Must Read Posts - Sometimes you just can't say it better for 12.10.09

On The Economic Populist you might have noticed the middle column. We try to list other sites and blogs who have exceptional insight and writing on what is happening in the U.S. economy.

Sometimes though, one cannot say it better but miss those who did.

Must Read #1

A new research piece, by Asha G. Bangalore, Northern TrustGlobal Economic Research, states that just to maintain the current unemployment rate, the United States must create between 86,600 and 140,000 jobs per month. It's due to the average and then a slightly below average labor force growth rate of the last 20 years. So next time you see someone cheering that the U.S. only lost 11,000 jobs this month, consider these numbers. Also next time you see someone saying the United States should ignore immigration factors in the current labor market situation....think of these numbers.

Must Read #2

Naked Capitalism overviews some recent articles calling for action against China. It's one stop shopping for the implications of letting the trade deficit with China continue. Yves sums up the dire nature of our trade deficit situation:

The US will not be able to deleverage (absent explicit default) unless we move to a trade surplus. As long as we run a current account deficit, we need to run a capital account surplus. That means (if the deficit and therefore corresponding surplus are more than trivial) rising levels of debt, and high odds of speculative asset bubbles.

Must Read #3

The Atlanta Fed blog has a post, Jobs and the potential commercial real estate problem: Still keeping us up at night detailing the correlation between small business access to credit and the growing commercial real estate crisis. (Talk about a dog chasing it's tail in consequences!)

One area where bank loan losses are potentially high and uncertain is commercial real estate (CRE). As highlighted in a macroblog post from October, if the CRE problem falls disproportionately on financial institutions that also finance small business activity, we will be all the more worried that "the post-recession employment boost [small] firms typically provide may be less robust than in previous recoveries."

Small businesses that rely on bank loans for credit are much more likely to be affected by a bank's CRE exposure than in the past. In 1993, banks with CRE loan books more than three times their Tier 1 capital accounted for just 11 percent of total small business C&I loans. But this share increased to 42 percent in 2008 and stood at 38 percent in June 2009 (of a total of $281 billion of C&I loans to small businesses).

Must Read #4

Paul Volcker gave two speeches this week, summarized in the Time of London, Wake up gentlemen. Volcker is slamming many of the issues most of America is, the refusal to reinstate glass-steagall, executive pay and absurd "financial innovation" that is not based on sound models.

Must Read #5 article, Thousands of Stimulus Reports Missing, Resulting in Potential Undercount of Jobs Created details once more how jobs are not being tallied correctly. While we believe the Stimulus did not create jobs that $787 Billion should, the number's are seriously skewed the opposite direction. Many recipients did not file reports! Another post, Stimulus contracts going to companies under criminal investigation, show the never ending manipulation of large corporations to claim they are a small, minority owned business to gain access to contracts.

The Department of Defense awarded nearly $30 million in stimulus contracts to six companies while they were under federal criminal investigation on suspicion of defrauding the government.

Propublica is great site overall, with a lot of details in tracking the bailouts and stimulus.

Must Read #6

The Wall Street Journal has detailed the new American Dream, Default, then Rent.

Finally some cracks in the ceiling and acknowlgement owning the American home has turned out to be a very expensive proposition. (h/t Calculated Risk).



Forget Glass-Steagall....

...I once thought that would be a quick help to fixing this godawful mess, but things have gone too far over the cliff.

The system is too rotten, situations far too gamed.

John Plender, in a past Financial Times column, mentioned that the drivel he learned in college business and econ courses regarding balance sheet efficiency and private equity was just so much "claptrap."

Yet, we've seen over the past thirty years that corporations and foundations endowed specific econ and business chairs at a number of universities, and those specific academics taught said "claptrap." And pushed for securitization and credit derivatives adoption, and SIV, SPV, SPE, SPC, SPRe adoption.

I see a definite pattern here: Martin Feldstein, of Harvard (in regard to that other post on AIG) was on the BoD of AIG Financial Products when they did the largest insurance swindle in human history. And he was on the BoD of HCA when the settled in the largest fraud settlement at that time in American history (re: Medicare and Medicaid billing fraud). And he was on the BoD of Eli Lilly, when their performance got them the largest criminal fine in US history.

Just one small tick on an ongoing pattern of academics gone wild!

it's much more than Glass-Stegall

but reinstating it would put a wall between investment banking and consumer/commercial banking. This is a very much needed reform. Removing that firewall is how the system became so interlocked like a pack of dominoes falling down.

But that's just one rallying cry on reforms, one point out of many things that are desired by those who have a good "big picture" view on what's going on.

So, when you see "reinstate Glass-Stegall" don't think it's just that one piece of legislation, it's a huge set of reforms behind it in addition.

Agreed James, it's wasted effort.

The renowned Hazel Henderson has long maintained that:

The problem is of course, that not only is economics bankrupt, but it has always been nothing more than politics in disguise.

That is why I have long maintained that we are in a severe political crisis, not just an economic one. I wholeheartedly agree with you that the severity and depth of damage to the society at large is far beyond "fixing" at this point. In effect, I think we are fighting the "forces of Mordor", to borrow a phrase from Tolkein.

I am truly a pacificist at heart, but I can't see any way of disrupting the status quo short of violent revolution. And I don't anticipate that happening anytime soon, given the general population's ignorance of what is happening to them.

I can think of only 3 "industries" that America is a leader.

1. Prison systems
2. Weapons of war
3. Financial innovation

The Financial industry is driving the lowest 95% of the population into the underclass of America. Which, in turn, either forces them to support the War agenda, or populate the prison systems. We are a country of "Keynsian Militarism", IMO. It's the only real stimulus we have going for us.

But all of it begs the question, what about resource depletion and peak oil? To have a better appreciation of our misguided policies, I would recommend John Michael Greer's latest essay. Reality will bite hard!

Thanks, commongood, and back at you....

Thanks for JMG's latest essay; quite good.

Very much reminds me of the writing of economic anthropologist Joseph A. Tainter, who has done some truly brilliant research along the fundamental lines of the how and why societies collapse (his book: The Collapse of Complex Societies is brilliant!).

To get a quick understanding of his writing, just read this very brief paper of his which beautifully sums up his research on that matter.

Several sentences to ponder from his wiki entry:

We often assume that the collapse of the Roman Empire was a catastrophe for everyone involved. Tainter points out that it can be seen as a very rational preference of individuals at the time, many of whom were actually better off (all but the elite, presumably).

Such reasoning might lead one to believe that any democratic-loving people south of the border (Honduras, Bolivia, Venezuela and Columbia, perhaps?) might not be too displeased with the dissolution of the USA as an economic pseudo-superpower. Likewise some other countries in the Middle East and Asia.

One very crucially important historical point Prof. Tainter has made several times, is that in human history there has NEVER been a case of any society ever de-economizing.

Gives one pause for thought.....

YW, James.

Yeah, entropy manifests itself in so many ways. I've become somewhat familiar with Tainter in the past year or so. Mainly because I find Prechter's Elliott Wave stuff absolutely fascinating, and compelling. But I have to admit, I'm not in their league intellectually, but I aspire to be. BTW, I find your arguments compelling as well, and far from conspiracy theory. We live in interesting times, indeed!