“Some of the people who are most opposed to oppression from Washington attack Mandela when he was opposed to oppression in his own country….I would ask of his critics: where were some of these conservatives as allies against tyranny? Where were the masses of conservatives opposing Apartheid? In a desperate struggle against an overpowering government, you accept the allies you have just as Washington was grateful for a French monarchy helping him defeat the British.”—Newt Gingrich, who supported anti-apartheid measures when in Congress, making sense and criticizing troglodyte conservatives who are attacking Nelson Mandela for advocating violence and joining the Communist Party while pushing for the end of the apartheid regime. (via politicalprof)
My Thoughts on the National Debt Argument in this Debt Ceiling "Thing".
This is something I wrote a couple months ago, during the U.S. Government shutdown when we were very close to breaching the political debt ceiling. Political meaning there is absolutely no economic reasoning behind the idea. I posted it on facebook for friends and family to read, and more people were likely to there than here. But I want it to be part of this blog, because I think it is one of my most coherent and insightful political economic writings so far. We may have passed this point in time without further crisis, but the information is still relevant in the context of the argument on national debt, and we still have a debt ceiling that will need to be extended once again in another crisis hanging over the nation’s head.
" In 1979, because of congressional brinkmanship over a proposed balanced budget constitutional amendment, the U.S. Government came within a day of exceeding the debt limit (a stupid, non-economical, completely irrational political limit). Because of this, the U.S. technically defaulted on the interest of some Treasury Bonds, and those investors/holders were not paid what they were owed (but repaid a week later). Those investors sued the Government seeking interest for the days they went without receiving their return. Anyways, as is the case with a crisis of confidence and flat out default on U.S. debt, even if on only a small amount of debt, the Treasury Bond interest rates soared (the amount of interest the Government has to pay back on top of the principal it borrows from investors increased significantly). This increase of rates turned out to cost the U.S. $12 Billion more in interest than the rates would have been had congress not come so close, and the government not fails to pay any interest.
Why do I mention this history I learned today? Because we are just under two days before the day we breach the current debt ceiling (October 17th). There is no deal agreed to at any point in the process, the Senate may be reaching one sometime soon, but that isn’t saying what the Republican House leaders will choose to do, and the current talks seem to be breaking down.
There’s more though, that result could play right into the hands of this ideology’s argument, not just because more spending on interest means more spending to be critical of. But also because it would contribute more to the likelihood we approach an actual debt crisis, which is when the market wants to abandon the Government’s debt and results in dangerously high Treasury rates. That will then cause the Government’s extremely expensive borrowing to crowd out private firms from borrowing (crowding out investment) costing them even more in interest rates than the Government to do so. In our current state, even with, and majorly because of slow economic growth, we don’t have anything close to a debt crisis. In fact, Treasury rates (10 year, 2.75%) are still low and just a year ago significantly lower (2012 10-year 1.50-2%) than the historical average rate of interest on Treasuries (4-6%).
Because Treasury Bonds, aka U.S. Government Debt, are the safest, most reliable, and most sought out investments in the Global Market, when the economy (U.S. and Global) is not doing very well treasury rates are low as more people shelter their savings and investments with the Treasuries’ very safe, consistent, modest rate of return. This is a basic mechanism enforcing the paradigm of the central government’s economic role that has existed since the advent of Keynesian economics, replacing the old Classical economics.
This where I take issue with one side’s economics or lack thereof, because that paradigm is not akin or similar in any sense to the operation of a private business or household finances, as they suggest. It is basically the opposite. When household spending is low (maybe also because business spending is low) the Government has a Keynesian role of filling in the spending (demand) hole through things like automatic stabilizers (entitlements i.e. unemployment insurance, nutrition assistance). When the Economy is booming and private spending is high, the automatic stabilizers back off. The Treasury securities’ interest rate fluctuation is a mechanism of this, leading to cheaper borrowing for Government during downturns. Also, as the economy improves, the Treasury interest rates increase, resulting in all private borrowing cost increases.
What will happen, be there contact with the debt ceiling and the Government fails to pay all of its obligations, especially if those obligations are the Treasury securities themselves, is the same thing that happened in 1979, or possibly worse as it seems there is even less hope than then of our Congress reaching an agreement to raise the debt ceiling. Treasury interest rates will soar, and the U.S. Government’s cost of borrowing increases, contributing much more to the possibility of a debt crisis. That is if it doesn’t trigger a debt crisis right away. Then the same people and their ideology that caused us to default on our debt would turn around and say, “See the Government can’t safely borrow money for its spending. And not only that, Government spending does hurt the rest of the economy, it costs too much for anyone to borrow.” But the only reason that would result would be a purely political one, but with true economic effects. There is no economic reasoning behind the idea that Government spending has a negative impact in an economic downturn, other than old, not widely held theories.
