on Jobs Crisis forum.

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