Corsetti for Congress

Saturday

Sep032011

Article of the Week: The Zero Economy by Robert Reich

Saturday, September 3, 2011 at 09:35AM

The Zero Economy

Friday, September 2, 2011

By Robert Reich

The Bureau of Labor Statistics reports today no jobs were created in August. Zero. Nada.

Well, not quite. The strike at Verizon reduced the labor force by 45,000. Minnesota government employees returned to work, adding 22,000. So in reality, America added 23,000 jobs. Almost zero.

In reality, worse than zero. We need 125,000 a month merely to keep up with population growth. So the hole continues to deepen.

Since this Depression began at the end of 2007, America’s potential labor force – working-age people who want jobs – has grown by over 7 million. But since then the number of Americans with jobs has shrunk by more than 300,000.

If this doesn’t prompt President Obama to unveil a bold jobs plan next Thursday, I don’t know what will.

The problem is on the demand side. Consumers (whose spending is 70 percent of the economy) can’t boost the economy on their own. They’re still too burdened by debt, especially on homes that are worth less than their mortgages. Their jobs are disappearinig, their pay is dropping, their medical bills are soaring.

And businesses won’t hire without more sales.

So we’re in a vicous cycle.

Republicans continue to claim businesses aren’t hiring because they’re uncertain about regulatory costs. Or they can’t find the skilled workers they need.

Baloney. If these were the reasons businesses weren’t hiring – and demand were growing – you’d expect companies to make more use of their current employees. The length of the average workweek would be increasing.

But the length of the average workweek has been dropping. In August it declined for the third month in a row, to 34.2 hours. That’s back to where it was at the start of the year – barely longer than what it was at its shortest point two years ago (33.7 hours in June 2009).

It’s demand, stupid.

So what does a sane nation do when the consumers and businesses can’t boost the economy on their own?

Government becomes the purchaser of last resort. It hires directly (a new WPA and Civilian Conservation Corps, for example). It helps states and locales, so they don’t have to continue to slash payrolls and public services. (The help could be structured as a loan, to be repaid when unemployment drops to, say, 6 percent.)

And it hires indirectly — contracting with companies to rebuild our crumbling infrastructure, including school buildings, to take another example.

Not only does this create jobs but also puts money in the hands of all the people who get the jobs, so they can turn around and buy the goods and services they need – generating more jobs.

Get it? Not exactly rocket science.

So why don’t Republicans get it? Either they’re knaves – they want the economy to stay awful through next Election Day so Obama gets the boot. Or they’re fools – they’ve bought the lie that reducing the deficit now creates more jobs.

Every time you hear anyone say we’re “broke” or “can’t afford to spend more,” tell them we’ll be in worse shape if we don’t. If the economy remains dead in the water, the ratio of public debt to GDP balloons.

And remind them that the federal government can now borrow at fire-sale rates. Interest on the ten-year Treasury bill is 2 percent.

Do you hear me, Mr. President? Please — be bold next week. And if, as expected, Republicans refuse to go along, take it to the people. Mobilize the public. Use the bully pulpit. That’s what you have it for.

One more thing, Mr. President. You also have to tackle inequality. When so much income and wealth continues to flow to the very top, America’s vast middle class still won’t have enough purchasing power to boost the economy. Priming the pump is necessary but won’t be sufficient without enough water in the well.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including The Work of Nations, Locked in the Cabinet, Supercapitalism, and his most recent book, Aftershock. His "Marketplace" commentaries can be found on publicradio.com and iTunes.

http://robertreich.org/post/9709926186

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Tuesday

Aug232011

Article of the Week: Bilderbergers Manipulating the Market?

Tuesday, August 23, 2011 at 12:30AM

Standard & Poor's and the Bilderbergers: All Part of the Plan?

Monday 22 August 2011

by: Ellen Brown,

News Analysis

What just happened in the stock market? Earlier this month, the Dow Jones Industrial Average rose or fell by at least 400 points for four straight days, a stock market first.

