Smart Gov Investing Creates Jobs

Soon GOP presidential candidates will parrot the nostrum 'government doesn't create jobs.'

Actually, government does create jobs, have a look at right of this column at the daily U.S. Department of Defense Contracts valued at $6.5 million or more.

Call up US Rep Diane Black and Rep. Scott DesJarlais (R–Tennessee) and tell the members that, for example, Tullahoma Industries LLC,* Tullahoma, Tennessee (awarded a maximum $59,389,738 modification contract announced May 6) is going to have its DoD contract nixed because 'government doesn't create jobs.' [*Small business in Historically Underutilized Business Zone]

Black and DesJarlais don't believe this nonsense any more than any other Republican.

Black and DesJarlais just want government money spent on Republicans and the special moneyed interests for whom the GOP fronts, and of course industries bordering their congressional districts.

Throw in the bigotries and outright racism of rural Tennessee and you have today's Republican Party in a nut shell.

But ask Black and DesJarlais and every GOP candidate for president if they want massive infusion of money for infrastructure and schools across the nation, and suddenly the 'government doesn't create jobs' nonsense emits again.

Registered Business Entities Down in Wisconsin at DFI

Scott Walker's extravagant promise to create 250,000 jobs and 10,000 new businesses is a broken promise.

As one indicator among many, new Department of Financial Institutions (DFI) data does nothing to promote Walker's making good on his promises.

Data at the Department of Financial Institutions (DFI) show a new loss in business entities registered at DFI. (Umhoefer, MJS)

Business law attorneys advise that the liability shields in business entities that register with the DFI—such as service corporations and limited liability companies (LLCs)—are attractive to the formation of new businesses, thus the statistic of a net loss of new businesses registered at the DFI is a negative sign for Scott Walker's grand promise of a new economy "open for business," as coupled with Wisconsin's job loss leading the nation.

Many business entities are registered at DFI for purposes other than the immediate start-up of a new business, such as registering the name of a new entity for future concerns that would not interfere or conflict with existing business interests.

Turns out targeting the working class, local communities and education is not the boon for business that Walker says.

How to End This Depression

End this Depression NOW!

It's obvious who Paul Krugman is talking about when he notes the "depression we’re in is essentially gratuitous."

Gratuitous as in the Republicans' pushing the world into a pit and self-consciously stopping the people and communities from clawing their way out, as the GOP hauls in $millions in campaign contributions, while laughing at the 99 percent.

Writes Krugman:

The depression we’re in is essentially gratuitous: we don’t need to be suffering so much pain and destroying so many lives. We could end it both more easily and more quickly than anyone imagines—anyone, that is, except those who have actually studied the economics of depressed economies and the historical evidence on how policies work in such economies.

The truth is that recovery would be almost ridiculously easy to achieve: all we need is to reverse the austerity policies of the past couple of years and temporarily boost spending. Never mind all the talk of how we have a long-run problem that can’t have a short-run solution—this may sound sophisticated, but it isn’t. With a boost in spending, we could be back to more or less full employment faster than anyone imagines.

"If you want to ask 'what is the structural problem with the U.S. economy?' I say it's not a structural problem with the economy, it's a structural problem with our politics; in particular the fact that we have one party that has gone completely off the deep end, and is not interested at all in helping to run this country unless they get to run it all." (Economic Policy Institute, May 2, 2012. Video below)

Stiglitz, Johnson, Krugman Sound Alarm

Three economists who during the Bush-Cheney years became political-economic pundits of sorts are sounding the macro-economic alarm.

As President Obama turns the political focus onto “jobs, jobs, jobs,” Joseph Stiglitz, Simon Johnson and Paul Krugman warn of a "enormous catastrophe" (Johnson), and real-economy circumstances about which economists are "almost universally pessimistic (Nobel Laureate Stiglitz)."

One understands the political imperative of not placing all bets [political-economic initiatives] on a single swing when mainstream Republicans will happily court more catastrophe if they can garner a political advantage out of the rubble, but Obama needs to swing for the fences and follow the advice of another economist, Nobel Laureate Krugman, who warns that "2010 [may] be a year that began in false economic hope and ended in grief."

NYT: Wisconsin Shows Signs of Industrial Rebound

All I say is that I hope Peter Goodman's piece in the Sunday Times, In Wisconsin, Early Signs of an Industrial Rebound, is on the mark.

