Rolling US Economy Into The Shitbin Thread

i thought "likes black girls" was your personal mantra

that is my creed

no, that's wrong; that's my epitaph

http://www.serge.org/images/Creed.jpg

NOW we're in the shitbin.

well yeah, the experts who saw it coming were not immediately affected because it's not hard to dodge a bullet if the bullet is actually an elephant and the elephant is actually being pushed towards you on a cart so slowly it will be five years before it gets to you

so of course the "experts" most immediately effected didn't see it or pretended not to see it, presumably hoping as in Reagan's two terms that the "into the shitbin" moment wouldn't happen until the next chump was sworn in

and proving milton friedman's bullshit to be a bunch of bullshit doesn't make any of this crap a "black swan" either

― TOMBOT

Experts I was talking about are/were banks & lending institutions, ratings agencies, brokerage houses, etc. People who not only claim expertise, but who back it up with shit-tons of their own and other people's money. People who pin their careers on their supposed expertise on a daily basis. This crisis happened, in large part, because these people, the people who had the most to lose (and, presumably, the best understanding of what was actually going in the investment economy) were taken unawares.

It's easy, after the fact, to claim that it had to happen. Of course it had to happen. Everyone can see that now. And of course there were voices raised in warning prior to the collapse. But none of that changes the fact that this hit the global financial markets, financial institutions & professionas, and ideological/political financial experts like a bomb. In a few decades' time, we'll look back at this as the moment in which everything changed. And regardless of how many people now claim to have seen it coming since way back, regardless of how much shit we always thought Friedman was full of, were it not a black swan, its effect could not have been so catastrophic.

Your argument seems based on the idea that to say, "almost no one saw this coming," is the same as, "we had no reason to doubt the paradigm under which our governments/markets were operating." But I don't think A is necessarily a product of B.

Don I'm not sure how it ended up being my responsibility to describe your problems with Obama's stimulus proposal. Wasn't it you that said there were big problems with it, and that it has a good chance to fuck us up long-term? Why don't you spell out your reasons for thinking that? I can't have both sides of the debate all by myself.

I won't deny that I have an "ideology" - it's left-wing - but I honestly don't know how to apply it in this situation. For instance, I never thought I'd hear myself say "yay taxcuts!" but it seems to be what the situation calls for. Similarly, I never thought I'd hear myself silently nodding at proposals for handing out vouchers directly to taxpayers, redeemable at businesses but not at banks. I doubt anyone will do that though.

that Lewis-Einhorn NYT piece was so good I almost understood half of it.

Lewis is an almost insidiously good writer.

Don I'm not sure how it ended up being my responsibility to describe your problems with Obama's stimulus proposal. Wasn't it you that said there were big problems with it, and that it has a good chance to fuck us up long-term? Why don't you spell out your reasons for thinking that? I can't have both sides of the debate all by myself.

You're the one who said that the package would be scuttled "on the grounds of bloating the deficit and national debt." I pointed out that deficits/debt are legitimate concerns, which is absolutely true whether it's ideologically based or not. If you're not concerned about a couple of trillion dollars in new government spending being added in the next few years, if you're not concerned about the waste and corruption that will likely follow, if you're not concerned that there will be significant ramifications to fiscal policy in addressing current needs (healthcare/SSA/our military obligations, etc.) or the ramifications to monetary policy, then you're ignoring history and basic economic theory. Our impulse to throw money at shit to solve problems has a horrible track record. We let things get screwed up with TARP; why shouldn't we demand better for something much bigger?

This is a very serious subject, one that demands an honest intellectual discussion from a broad spectrum of economists. Smart people--not you and I--should be vetting this stimulus package very thoroughly.

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/01/05/who_should_get_the_federal_stimulus_funds/

You're the one who said that the package would be scuttled "on the grounds of bloating the deficit and national debt."