The worst drop was on Monday, August 8, 2011, when the Dow plunged 624 points. Monday was the first day of trading after US Treasury bonds were downgraded from AAA to AA+ by Standard & Poor's (S&P).

But the roller coaster actually began on Tuesday, August 2, 2011, the day after the last-minute deal to raise the US debt ceiling - a deal that was supposed to avoid the downgrade that happened anyway five days later. The Dow changed directions for eight consecutive trading sessions after that, another first.

The volatility was unprecedented, leaving analysts at a loss [3] to explain it. High-frequency program trading no doubt added to the wild swings, but why the daily reversals? Why didn't the market head down and just keep going, as it did in September 2008?

The plunge on August 8, 2011, was the worst since 2008 and the sixth-largest stock market crash ever. According to Der Spiegel [4], one of the most widely read periodicals in Europe:

Many economists have been pointing out that last week's panic resembled the fear that swept financial markets after the collapse of US investment bank Lehman Brothers in September 2008.

Then as now, banks stopped lending each other money. Then as now, banks' cash deposits at the central bank doubled within days.

On Tuesday, August 9, however, the market gained more points from its low than it lost on Monday. Why? A tug of war seemed to be going on between two titanic forces, one bent on crashing the market, the other on propping it up.

The Dubious S&P Downgrade

Many commentators questioned the validity of the downgrade that threatened to collapse the market. Dean Baker, co-director of the Center for Economic and Policy Research, said in a statement [5]:

"The Treasury Department revealed that S&P's decision was initially based on a $2 trillion error in accounting. However, even after this enormous error was corrected, S&P went ahead with the downgrade. This suggests that S&P had made the decision to downgrade independent of the evidence. [Emphasis added.]

Paul Krugman, writing [6] in The New York Times, was also skeptical, stating:

[E]verything I've heard about S&P's demands suggests that it's talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs....

In short, S&P is just making stuff up - and after the mortgage debacle, they really don't have that right.

In an illuminating exposé [7] posted on Firedoglake on August 5, Jane Hamsher concluded:

It's becoming more and more obvious that Standard and Poor's has a political agenda riding on the notion that the US is at risk of default on its debt based on some arbitrary limit to the debt-to-GDP ratio. There is no sound basis for that limit, or for S&P's insistence on at least a $4 trillion down payment on debt reduction, any more than there is for the crackpot notion that a non-crazy US can be forced to default on its debt....

It's time the media and Congress started asking Standard and Poors what their political agenda is and whom it serves.

Who Drove the S&P Agenda?

Jason Schwarz shed light on this question in an article on Seeking Alpha titled "The Rise of Financial Terrorism [8]." He wrote:

[A]fter the market close on Friday August 5th, we received word that S&P CEO Deven Sharma had taken control [9] of the ratings agency and personally led the push for a US downgrade. There is a lot of evidence that he has deliberately tried to trash the US economy [10]. Even after discovering that the S&P debt calculations were off by $2 trillion, Sharma made the decision to go ahead with the unethical downgrade. This is a guy who was a key contributor [11] at the 2009 Bilderberg Summit that organized 120 of the world's richest men and women to push for an end to the dollar as the global reserve currency.

[T]hrough his writings on "competitive strategy" S&P CEO Sharma considers the United States the PROBLEM in today's world, operating with what he implies is an unfair and reckless advantage. The brutal reality is that for "globalization" to succeed the United States must be torn asunder ...