Writes Goodman:

At the Rockwell Automation factory here, something encouraging happened recently that might be a portent of national economic recovery: managers reinstated a shift, hiring a dozen workers.

After months of layoffs, diminished production and anxiety about the depths of the Great Recession, the company — a bellwether because most of its customers are manufacturers themselves — saw enough new orders to justify adding people.

Given the panicked retreat that has characterized life on the American factory floor for many months, any expansion registers as a hopeful sign for the economy. Last week, the Federal Reserve found signs of 'modest improvement' in manufacturing. That reinforced the direction of a widely watched manufacturing index tracked by the Institute for Supply Management, which surged into positive territory last month for the first time in a year and a half.

The X Economy - It's Bad at Best

Update: Christian Menegatti in RGE Monitor: "The United States is in the 20th month of a recession that has been by far the longest and most severe of the post-war period." See also The Next Big Bad Thing? and Next Shock Coming: Commercial Real Estate.

"The American economy has gone away. It is not coming back until free trade myths are buried six feet under."

The quote above is from Paul Craig Roberts in CounterPunch (Feb. 24, 2009), an impolitic newsletter and political site that regularly tells the world hard truths about the economy and public policy.

Roberts has been warning about the dangers of hollowing out our economy through outsourcing (offshoring), big finance capturing the regulatory bodies, and the legislative branches becoming a sick joke, for years.

Roberts is now conventional wisdom.

From Robert Reich's candid piece in Talking Points Memo, dismissing the optimistic talk about a U-shaped recession, Reich writes that the global economic crisis is an X file:

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't 'recover' because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin.

How about ditching the empire, peace instead of war, dismantling prisons and replacing them with schools, sustainability initiatives in energy, environmentally-friendly everything, legalizing most drugs; you know what the left has been advocating for the last several decades.

As for President Obama: Don't tell the world to go shopping and watch your neighborhood for terrorists as Bush did. We need an acknowledgement of the scale of the crisis and a declaration that only real change change can save the economy.

Perhaps heeding the advice of Seymour Melman, Ralph Nader, Jeffrey St. Clair, deep ecologists, radical economists ... hell, anyone who was under FBI surveillance in the 1960s-70s would help. As Noam Chomsky says: Hegemony or Survival.

The Next Big Bad Thing?

Here Comes the Option ARM Mortgage Explosion reads, screams a headline in TechTicker (via the Business Insider).

From The Business Insider, May 21, 2009:
Subprime is done. All the teaser rates are over, the interest rates have reset and the writing is on the wall.

But in the coming quarters, the scenario will play out with other exotic mortgages, Option ARM (pick-a-pay), Alt-A, etc. The homebuyers may have had better credit, but they had the same strategy: Get a low interest rate upfront, and then deal with the reset down the road, by either refinancing or selling the home. But, whoops, home values are way lower and the economy sucks. Plan derailed.

Zacks analyst Dirk van Dijk warns of the troubles ahead:

The vast majority of the homeowners with these 'pick a payment' mortgages pay only the minimum payment. When it exceeds a set level, or at a set date in the future (whichever comes first), the mortgage holder has to start paying the fully amortizing payment of the now much larger mortgage. This can cause huge jumps in the monthly payment, with increases of over 50% not uncommon.

These are the ultimate in 'exploding mortgages.' The number of these recasts is relatively small right now -- at about $1 billion per month -- but that number is set to grow dramatically over the next few years, exceeding $8 billion per month in the fall of 2011. If the equity in your house is gone and your monthly mortgage payment suddenly jumps from $2000 per month to over $3000 per month, what do you think is going to happen? How about if one or both of the people in the household has been laid off?

TNR Profiles Dr. Doom

The New Republic has a profile on Nouriel Roubini, "the economist known to the general public as Dr. Doom, Prophet of the Financial Apocalypse," by Julia Ioffe.

Though he hasn't attacked the Obama administration's policies with Paul Krugman's fury, and though he is no longer the most bearish of the bears, his short-term outlook is still quite bleak: a 36-month downturn, double-digit unemployment, and sluggish, recessionary growth well into 2010. ...