Where did I say that?? I mean sure, I guess it's a danger. Obama could cave on key provisions and then the whole thing runs a risk of not working. It's funny how conservatives suddenly get very concerned about the deficit when money is getting spent on people and services that directly benefit people, rather than on corporations. But when giant tax cuts are announced they don't give a shit.

And why on earth do you keep insisting I'm "not concerned" about waste, corruption, etc? I've said we have to insist on stringent oversight, again and again! It's like you're not reading what I'm writing. I agree - Congress can't afford to keep getting bamboozled by Friedmanite technocrats like Bernanke and Paulson! Yes that's part of the recent history between executive appointees and Congress in dealing with this mess. But a more directly relevant historical comparison, which you are apparently happy to ignore, is the WPA and similar programs that were implemented during the New Deal. They had very strong oversight. They worked, and were free of corruption.

i'm more worried about the "blue dog democrats" who will try to scuttle any Obama-led economic recovery package on the grounds of bloating the deficit and national debt. we can debate how much of that comes down to ideology or self-interest.

― Mad Vigorish (Eisbaer), Monday, 5 January 2009 13:34 (Yesterday) Bookmark Suggest Ban Permalink

Back to you, though:

If you're not concerned about a couple of trillion dollars in new government spending being added in the next few years

...

the ramifications to monetary policy

Two trillion dollars? How do you get that figure? In any case - again, what are the ramifications? What are the effects of adding this new spending? I'm not claiming there aren't any. I genuinely don't know. You seem to have strong ideas about this. What are they?

Tracer, Don's repeatedly saying that this should be sorted out somewhere and that that somewhere probably shouldn't be ILX (and that it shouldn't be you and him): you might disagree, but he's been really very clear on that!

On the other hand, one of the links in Don's chain of thought seems to be that government programs = wasteful and corrupt, presumably in comparison to the private sector. Which y'know is quite a claim considering the sterling work they've been doing in raising the bar in the last 18 months.

what's another trillion among friends

http://www.bloomberg.com/apps/data?pid=avimage&iid=i0YrUuvkygWs

And that chart doesn't include the $700B Obama wants, or the $1T+ that other people like Krugman want him to give away.

Do we or should we have to spend a lot of money now to avoid long term consequences? Sure. But what are the long term consequences of putting government spending at 50% or more of GDP? Nobody seems to be asking that question. This kind of debt load is unprecedented--the New Deal cost only $500B in today's dollars. I'm not an economist (a half dozen graduate courses in econ barely scratches the surface) but it seems to me that we are a) flying blind, b) increasing our debt ratio and creditors to this magnitude is risky especially given our other liabilities, and c) have no obvious means to fund expansion like this. Is an honest pro forma too much to ask for?

All I'm trying to do is look at this spending plan as part of our overall investment in the federal government. It might cost us $20T to fix the mess. That's fine. Just tell me why it costs this much, how we think we can fund it, and what the possible negatives are for spending this much where we are spending it.

As you know Don, I am utterly opposed to thinking these questions through.

http://clusterstock.alleyinsider.com/2009/1/obama-stimulus-tax-plan-details

dunno about the veracity of this guy's calculator
http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/#comment-129191

but it means good news for you Tracer--the New Deal was 73% of GDP and the bailouts right now are only looking like 40%.

So let the money flow, my brutha! I'm now on board!

oh, and looky here...a nice chart!

http://anepigone.blogspot.com/2008/03/government-spending-as-percentage-of.html

As the plan stands now, about 40% of the cost will come as direct tax cuts for workers and businesses. So if the total cost is $775 billion, including the tax cuts, that's actually "only" $445 billion in "new spending". Not $2T.

Or do you consider all tax cuts a form of spending? It's a pretty reasonable view.