That Catch 22 will just give more validation in the minds of those that believe such theories, deepening the degree to which that side of the political spectrum is stubborn and refusing to compromise on any policy that isn’t a full adoption of their viewpoints against the Government’s role in the economy, or any other facet of the American situation. That severity of ideology is exactly what got us in this mess to begin with. It’s a downward cycle into lower and lower confidence in Government, against the grain of truth that actually Government has an extremely important role in supporting the backbone of this nation.”
And I start with the following. The implications in a long running debate re left for your personal inference.
The International Monetary Fund has estimated that around 60% of all Government/National/Sovereign Debt increases since 2008 is due to low and uncollected tax receipts, double the amount the result of bail outs and stimulus combined.
(Source: The Economist, September 28 - October 4, 2013, “Stimulus v austerity: Sovereign doubts”)
I heard the most interesting idea today addressing why perhaps income inequality is more exasperated in this modern age, and that the U.S. political climate has tended to disgregard and disvalue the social safety net. In the early 20th century, there was an ever creeping example of communism all over the world, and to avoid having it creep into the capitalist societies, the political leaders of the time had to take much greater care to have capitalism be more equitible and supportive of the lower and middle class. Thus fair and simple regulation was more prevalent, organized labor was popular, and social safety programs were more popular. With the idea of communism virtually gone and discredited, the capitalist political leaders, and the economic elite, now have the incentive to disregard those values and take an even bigger slice of the pie for themselves.
If you are aware of the basics of the economic situation and/or crisis of high long term unemployment, you know that this characteristic of our economy is not only a cyclical property stemming from the financial crisis/recession, it is a structural issue. Structural unemployment is an actual type of unemployment. It basically means a mismatch of the skills of the available labor force and the skills desired for and needed by firms in the current economy. This is a major issue in the United States labor force, there is a high demand for high-skilled workers qualified in the area of STEM, while supply of such human capital is very low. And to further clarify STEM stands for Science,Technology, Engineering Math. With the awareness of such a structural economic issue as the mismatch of the skills of the available labor force and the skills of the workers desired, I present you the following article which poses the question, "Should public Universities exchange liberal arts classes for vocational or tech training ones?"
Hello folks, hello anyone who might read this blog. My Stat counter tells me someone occasionally does. Anyways, I know I haven’t made a post or written anything very substantial in a little while. This is not because I’m not very interested in what is going on in domestic and international economics. I can’t say it isn’t because I’ve lacked motivation, because perhaps I have a little bit. But I can say it’s not because I don’t want to write something or that there hasn’t been many thoughts and ideas on any issues. There has been quite a bit recently, and for the most part there is a lot going on these days, and it’s not so easy to stick on top of everything in very much depth. I think also for the most part that with so much going on (domestically and internationally) that I’ve been having a profound desire to more deeply study and comprehend much of these things in a way that eventually I will be able to more accurately and efficiently write about these things on my blog.
There are a few topics also that I have had a desire to do a more comprehensive piece on such as income inequality in the United States and elsewhere in the world. Despite the more cultural political issues in national focus such as gun safety and voting rights, the State of the Union was quite a pivotal moment in the President announcing his desire for an agenda that addresses a few big economic topics such as improving preschool education, investing in infrastructure, tax reform, and raising the minimum wage as a way to address income inequality (or more appropriately stated the inability of a full time worker on low or minimum wage not being able to afford even the most basic standard of living). That sort of reignited an interest and focus for many in the media as well as my self on that issue. So in the weeks after the SOTU there was an enormous wealth of new policy wonk coverage of it.
Part of my idea of what I wanted to do a comprehensive piece on was the fact that also recently the Chinese Government announced a whole new set of actual policies to address their own developing income and wealth inequality resulting from the growth of much of their population to a new standard of living. It is quite an interesting world picture painted when a nation with such a shoddy human rights record as China is pursuing actual substantive policy to address socioeconomic inequality within its borders, when the best the wealthiest nation, the United States, can accomplish in its political process is just the mention a long overdue policy idea in what is usually the most unrealistically aspiring policy speech every year. So while I have delved into that issue a lot, I just feel like there is so much more I want to learn about it before I actually set out to accomplish the writing.
There have also been even smaller writings I have wanted to write for quite some time now but have completely failed to do so. One idea was about a case of successful regulation in a story of a radically depleted fish population in some area off the coast of New England, and which the state Government created new regulation over the fishing area. It ultimately resulted in the regrowth of this particular fish population and dnow sustainable fishing there. Another was just simply going to be an overview of how Government regulators in Iceland dealt with their banks in the ‘08 financial crisis in way of actual justice and nationalization instead of the quasi-ass nationalizing crony and corrupted bailout way in which it was handled in the U.S. (Not that I entirely disagree with the way it was handled here, but Iceland was a shining example.)