Roubini understood better than anyone just how weak the fundamentals of our economy were. The day after the now-famous 2006 IMF talk, he went on 'Kudlow & Company,' on CNBC. Roubini was, as always, the foil to Kudlow's chipperness. 'All my friends are in a great mood, Nouriel. They're in a terrific mood. They love America,' Kudlow sang. Roubini countered starkly: 'Well, they're all rich,' he said. 'The average American actually is in debt'--a sign to Roubini that housing would only be the catalyst of something larger.

William Greider on Our Times

Check out William Greider on Amy Goodman's Democracy Now.

AMY GOODMAN: How did this happen, the economic crisis?

WILLIAM GREIDER: I think it was like a series of big waves coming at this country for really twenty-plus years, some of which I wrote about rather forlornly—forlornly, trying to say, to know what’s happening to us.

And those waves were ignored and, in many cases, launched by what I call the governing elites, the people in power, not just government, but finance, business, Republicans and Democrats alike. And either out of blindness or a kind of craven unwillingness to deal with reality, those waves have crashed over us. And I’m talking about trade. I’m talking about the militarism that drives our spending and our adventures overseas, the weakness—the weakening condition of the US economy. And on top of that is a financial system that is wildly inflated in value, in power and in all those things.

And here we are. I mean, all of that is now either crashing or subsiding. And you know, from my book, my belief is, and I feel it strongly, is that we’re just at the beginning of a really long, hard passage in which Americans, like it or not, have to adjust to these new realities. And I’m an American-born optimist. I think that can actually be good, not just for the world at large, but for our country, in the long run, if we face reality. And if we keep denying reality, it will get harder and harder.

Low Wages Are No Good

You offshore American jobs and people lose their jobs.

No good, not for Americans and not for the economy.

Krugman offer some advice against falling wages; might seem obvious but Republicans love the idea of falling wages.

Concern about falling wages isn’t just theory. Japan — where private-sector wages fell an average of more than 1 percent a year from 1997 to 2003 — is an object lesson in how wage deflation can contribute to economic stagnation.

So what should we conclude from the growing evidence of sagging wages in America? Mainly that stabilizing the economy isn’t enough: we need a real recovery.

There has been a lot of talk lately about green shoots and all that, and there are indeed indications that the economic plunge that began last fall may be leveling off. The National Bureau of Economic Research might even declare the recession over later this year.

But the unemployment rate is almost certainly still rising. And all signs point to a terrible job market for many months if not years to come — which is a recipe for continuing wage cuts, which will in turn keep the economy weak.

To break that vicious circle, we basically need more: more stimulus, more decisive action on the banks, more job creation.

Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss. But the risk that America will turn into Japan — that we’ll face years of deflation and stagnation — seems, if anything, to be rising.

Bondholders v. Taxpayers

Update: Durbin: Bankers "own" the U.S. Congress

This is an idea gaining increasing currency on making banks healthy, wealthy and lending.

See Reorganising the banks: Focus on the liabilities, not the assets, and Henry Blodget in TechTicker:

From The Business Insider, April 29, 2009:
We are pleased to discover that we're no longer shouting down a rain barrel.

The idea that the government should draw on a massive pot of money available to fix the banks that is NOT coming from the U.S. taxpayer is finally going mainstream!

Today, the NYT's David Leonhardt has devoted an entire column to the idea of making bondholders -- the people who lent the banks the money that they incinerated -- pay for some of the cost of fixing them.

What's more, Leonhardt says that Larry Summers actually mentioned this as a possibility in a TV interview.

Politically, it's not difficult to see how this approach might take the air out of the Republicans' getting all populist on us.

Take this approach combined with the Geithner project, described by Chadwick Matlin as: "A healthy derivative market leads to a healthy bank leads to a healthy economy leads to a healthy life," and you can see some light and a lot of room for Democrats to move right over the Republicans and out of their Battered Wife Syndrome.

Let the Republicans say no, no and get downright abusive and Democrats can get the country moving again.

Roubini: We're in a U-shaped Recession

Dr. Doom, aka Dr. Realist, has an interview with Newsweek/Washington Post writer Lally Weymouth.

Roubini says:

No, I am not Dr. Doom. I am Dr. Realist. I don't believe we are going to end up in a near-depression. Six months ago I was more worried about an L-shaped near-depression. Today, after the very aggressive policy actions taken by the U.S. and other countries . . . we are, instead, in the middle of a U.