Also named by Schwarz as a suspect in the market manipulations was Michel Barnier, head of European Regulation. Barnier triggered an alarming 513-point drop in the Dow on August 4, when he blocked the plan of Hans Hoogervorst, newly appointed chairman of the International Accounting Standards Board, to save Europe by adopting a new rule called IFRS 9. The rule would have eliminated mark-to-market accounting of sovereign debt from European bank balance sheets. Schwarz writes:

We all should be experts on the dangers of mark-to-market accounting after observing the US banking crisis of 2008/2009 and the Great Depression in the 1930s. Mark-to-market was repealed at 8:45 a.m on April 2, 2009, which finally put a stop to the short term liquidity crisis and at the same time ushered in a stock market recovery. Banks no longer had to raise capital as long term stability was brought back to the system. The exact same scenario would have happened in 2011 Europe under Hoogervorst's plan. Without the threat of failure by those banks who hold high amounts of euro sovereign debt, investors would be free to move on from the European crisis and the stock market could resume its fundamental course.

Schwarz notes that Barnier, like Sharma, was a confirmed attendee at past Bilderberger conferences. What, then, is the agenda of the Bilderbergers?

Article of the Week: The Market Has Spoken: Austerity Is Bad for Business

Saturday, August 13, 2011 at 08:11AM

The Market Has Spoken: Austerity Is Bad for Business

By Ellen Brown

August 12, 2011

It used to be that when the Fed Chairman spoke, the market listened; but the Chairman has lost his mystique. Now when the market speaks, politicians listen. Hopefully they heard what the market just said: government cutbacks are bad for business. The government needs to spend more, not less. Fortunately, there are viable ways to do this while still balancing the budget.

On Thursday, August 4, the Dow Jones Industrial Average fell 512 points, the biggest stock market drop since the collapse of September 2008. Why? Weren’t the markets supposed to rebound after the debt ceiling agreement was reached on Monday, avoiding U.S. default and a downgrade of U.S. debt? So we were told, but the market apparently understands what politicians don’t: the debt deal is a death deal for the economy. Reducing government spending by $2.2 trillion over a decade, as Congress just agreed to do, will kill any hopes of economic recovery. We’re looking at a double-dip recession.

The figure is actually more than $2.2 trillion. As Jack Rasmus pointed out on Truthout on August 4^th:

Economists estimate the "multiplier" from government spending at about 1.5. That means for every $1 cut in government spending, about $1.5 dollars are taken out of the economy. The first year of cuts are therefore $375 billion to $400 billion in terms of their economic effect. Ironically, that's about equal to the spending increase from Obama's 2009 initial stimulus package. In other words, we are about to extract from the economy - now showing multiple signs of weakening badly - the original spending stimulus of 2009!

As others have pointed out, that magnitude of spending contraction will result in 1.5 million to 2 million more jobs lost. That's also about all the jobs created since the trough of the recession in June 2009. In other words, the job market will be thrown back two years as well.

We’re not moving forward. We’re moving backward. The hand-wringing is all about the “debt crisis,” but the national debt is not what has stalled the economy, and the crisis was not created by Social Security or Medicare, which are being set up to take the fall. It was created by Wall Street, which has squeezed trillions in bailout money from the government and the taxpayers; and by the military, which has squeezed trillions more for an amorphous and unending “War on Terror.” But the hits are slated to fall on the so-called “entitlements” – a social safety net that we the people are actually entitled to, because we paid for them with taxes.

The Problem Is Not Debt But a Shrinking Money Supply

The markets are not reacting to a “debt crisis.” They do not look at charts ten years out. They look at present indicators of jobs and sales, which have turned persistently negative. Jobs and sales are both dependent on “demand,” which means getting money into the pockets of consumers; and the money supply today has shrunk.

We don’t see this shrinkage because it is primarily in the “shadow banking system,” the thing that collapsed in 2008. The shadow banking system used to be reflected in M3, but the Fed no longer reports it. In July 2010, however, the New York Fed posted on its website a staff report titled “Shadow Banking.” It said that the shadow banking system had shrunk by $5 trillion since its peak in March 2008, when it was valued at about $20 trillion – actually larger than the traditional banking system. In July 2010, the shadow system was down to about $15 trillion, compared to $13 trillion for the traditional banking system.