Otherwise there is still so much going on this world. Syria has gotten worse in that estimates of civilian casualty have reached the height of a potential 70,000 and the situation’s deterioration to the point where even Russia, Syria’s ally, has evacuated all of its citizens living there, with the help of the U.S.
The economic crisis in Europe continues to be a clusterfuck. The technochrat Mario Monti’s role as Prime Minister of Italy has come to its legal end and a new election has taken place where the old complete hysterical joke of a PM they used to have, Silvio Berlusconi, might be the actual winner. Austerity continues to be heavily pursued policy in many troubled Euro nations. It continues to hold down economic growth in the region of zero or even negative percent. The people of these nations continue to be frustrated and angered by such policy choices. More positively, also mentioned in President Obama’s State of the Union, is the idea of talks between the United States and European Union officials to form a trade pact that would do a large deal to encourage greater economic growth in both economies. The European Union has also been talking about implementing a financial transactions tax in their financial markets.
Another big deal in current economic activity across the globe are the policy actions of Central banks that potentially artificially undervalue domestic currencies to gain an unfair competitive advantage on the stage of international trade. There has been the mention of the term “currency wars’ that the G-20 and G-8 have addressed or more so dismissed as Japan’s central bank has pursued policies of monetary easing, and the U.S. Federal Reserve has undertaken a new phase of Quantative Easing ($85 Billion of asset purchases each month).
And of course there is the topic of the “sequester” in the U.S. Government where there is going to be a $900 Billion reduction of spending across the board over 10 years, or more importantly $85 Billion in this fiscal year. This policy was not actually intended. It was supposed to be an incentive for the Congress and the White House to come to a compromise on dealing with the National debt level with more reasonable cuts to spending or raising of revenue. Instead the sequester is a very radical program where spending is cut drastically in the worse places, so that instead of cutting where politicians most believe it is needed, it is cut in places where cutting is not wanted and it will most effect the U.S. economy by effectively reducing people’s pay, reducing low income family support, and cutting back on Government contracts with the private sector.
On this issue, which is not exactly the most interesting or sexy, there is even way more policy wonk coverage, and much written about the issue of a long term problem of Government debt (of which I don’t necessarily agree exists) that is behind it.
So overall, there has been so much for me to read about, learn about, and think about. So much so that it is rather overwhelming and giving me the impression that there is so much more for me to understand before I feel like I can really do my own writing about whatever I want to write about. Hopefully soon I will come to a point, or a certain fusion of thought and knowledge that I will be motivated to write something very substantive.
Thank you so much to anyone who has read anything on this blog ever.
Actually, I strongly recommend the above article for an analysis of the argument over whether or not the National Debt and the budget deficits are major crises like many center-right and even center-left pundits suggest. It provides true economic thinking to address this question.
Here is another excerpt from the article leading up to the above quote.
"And there is a quite real risk that efforts to cut the deficit could be counterproductive in bringing down the debt burden. Britain has been implementing deficit-reduction measures for the past three years, and while it has succeeded in cutting deficits, its economy has been stagnant as austerity sucks the wind out of growth. As a result, its debt to GDP ratio has been rising!"
(To be updated with further figures on economic activity as well as sources, but for now this is the gist of my purpose in this piece.”
Today, the 30th of January, 2013 the Commerce Department said that for their first estimate of GDP growth in the fourth and final business quarter of last year, the economy did not grow and actually shrunk at .10%. In the headlines surrounding this announcement, media outlets offered explanations for what the Federal Reserve called “paused growth,” such as the impact of Hurricane Sandy and the uncertainty surrounding the “fiscal cliff” negotiations at the end of 2012.
In my opinion and my personally accented understanding of economics so far they are likely not completely wrong to suggest such reasons, but that also likely there is a bigger but more nuanced picture of reason behind this supposed contraction considering that recently including in Q4 of 2012 many areas and indicatio0ns of economic activity have actually been quite positive. (If you want to skip all of the “empirical evidence” of a growing economy you can skip down to continue reading my analysis and opinion.)
First and foremost Consumer Spending grew in the fourth quarter to 2.2% from 1.6% in the third, adding 1.5% to GDP despite its overall contraction.
Similarly, After-Tax Income increased at a 6.8% annual rate from October to December, the highest since Q2 2008.
Business Investment increased as well adding 0.8% to GDP.
Purchases of Durable Goods increased by 13.9%
"Cars and light trucks sold at a 15.3 million annual rate in December after a 15.5 million pace the prior month, the best back-to-back showing since early 2008, data from Ward’s Automotive Group showed earlier this month.”
"Combined sales of new and previously owned properties last year rose 9.9 percent, according to data compiled by Bloomberg, for the biggest annual gain since 1998 and an indication residential real estate is helping drive growth.