Jeffrey Sachs: Geithner Plan Is Unconscionable Rip-Off

This developing, weeks-old story is more scary that a bio-engineered, airborne Swine Flu virus invented by a bio-terrorism novelist.

See John Carney's Jeffrey Sachs: Geithner Plan Is An "Unconscionably Large" Rip-Off in Business Insider, and Sachs' piece at Huffington Post. Read his piece a couple of times.

I hope Sachs is way, way off.

Chadwick Matlin has the knockdown of Sachs' concerns at The Big Money from Slate, which you should probably read about three, four times.

Writes Matlin:

... (L)ast time we checked, functional markets have banks buying and selling things with other banks. If we're trying to return to normalcy, why would we stop the very mundane and typical process of banks buying and selling from other banks? Yes, taxpayer money is involved, but it would be involved with whoever bought the assets. I'd rather bail out the banks a little bit further than enter into new pseudo-bailout contracts with hedge funds, who will make the politically deaf banks look like saints.

Some of the attacks rightfully focus on the possibility of collusion. If the banks are buying from one another, they may agree to set a floor for their bids (60 cents to the dollar, when they're really worth 30 cents, for example), then the assets will still be overpriced. If the assets are still overpriced, then we're back where we started from, with immobile assets stuck on balance sheets, slowly draining the life out of zombie banks.

This, though, jumps the gun in two ways. First, we don't know that the banks are colluding. Profit motives suggest that they would, but political pressures suggest they may not be. And it only takes one rogue bank to underbid the cartel and sabotage the plan.

Second, and more likely, the government could set a ceiling to the price of the assets. To understand what this would entail, think about an eBay auction, in which oftentimes the seller will set a price minimum. The minimum prevents the good from being sold unless the winning bid clears the threshold. The Treasury is conducting a reverse auction, so it would set a price maximum, not a minimum. It would say that an asset could not be purchased for more than, say, 40 percent of its original price.

This would warp the market, certainly, but it would also prevent collusion. Plus, it would allow the banks to start acting like banks, just like they were before the crisis hit. That would be good for everybody's confidence.

One thing is certain: Nothing is clear and certain.

Krugman Blasts Bank Execs

I wish the Obama administration would ask for Krugman's resignation at the Times, and put this guy in charge of the economic recovery.

From Krugman:

On July 15, 2007, The New York Times published an article with the headline 'The Richest of the Rich, Proud of a New Gilded Age.' The most prominently featured of the “new titans” was Sanford Weill, the former chairman of Citigroup, who insisted that he and his peers in the financial sector had earned their immense wealth through their contributions to society. ...

All of which explains why we should be disturbed by an article in Sunday’s Times reporting that pay at investment banks, after dipping last year, is soaring again — right back up to 2007 levels. Why is this disturbing? Let me count the ways.

Moyers Delivers on the Financial Crisis

Bill Moyers' Journal features an exhilarating conversation with scholars Simon Johnson and Michael Perino on the economic crisis.

The conventional wisdom is that the financial chimeras, like CitiBank, Bank of America, and AIG, who are targets of popular outrage, receiving massive government bailouts (to prevent a depression and promote a recovery), comprise too-big-to-fail entities. If they go down, we all go down.

"The guys who remain are more powerful, okay? And their position is, 'Look, if you want a recovery, if you want get your economy back, you've got to be nice to us,'" said Johnson.

Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at MIT's Sloan School of Management, and Perino is the Dean George W. Matheson Professor of Law at St. John's University School of Law in New York.

Johnson blogs with James Kwak on The Hearing at the Washington Post.

Geithner Sounding Alarm

Update: NYT: "Despite huge government efforts to restore lending to normal, Treasury Secretary Timothy F. Geithner said Tuesday that borrowing costs remained high and credit was still not flowing normally."

Watch Treasury Secretary's Geithner at: http://www.cspan.org/Watch/C-SPAN_wm.aspx

Geithner said there were "systematic failures" requiring very, very serious reforms.

Uncertainty

Uncertainty has the same effect as lack of confidence. Henry Blodget:

Believe it or not, the "stress tests" that the government is performing to see how that banks will do if the economy continues to get worse were originally intended to inspire confidence.