Only about $2 trillion of this shrinkage has been replaced with the Fed’s quantitative easing programs, leaving a $3 trillion hole to be filled; and only the government is in a position to fill it. We have been sold the idea that there is a “debt crisis” when there is really a liquidity crisis. Paying down the federal debt when money is already scarce just makes matters worse. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession.

Most of our money now comes into the world as debt, which is created on the books of banks and lent into the economy. If there were no debt, there would be no money to run the economy; and today, private debt has collapsed. Encouraged by Fed policy, banks have tightened up lending and are sitting on their money, shrinking the circulating money supply and the economy.

Article of the Week: Israel Lobby Dominates Congress; Media Covers It Up

Thursday, August 11, 2011 at 08:54AM

Israel Lobby Dominates Congress, Media Covers it Up

You might think that 20 percent of the American Congress going on all-expenses-paid, weeklong junkets to a foreign country — paid for by a lobby for that country — would be newsworthy, especially when the top congressional leaders of both parties are leading the trips.

You would be wrong.

Eighty-one congressional representatives from all over the country, led by Democratic Whip Steny Hoyer and House Majority Leader Eric Cantor, are traveling to Israel this month. Most are freshmen congressmen, and the group includes half of all the freshmen Republicans voted into office in 2010.

The weeklong trips are being paid for by the American Israel Education Foundation (AIEF), which was created in 1990 as a supporting organization of AIPAC, America’s major pro-Israel lobbying organization, and they are located in the same building. AIEF, which is only one of numerous organizations pushing pro-Israel policies, has an annual budget of over $24 million, with an even larger endowment.

This is an extraordinary situation. No other lobby on behalf of a foreign country comes anywhere near controlling such wealth or taking so many of America’s elected representatives on a propaganda trip to its favorite country.

Not all those going on these trips are enthusiastic. The wife of one congressman who made a similar trip some years ago said that she and her husband had never been exposed to such pressure in all their lives. She said that at one point on their trip, her husband — a normally extremely tough man — was curled up in a fetal position.

A staff member of one representative participating in this month’s junkets said the representative had no choice. If the congressional rep didn’t go on the trip, the rep would be targeted by AIPAC; large quantities of money, including massive out-of-state money, would be raised for the opponent in the next election; and quite likely the representative would be defeated. The staffer said that the Israel Lobby is far too powerful to ignore and that American voters have no knowledge of what’s going on.

It’s no surprise that voters are unaware that their representatives are being propagandized and pressured by a foreign lobby. Their news media almost never tells them.

The Associated Press, America’s number one news service, has decided not to report on a lobbying group taking 81 representatives to a foreign country in order to influence their votes.

Even though the trips are being reported by news media in Britain, Iran, India, Israel, Lebanon, and elsewhere, AP has decided to give the story a pass. When contacted about this, an AP editor in Washington, D.C., said AP knew about the trips and was “looking into it.”

Taking a similar tack, The New York Times, USA Today, Fox News, CNN, ABC, et al., failed to inform Americans about the trips. The Washington Post, after the story was posted throughout the blogosphere, finally covered it belatedly on Page 13. The CBS website had a story on the situation, but CBS News made no mention of the junkets on-air.

The only AP stories on the subject are scattered local stories about individual representatives. For example, AP’s Chicago bureau reported that Congressman Jesse Jackson Jr. is taking part, without reporting that he was one of 81 representatives accepting these all-expenses-paid junkets and that his trip was being paid for by the pro-Israel lobby.

A few other American media outlets reported the story in interestingly diverse ways:

Washington’s Politico covered it twice; The Atlantic‘s website reported on people who were “kvetching” about the one-sided nature of the junkets, pointing out that some of the reps were also going to meet with some Palestinian leaders, without telling how many (no one will say) and for how long (apparently for a few hours of the weeklong trip). Los Angeles’ Jewish Journal was remarkably forthright, reporting that “the congressional reps will be getting the dog and pony show,” and Commentary gloated at the “astonishing” number of representatives going on the trip, noting that “Congress is the backstop that gives Israeli Prime Minister Netanyahu the ability to say ‘no’” to the president of the United States.