I'd be interested to know why this is a bad idea, as a replacement for the tax credits/tax cuts to individuals:

Earlier this month I suggested simply giving the lavish sums being expended on banks back to consumers in the form of three-month spending coupons, say of £300 a month. The proposal is being actively considered to boost demand in Germany, Taiwan, Australia and elsewhere. It is better than VAT reductions, tax credits or ponderous public works contracts in instantaneously translating subsidy into demand. At the very least it puts money into the economy rather than taking it out, as do Alastair Darling's banking subsidies.

http://www.guardian.co.uk/commentisfree/2008/dec/31/simon-jenkins-comment-debate-banks

this party was getting boring...so we're here to juice it up! HUZZAH!

Russian gas disruption spreads across Europe
http://news.yahoo.com/s/nm/20090106/ts_nm/us_russia_ukraine_gas

MOSCOW (Reuters) – Russia sharply cut gas flows to Europe via Ukraine on Tuesday in a dramatic worsening of a pricing dispute with Kiev that threatened to disrupt supplies as far west as Italy and Germany.
Russian export monopoly Gazprom said it had supplied around 65 million cubic meters (mcm) to Europe on Tuesday through ex-Soviet neighbor Ukraine, a fall of 78 percent from the 300 mcm it had been shipping since the dispute erupted on January 1.
The European Union, dependent on Russia for a quarter of its gas, urged Moscow and Kiev to find a solution this week. The head of Ukraine's state energy firm said he would fly to Moscow on Thursday, while Gazprom said it was ready to talk any time.
Bulgaria, Turkey, Macedonia, Greece and Croatia said flows of Russian gas via Ukraine had come to a halt, creating what Bulgaria called a "crisis situation" in the middle of winter.
EU members Austria and Romania said deliveries were down 90 percent and 75 percent respectively, and German energy firms warned there could be gas shortages in Europe's biggest economy if the dispute dragged on and sub-zero temperatures persisted.
"Even our possibilities will reach their limits if these drastic cuts in shipments last and if temperatures continue to stay at very low levels," E.ON Ruhrgas Chief Executive Bernhard Reutersberg said.

Hmmm.

http://www.independent.org/blog/?p=840

Where's the beef, Don.

The scariest testimony of the day came from Stephen Harbeck, President and CEO of the Securities Investor Protection Corporation (SIPC), the congressionally chartered organization that backs accounts at bankrupt broker-dealers up to $500,000 for losses unrelated to market declines. Mr. Harbeck informed the congressional members that $830 to $850 million of assets had been located for Mr. Madoff’s firm. On top of that, SIPC has $1.6 billion in assets; a credit line of $1 billion from the U.S. Treasury and another $1 billion commercial credit line. Because Madoff’s firm was a broker dealer, SIPC’s reserves could be wiped out, forcing it to assess new fees on the Wall Street firms who fund it; the very firms who have lobbied against the regulatory measures that might have prevented the Madoff fraud; the very firms that have lobbied to allow kickbacks (referral fees and commissions) to be paid to accountants by broker dealers. This would be sweet justice were it not for the fact that taxpayer money is now propping up these firms....

http://www.counterpunch.org/martens01062009.html

Haha wow.

We let things get screwed up with TARP; why shouldn't we demand better for something much bigger?

Like what, you want us to elect a new president or something?

Krugman runs the numbers

http://www.nakedcapitalism.com/2009/01/krugman-runs-stimulus-numbers-and-finds.html

that, to me, is focusing on keynesian aspects of all this to a fault, I don't think Obama is necessarily interested in managing demand for labor to the extent that blogger (or presumably a number of like-minded progressives) expects; I would imagine that the administration is going to be far more interested in shoring up infrastructure and managing demand for goods and services overall by taking the possibly less-expensive (and imo better in the long term) route of trying to make sure the greatest number of people feel secure enough to go out and buy stuff, whether it be a roomba or a maid or a new water heater. certainly as we've seen in the past "creating jobs" for the sake of reducing unemployment doesn't mean shit when those jobs are just taking people off of state bennies so they can live hand-to-mouth in non-career positions

