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Robert Reich's Supercapitalism (book review)
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US oil supplies at a 36½ year low, SPR at a 39 year low; oil+products supplies at an 18½ year low
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The Federal Reserve Destroyed Our Site
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Robert Reich's Supercapitalism (book review)
- 53260 reads
Unemployment: A Realistic Forecast
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Any organization, even the government, has to be mindful of cash flow. When a corporation approaches death, through bankruptcy or some other form of collapse, it is always a concentration on cash flow that marks their final days. In the corporate world you can tell when a company is near death because they start conserving cash, including stiffing on 30 day trade payables.
If you read the US financial press, you will notice that people are now concentrating on US Treasury balances in the banking system. They are watching these balances go up and down, but on balance going down, to the point where people can see that around August 2 the Treasury will have to start making decisions about which "trade payables" don't get paid. Social Security recipients? Federal employees? Bond holders?
In the 1970s the chairman of Citigroup, Walter Wriston, used to say "countries never go bankrupt." He was right, in a limited way, and his bank bet billions on this theory that countries always go into restructuring of their debt, but never bankruptcy. Unfortunately, his customers did run out of money, and they did default on their bond payments, and Citigroup took enormous write-downs as a consequence.
Governments may not go into bankruptcy and liquidation, like private enterprise, but they do go into default when they run out of cash. There is a theory that governments can even perpetually avoid default, because they can always print more of their money. The fallacy here is that the printer of money - the central bank - is not the same as the government, which is the Treasury or Ministry of Finance. Even if the Treasury controls the central bank, that doesn't mean it can engineer unlimited printing of its currency to pay off ever-increasing issues of debt. Investors eventually learn to avoid the debt, or demand repayment in other currencies, or demand higher interest rates, all of which limit the government's choice. Notice this happened to the United States recently. China and Japan have slowed down or reversed their Treasury holdings, forcing the Federal Reserve to step up and replace their buying. This was one of the reasons for QE2 - though never explicitly stated. The Fed is now on the defensive over QE3. QE2 obviously failed to generate economic growth, which is especially evident from the restatement yesterday of Q1 GDP to 0.4%. The US Treasury now faces two serious constraints that are leading to a default: the central bank can no longer help buy unwanted debt, and the Congress is capping the debt level by refusing to increase the debt ceiling. As long as these two conditions hold, default on some obligations (maybe not to bond holders) will occur.
As to whether $4 trillion is taken out of the economy in 2011 or 2012, the day of reckoning is only being postponed. I have to agree with Karl Denninger, who was a founder of the Tea Party, that the day of reckoning is now inevitable. The mathematics of compounding have now taken control of the situation. The US can wait until the bond market completely abandons Treasuries (forcing interest rates up), or until the rating agencies downgrade the debt several grades, or until the Congress withholds borrowing authorization. However it happens, a serious blow to the economy is going to occur, and a debt washout in all sectors of the economy is going to take place. I equate the blow to removing 25% of the cash in the economy; Denninger equates the blow to a 12% decline in GDP. It all gets to the same end result.
If you have been more frugal than your neighbor, you should have a decent nest egg to see you through your retirement. If your neighbor lived off debt, while you purchased everything through cash and saved up for a rainy day, your retirement should be much easier. There are millions of immigrants like you who lived almost in poverty just for the chance that their children could get a decent education and they themselves could retire safely. I meet such people in the inner city all the time where I work.
I also meet many Americans who have hardly any money saved up, but enjoy all sorts of little luxuries like a nice car, a middle class home (or even a McMansion), vacations overseas, fashionable clothes, and so on. There was a time, a few years ago, when people like this could get as much debt as their home value allowed; now they are underwater in their home mortgage, facing foreclosure, and probable bankruptcy.
I come from a large family and some of my siblings followed the first avenue, living abstemiously and saving up for hard times. Others went the borrow and spend route. They come to me and ask for help with lodging or food just to tide them over until "things get better." What should I do? Let them starve? Lecture them? Give them a copy of Atlas Shrugged and send them on their way? It's a lot harder to let people starve (especially your nieces and nephews), no matter how many bad choices they made, when they are people you grew up with. Yes, there will always be some people in the family who prey upon your sentimentality and family love; eventually you learn to stop giving them money. I'm not talking about those people. I'm talking about those who got sucked into the American dream, built upon the quicksand of easy money and unlimited debt.