The government would subject the banks to all sorts of horrifying scenarios, the theory went, and it would then report that the banks had passed with flying colors--thus reassuring a nervous public that the financial system was sound.

Alas, from the beginning, the stress tests weren't stressful enough. The government then said it was planning to withhold the results of the stress test to avoid harming the bad banks--which defeated the whole purpose.

Could Be a Bad Week

An update on the Obama's Project: Making Thin Ice Safe column.

The Dow dropped 289 points today from 8,131 (3.56%). And Mike Whitney has a new piece, Housing Bust Comes Roaring Back, Worse Than Ever in CounterPunch that reads like a horror book: "Market analysts predict there will be 5 million more foreclosures between now and 2011. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. ... Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama's $75 billion mortgage rescue plan is a mere pittance; it won't reduce the principle on mortgages and it won't stop the bleeding. Policymakers have decided they've done enough and refuse to lift a finger to help. They don't see the tsunami looming in front of them plain as day. The housing market is going under and it's going to drag a good part of the broader economy along with it. Stocks, too."

Economy 'Spiraling Down More Slowly'

That's the most positive statement heard from economist Nouriel Roubini on the crisis. We can't keep score of the recovery like a basketball game, but we just made a three-point shot.

And here's what looks like a turnover:

Some analysts suggest that the second derivative of growth is turning positive, that means that although the economy is spiraling down, it is doing so more slowly, the first step towards stabilization(Economist). However even if it does so, the recovery may well be very sluggish in part because synchronized global recessions and those accompanied by financial crisis tend to be severe and forestall quick recoveries (IMF)

Obama's Project: Making Thin Ice Safe

Those with an investment position betting on the Dow Jones Industrial Average plummeting to say 6,500 (it's at 8,131 now), should read Alexander Cockburn's piece in CounterPunch and be happy.

As for the project facing Obama in saving the world economy: the words gargantuan and humongous come to mind, analogous to constructing a snow fortress on thin ice on a central Wisconsin lake during the early Autumn. [Lots of unknowns and ambiguity.]

Cockburn:
On any rational assessment the popular new president is skating on thin ice.

Pollyanna bulletins about the economy puff up from the White House and Federal Reserve, like auguries of a new Pope through the Vatican chimney. ...

The economic news in the near and medium term is ghastly, as Mike Whitney outlined on this site last Thursday [see his A Bulletin from the Captain of the Titanic]. Retail sales crashed again in March, nowhere worse than in the car market, though electronics and building materials were way off too. They now reckon there’ll be just over two million housing foreclosures in 2009, up 400,000 from 2008. Industrial output is going through the floor at an annual rate of 20 per cent, the biggest quarterly drop since the end of the Second World War. US industry is now running at only 70 per cent of capacity, the worst number since they started tracking this stat in 1967. Job losses are currently running at 650,000 a month.

Round the next corner is credit card delinquency and the long-heralded slump in commercial real estate, where vacancy rates are already running at 15 per cent... .

Half a million new jobless every month and the salesmen of 'free trade' still hawk their credo.

Yikes. As for free trade hawkers, mostly Republicans who we hope, to paraphrase Ralph McGill (1898-1969), are little, white quasi-Christian men (mostly) standing alone in their own diminishing circles.

Concludes Mike Whitney in his piece:

(Fed Chair Ben) Bernanke's financial rescue plan is a disaster. He should have spent a little less time with Milton Friedman and a little more with Karl Marx. It was Marx who uncovered the root of all financial crises. He summed it up like this:

'The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.' (Karl Marx, Capital, vol. 3, New York International publishers, 1967.)

Bingo.

Message to Bernanke: Workers need debt-relief and a raise in pay not bigger bailouts for chiseling fatcat banksters.

Right. And another message that policymakers ought to heed, a message that rarely comes from the mainstream media: Shipping American jobs overseas is bad for the American economy, bad for Americans (duh) though Republicans love the idea, and is in a word unAmerican.

On a related note, from Quote.com News:

(RTTNews) - Wall Street will be busy assessing report cards this week, as the season springs forward. IBM, Coca-Cola, Yahoo, Apple, Microsoft are among the conglomerates scheduled to report in the week that lies ahead.

See also It's D-Day, Shiller, Roubini, Stiglitz, Kuttner and Krugman Sound Alarm.

- via mal contends