(anybody else read The Big Con? I just started, nice companion piece to Dean's Cw/oC)

Tracer, I think the problem with coupon plans is that the US needs progressive tax reform first before placebo refunds (similarly disagree with the temporary tax rebate/refund plans put forth in that clusterstock link don provided above) - with the savings rate being actually in the negative recently, I'm of a mind that the "middle class" just be given some money to rebuild their own safety net that isn't tied up in the value of their house, fuck "coupons" for shit-I-don't-need-right-now

http://i39.tinypic.com/wv4s1w.jpg

managing expectations with the customer is a good skill to have

detroit lions joke goes here

rahm looks a little too amused at the bad news

in fact they all look like theyre abt to start cracking up as soon as the media leaves the room

http://i42.tinypic.com/2lsi6ix.jpg

i love how this says bad idea elliot spitzer

Low diamond rating.

slate holiday party got to be a seriously icky place

ok I had to read that piece and it is some seriously foolish business

I don't even know what else to say about it. so dumb

"Obama hates the internets" good job Slate I hope you paid him a lot for that

maybe they paid him in hookers ;)

i believe they employ a hooker diamonds for hits system

explains so much

quick roundup of what some actual, real economists are thinking about the stimulus. this post is for those who are opposed, or at least skeptical.

in an amusing example of the uselessness of theory willem buiter raises the specter of ricardo for the lol grad students in a long and rambling post that he then summarizes as such:

Given the bad fiscal position of the US Federal government and given the vulnerability of the external position of the US and its growing reliance on foreign funding, the scope for expansionary fiscal policy in the US is much more limited than president-elect Obama’s advisers appear to realise.

its a strange and wandering post; it seems like he doesn't know who to blame and hearing a FT dude complain that "the actual performance of key regulators like the Fed and the SEC has been appalling, with astonishing examples of incompetence and regulatory capture" is a little o_O but he isn't completely wrong, either.

then there's tyler cowen on npr:

The biggest problem with a fiscal stimulus is this: our economic problems stem from having spent too much in the first place.

this is also a pretty good argument - not only can we not really afford a stimulus, a stimulus doesn't speak to the underlying problems that caused the current recession

david backus via greg mankiw lays out a quick series of problems with the stimulus package, as is. the most interesting of which, to me, is that he too is pushing for a strong overhaul of the financial system.

i can post more but the current opposition seems to stem from:

a) the u.s. cannot afford to borrow more money indefinitely caught between current domestic commitments, increasing reluctance of foreign agents to extend credit and the inability of taxes to increase to cover future transfers

b) any stimulus package will have a significant multiplier problem

c) cost-benefit is hard to do correctly and wasted spending will leave people worse off and prolong already in place inefficiencies

d) spending money does not address important structural problems like the saving rate and does not even guarantee that a recession is softened

other options:

a) tax cuts esp cuts to payroll taxes: unlikely to be saved, egalitarian, will not cause inefficiencies

b) increased transfers to the states

c)

as for economists who support the plan most seem, like robert reich, to accept the points made by the con side but take a more optimistic view:

Most of the declines in our debt-GDP ratio over the years have been achieved through higher levels of economic growth rather than through less debt. The sooner we return to growth, the better able we will be to reduce this ratio.

not an academic but james surowiecki argues that the stimulus is necessary for any kind of confidence in the market:

The point is that it isn’t just some group of pointy-headed Keynesians saying that a big stimulus package will be good for the economy: the collective wisdom of the market is saying the same thing

and martin wolf, again from the FT:

The second lesson is that the economy cannot be analysed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand. An individual may not spend all his income. But the world must do so.

unlike his colleague wolf remains optimistic that the countries buying u.s. debt will acknowledge that a global recovery will be u.s-led and that we will make "the necessary attempt to reconstruct the global economic order".

also for lulz here is brad delong on the black swan dude:

http://delong.typepad.com/sdj/2009/01/how-does-one-be.html