Notice that in American culture, there are intense efforts to make you despise people who are less fortunate than you. You are made to feel that all such people are lazy, and that they are stealing your money with the taxes you pay. You are also told that taxes of just about any sort are a form of theft. You are made to believe that all corporations are good and decent because they create jobs. As long as so many Americans fall for this, we won't have any chance of rebuilding a community of Americans - a family where there are indeed economic consequences for people who don't save and mistreat debt, but where there would also be consequences for those banks that foolishly extended such debt. This is my biggest problem with the Tea Party. Tea Partiers make a lot of excellent points about the lack of consequences for poor decision making. They make the valid point that our deficits have easily exceeded the point of sanity, and that the longer we wait to address them, the worse the consequences for all will be. What they often do not recognize is how they are being manipulated by the media, how they are made to turn against their fellow Americans, and how all this conveniently allows some corporations and some people to live off the Treasury or even steal from it. This is the real form of tax theft that powerful forces in our society want you to ignore. I am sorry to say, they are succeeding.
Registered users: If you see a gross grammar or spelling error, please use the author contact link (click on the post author to find the secured email form) and let them know.
I don't like it when the spelling and grammar police write comments pointing out some minor flaw in authorship instead of focusing in on the comprehensive content of an article. At the same time, I just found a grammar error in a piece I wrote a week ago.
Sometimes even when one proofs their writings, things go sliding by, especially when a site like this moves so fast.
So, can you all help out by emailing the article author?
Anonymous drive-by's: I let these comments come in with all of their beyond belief inability to write a complete sentence and spell. But serially, don't you realize by not using a spell checker and at least an attempt at grammar you destroy whatever credibility you have and few bother to read what you have to say?
I've seen comments come in where pretty much every word beyond 3 letters is misspelled. Come on people, install iespell or use firefox which has a built in spell checker. Yes, the rich text editor does have a spell checker.
Anyone reading economic statistics, the content and finds a flaw, please leave a comment to enable corrections. I'm a stickler for accuracy but when one gets into this level of analysis, it's very easy to make a mistake. Let's not perpetuate economic fiction, so all of those who see a mistake in the actual analysis or data quotes, please let us know!
You dispensed with the know it all nostrums in record time. One reason US productivity is so high is worker commitment and attitude. People will work when given the chance and they'll work hard. They'll do exceptional work when they're well compensated and treated with respect. The crisis should be over jobs not the debt ceiling. It's a false choice - a bad Obama plan and an insane Republican plan. when it's over, the people will sort it out and there will be Hell to pay on both sides.
Zero Hedge has a post implying the Q2 GDP numbers do not add and makes the point of how we have many economic reports, which go into GDP calculations, which slowed in comparison to Q1 GDP, which was flat lined.
The answer to how Q2 GDP could be higher to Q1 is in the fact this is the advance report.
I will bet you dollars to donuts Q2 GDP is revised significantly downward. The reason is imports. Imports this report were shockingly low. That said, the data that comes into the BEA always has delays. That's why the advance is marked "advanced" and why GDP is revised 2 more times in just a month or so time span, never mind the larger revisions as more data comes in.
Beyond Japan, the trade deficit report from last month doesn't really signal this low of imports and from experience, trade numbers are often significantly revised, due to the delays from the real data collected at the border.
I also wouldn't be surprised to see changes in private inventories be revised up and I sure wouldn't be surprised to see residential investment revised down.
Anyway, there is no CT going on here, more don't you wish we had more accurate and real time macro statistics?
Think about collecting all of that raw data for a national economy and some of the arcane data collection methods in comparison to today's immediate technology world.
Sir,
I appreciate what you are saying. I recommend that you read Malcolm Gladwell's book, Outliers. He gives a very interesting analysis of what it takes to be successful. Success is rarely achieved in isolation. He gives example after example of how successful people were supported in various ways, had luck that was unique, and used those advantages maximally.
The social safety net provided by our government, "we the people," is intended to support people who don't have those advantages, or the imagination to see opportunities or know how to pursue them.
What you say borders on Social Darwinism that was enormously popular in the last quarter of the nineteenth century here, while it was profoundly rejected by Europeans. If we follow the direction you suggest, we are condemning an enormous number of people to great hardships, and condemning their children to brutishness.
So, I appeal to your humanity and compassion for those who don't have your ambition and drive. Afer all, you had the courage to immigrate facing an uncertain future. How many of your countrymen didn't have our courage and determination. Should they be abandoned?