While Commentary claims that the willingness of congressional representatives to go on all-expenses-paid trips by one of the country’s most powerful lobbies “is a good reflection of American public opinion on the Middle East,” this is actually not accurate.

Surveys find that an extraordinarily strong majority of Americans — typically between two-thirds to three-quarters — do not wish the U.S. to take sides on Israel-Palestine. Such widespread desire for neutrality is particularly noteworthy given that U.S. news sources across the political spectrum are consistently highly Israel-centric in their reporting.

It is quite likely that such voters would be unhappy to learn that a foreign lobby has such power over their elected representatives, leading them to give the favored nation, one of the smallest and wealthiest countries on the planet, over $8 million per day of American tax money when the U.S. is in the middle of a financial crisis.

Perhaps that’s why AP and the others don’t tell them.

Article of the Week: Washington is About to Make the Jobs Crisis Worse

Tuesday, July 26, 2011 at 03:48PM

Published on Monday, July 25, 2011 by RobertReich.org

Why Washington is About to Make the Jobs Crisis Worse

by Robert Reich

We now live in parallel universes.

One universe is the one in which most Americans live. In it, almost 15 million people are unemployed, wages are declining (adjusted for inflation), and home values are still falling. The unsurprising result is consumers aren’t buying — which is causing employers to slow down their hiring and in many cases lay off more of their workers. In this universe, we’re locked in a vicious economic cycle that’s getting worse.

The other universe is the one in which Washington politicians live. They are now engaged in a bitter partisan battle over how, and by how much, to reduce the federal budget deficit in order to buy enough votes to lift the debt ceiling.

The two universes have nothing whatever to do with one another — except for one thing. If consumers can’t and won’t buy, and employers won’t hire without customers, the spender of last resort must be government. We’ve understood this since government spending on World War II catapulted America out of the Great Depression — reversing the most vicious of vicious cycles. We’ve understood it in every economic downturn since then.

Until now.

The only way out of the vicious economic cycle is for government to adopt an expansionary fiscal policy — spending more in the short term in order to make up for the shortfall in consumer demand. This would create jobs, which will put money in peoples’ pockets, which they’d then spend, thereby persuading employers to do more hiring. The consequential job growth will also help reduce the long-term ratio of debt to GDP. It’s a win-win.

This is not rocket science. And it’s not difficult for government to do this — through a new WPA or Civilian Conservation Corps, an infrastructure bank, tax incentives for employers to hire, a two-year payroll tax holiday on the first $20K of income, and partial unemployment benefits for those who have lost part-time jobs.

Yet the parallel universe called Washington is moving in exactly the opposite direction. Republicans are proposing to cut the budget deficit this year and next, which will result in more job losses. And Democrats, from the President on down, seem unable or unwilling to present a bold jobs plan to reverse the vicious cycle of unemployment. Instead, they’re busily playing “I can cut the deficit more than you” — trying to hold their Democratic base by calling for $1 of tax increases (mostly on the wealthy) for every $3 of spending cuts.

All of this is making the vicious economic cycle worse — and creating a vicious political cycle to accompany it.

As more and more Americans lose faith that their government can do anything to bring back jobs and wages, they are becoming more susceptible to the Republican’s oft-repeated lie that the problem is government — that if we shrink government, jobs will return, wages will rise, and it will be morning in America again. And as Democrats, from the President on down, refuse to talk about jobs and wages, but instead play the deficit-reduction game, they give even more legitimacy to this lie and more momentum to this vicious political cycle.

The parallel universes are about to crash, and average Americans will be all the worse for it.

This work is licensed under a Creative Commons License

Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, Locked in the Cabinet, and his most recent book, Supercapitalism. His "Marketplace" commentaries can be found on publicradio.com and iTunes.