While right, you left out who backs the TParty-self-employed, owners,corporate executives,(upper class), extraordianary wealthy, mainly but not exclusively, white Repubican individuals brought to a fever pitch of 2013 DEBT ARMAGEDDAN. The religious and Republican elite are selling Finance from Rob Weidemer, Economist and crystal ball teller, of AFTERSHOCK I AND NOW AFTERSHOCK II available from Newsmax.
How much more empty, ill-conceived talking points are going to be attempted in the comments.
What happens to that family when both parents are laid off and have no money. What happens to families when they have no income, no revenues.
They end up homeless in America. Does that make them irresponsible? No. This nation is refusing to enact policies to make sure these hard working good people have a stable income, jobs and opportunities.
Now let's say we have a family who refuses to even look for a job. Refuses to even attempt to get revenues into the coffers. Decides somehow refusing to earn income is freedom and they need to shrink the family down to the size of a bathtub over some philosophy.
Who is the irresponsible family now?
Yet. When your wife gets cancer and you get Parkinson's or have surgery that puts a toxic hip replacement into your body, you get back to me.
Do you honestly believe that most Americans are not working as hard as you? You're living in a fantasy land. The median salary is $26k a year.
You typify the classic inability to have empathy or understanding that life's circumstances are often that of luck and fate and just because tragedy hasn't happened to you now....the concept of yet doesn't enter your mind.
You are walking over the dead bodies, not realizing that some day that body will be yours.
I am an immigrant who came to US in 1999 with my wife and two kids.
I learned English while working 12 hour a day, making 1400 a month (after taxes)out of which I paid $720 a month for one bedroom rent (utilities excluded)in one of the best school districts in NJ. It was very hard but I did not ask anybody to help me.
Eleven years later my wife and I are well into six digits salary and still pay for everything. We have no help from the government or any other organization other the "Bush era" taxes and merit scholarships for my daughter in college.
I am asking you Robert, where was my safety net when I needed it? My friends are having exactly the same position. How about them too? When it was hard we cut spending, when the companies I worked for paid I took classes for a Master degree, sacrificing nights and weekends and summers.
Explain to me why, when I will retire, I will have to have the same standard of living as somebody who went through life taking advantage of my hard earn tax money? I don't want to sound cruel, but people should take personal responsibility for their actions in life and sometime they should suffer the consequences for their decisions. I did it after I moved to US, for several years!
It is not stepping over peoples' bodies, it is about being fair to the people who are paying for all the safety nets and do not get anything instead.
"Anyone who has done a family budget or a business budget understands there are two sides to every discussion of cash flow: cash flow in, and cash flow out"
In the first place, there are two different types of families: responsible and irresponsible. What is a responsible family? Well a family who plans the number of children it can afford to have, the size of the house it can afford to buy, the type of car it can afford to drive, etc. Not ultimately it is a family that, when it goes through difficult times, cuts the unnecessary spending: number of cell phones, cable TV, vacations etc. I hope everyone gets the point.
At the opposite side is a family who doesn't care what they can and can't afford to have and, if they don't have much to sacrifice they want everybody else to do it instead: to send their kids to school with public money (even when they are below average students), to get loan modifications for the houses they never afforded (and sometimes lied in order to get their mortgages), etc.
Now the question is, if we want to have our government to run the budget like a family's budget, which family would that be?
A well written fantasy about a political group the author obviously knows nothing about. He also displays a stunning lack of knowledge regarding govt. budgeting, and how it works differently from those of businesses and individuals. The following quote is a prime example of his liberal ignorance of the subject matter:
"The danger in an approach which demands enormous budget cuts - $4 trillion is the number mentioned by the Tea Party – is that you expose the economy to a depressionary shock, especially since the Tea Party wants the cuts immediately. Immediate cuts of that size would be the equivalent of removing 25% of all cash flow out of the economy, throwing tens of millions of middle class Americans into acute financial stress. For many poor people, it would be an existential crisis, in which starvation becomes a real prospect."
First of all, the $4 Trillion is the "cut" recommended for 2012, not immediately. The author seems to be blissfully unaware of the "Baseline Budgeting" method the govt. uses for its budgeting purposes. This means that all monies spent in 2011 will be held at even levels for 2012, with 7.5% automatically added whether they need it or not! This equates to an approximately $9.5 TRILLION increase in spending for 2012, even before Obama and his socialist lackeys start adding more giveaways. So the $4 TRILLION "cut" is not a cut in spending at all - it's a REDUCTION IN THE SPENDING INCREASE. This would mean the budget would only be increased by about 3.5% which is still higher than the rate of inflation.
The claim that "25% of all cash flow" would be taken out of the economy is a flagrant lie, and is only part of the hysteria and fear-mongering with which the public has become all too familiar coming from the liberals in election years.
Here's the simple fact that the American public and their political representatives are going to have to realize: the politicians we send to Washington are going to have to spend less of our money than they receive in revenues. The Tea Party mantra is all about the US Govt staying our of our lives and living within their means.
They're to greedy. These are excellent charts. How about that GDP in 2008, shocking. Corporate profits went down. But as the people failed to come out of the recession/depression and the economy contracted, corporate profits rose above their previous high for the decade.
They're too clever by half. They gain short term but those profits will tank if there is a general collapse, a deliberate debt induced arrow in the side, or just stagnation/stagflation. They don't care, the CEOs and hedgers. They're making money now, they have more than they need. They think that they act with impunity.
We're teetering. If we fall, we know who to blame.
Excellent report.
China seems too good to be true and this article pulls back the veil just enough to see why. Your inclusion of "corporate" control along with "centralization" completes the picture. If fact, centralization can be taken to mean both government and corporate efforts to that end. Our giant corporations go around buying innovative companies, much smaller, and squash them. It an be a well earned paycheck for the owners but it is a creativity killer for the economy. Over 80% of acquisitions fail to meet objectives. Hence, for every 100 really hot small companies acquired, 80 will disappear from the scene. Wonderful. (Crony) Capitalists can kill cretivity as well as (faux) Marxists. It's a universal human curse.
Who would have thought that Obama and Boehner along with their retinue would occupy sch a critical space in US history. They're not even up to the standards of Elliot's 'Hallow Men.'
Before the Democratic primaries, I asked just about the only person I know who might have the real answer, this question. Who do the guys on Wall Street want? I was told, 'They'd like Kennedy but he's dead so they'll settle for Obama.' They know that they're about to hit a wall, 40% drop in stock prices, economic disruption, etc. They need someone to distract the people while they loot the Treasury to make up for their losses. When things hit the fan at the end of 2008, I asked another question. What will it look like when it's all over? He said, take a look at Mexico, particularly Mexico City. There will be extensive poverty and a thriving business in kidnapping and ransoms.
Obama, Boehner, and he rest of them, including their patrons, may be empty shirts but they certainly have the power of extreme transformation.
Haven't talked to the guy lately. I think I'll look him up.
If the first Boehner legislation was certain to be rejected by the Senate and vetoed by Obama even if it went through, how is this new bill going to be any better? The time until we all have to live through this ridiculous squabbling all over again gets truncated, and now everything will be dependent on two-thirds of both houses approving the balanced budget amendment.
Boehner will let this go through just to save face and possibly his job, but it shows his majority to be more obdurate than ever. Talk about continuing to move the goal posts.
The Tea Party is out to destroy the system in order to get a new system that somehow conforms to their ideology. That propbably includes destroying the Republican Party (not a bad thing in itself) as Boehner is now discovering. Good luck with your agenda and what follows. You'd better put barbed wire and claymore mines around your gated communities. The welfare state stands between you and your worst nightmare. You may have a comfortable life, but you'd be surprised how quickly that can change when times get desperate. I have seen the despots who take power when order breaks down -- it ain't pretty. It doesn't happen overnight, but you'll know when it does happen.
There were problems updating some of the graphs and now they are all up to date with the revised data and Q2 advance data.
The one to look at is the breakdown of PCE, now the graph shows the dramatic decline in durable goods.
That is not a good sign.
Surely people are having buyer's remorse and how to dump out these crazies from Congress?
Ah, the weeping and wailing and gnashing of teeth as the tax and spend demons are dragged kicking and screaming out into the open. It reminds me of that scene in The Exorcist, where the demon comes to the realization that he is losing possession of Reagan's body. They will say anything, in a variety of voices, to avoid facing the simple fact that they are to blame for the crisis we are in.
Kudos to the Tea Partiers and to the brave citizen legislators they elected to fight this battle. In the words of Jean-Francoise Revel, "What we end up with in what is conventionally called Western society is a topsy-turvy situation in which those seeking to destroy democracy appear to be fighting for legitimate aims, while its defenders are pictured as repressive reactionaries."
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