Home prices in 20 U.S. cities rose in the 12 months to November by the most in more than six years. The S&P/Case- Shiller index of property values increased 5.5 percent from November 2011, the biggest year-over-year gain since August 2006, according to data released yesterday.” - Bloomberg
Housebuilding climbed 11.9% in 2012.
Yields on benchmark 10-year Treasuries rose to 1.99 percent from around 1.70 percent back when the Federal Reserve announced a third round of Quantitative Easing in September of 2012.
Mortgage backed bonds increased to 2.01 percent from 1.26 percent at the same time in September.
Some say the rising yields on Treasuries is an indication opposite of effective Quantitative Easing, but this is only part of the picture because bond yield rises such as these are obvious indication of higher investment activity and thus likely overall increased economic activity.
All of that proof of recently exceptional economic positivity now brings me to my overall point of discussing the GDP figure from 2012 Q4, and that is, in addition to the economic shock events that negatively impacted GDP there was an overall decrease in Government spending at all levels, apparently a 15% decrease and government outlays decreased at a 6.6% annualized rate (The latter is likely pertaining to Federal Government only). In fact, I don’t really need to write about this trying to prove it to you with my own knowledge, the Commerce Department itself said that a “decline in government outlays and smaller gain in stockpiles” took off a total of 2.6% from GDP or 1.3% (from Bloomberg and again probably Federally only). Estimates for GDP growth in the business quarters leading up to 2013 Q4 haven’t even been much more than 2.6%. To be more specific the Department of Defense “blocked purchases” resulting in a 22.2% decrease in DoD spending. So with that you can make your own obvious conclusions about how much the decrease in Government spending had to do with the negative growth.
capitalism is a cannibalistic system; it eats the worker away, slowly..one by one. it accumulates human capital and eats the poor.
we must eat the rich.
I disagree that is “blanketly” true of capitalism, but capitalism and its political system often tending towards plutocracy can naturally result in that being a reasonable perception of a capitalist system, and this capitalist system. In Macro today, we went over the capitalist solution for fairness as the growing of the pie, instead of getting rid of burdensome population as my teacher suggested with humor as his favorite genius idea. He seemed pretty content in representing to the class the presumed automatic capitalist truth of a growing pie as though it grows in everyone’s hands. However, we do see the cannibalism in the growing of the pie as the human capital is taken advantage of in ever decreasing compensation, so that the new majority of the growing pie is set to grow in the hands of those at the top. So, this here representation of such is interesting and thought provoking none the less.
That as part of the deal in response to the “fiscal cliff”, somewhat considered a pathetic attempt by many on both sides of the aisle, was also somewhat pleasing to me in that not only did it allow a tax increase on the successive range of income above $450,000 for couples, it allowed an increase on the capital gains and dividends rate back to its last higher position of 20%. The stock market still reacted very positively to the deal.
“Conservatives believe that slashing entitlement programs like Medicare is the key to avoiding a future tax increase. But for those who will have to work longer before qualifying for Medicare or spend more out of pocket to compensate for cuts in medical benefits, these effects are little different to them than the equivalent tax increase. What really is the difference to them of paying $1,000 more a year because of Medicare cuts or $1,000 more in taxes?”—Bruce Bartlett, Former Adviser to President Reagan and George H. W. Bush, The NYT’s Economix Blog, "The True Burden of Government."
I find it pathetic and narrow minded that in the U.S. political arena if you do not support all Israeli military effort by their aggressively hawkish Government or support Benjamin Netanyahu’s every decision you are considered by many on both sides of the aisle as anti-Israel (and in some ridiculous cases accused of being anti-Semite). When in Israel, there is an open and diverse political debate about their military activity as well as settlement expansion, and there is a strong opposition of many citizens to Israeli military aggression.
If someone wants to gripe about how unfair the United State’s social safety net is, they just need to look at these figures to learn a good reason for that gripe.
In 2010, 20% of entitlement spending in the U.S. went to the top ten percent of households, 58%of entitlement spending went to middle-income households, and 32% went to the bottom 20% of households. (Center on Budget and Policy Priorities)
Much of the U.S.’s social welfare spending comes in the form of private social benefits such as employer provided health insurance, life insurance, pension & retirement plans, payed sick leave, maternity leave, etc. Much more so in the U.S. than most other developed countries. That is 40% of all U.S. social spending compared to the likes of the U.K. with 20% and 8% in France and Sweden. (Kimberly J Morgan, George Washington University, “America’s Misguided Approach to Social Welfare” in Foreign Affairs Journal.) Those benefits very much tend to accrue to higher income individuals.
The higher the average wage at a firm the more likely the firm provides generous benefits.
85% of firms whose average wage is in the top 25th percentileprovide retirement benefits for their employees.
38% of firms whose average wage is in the bottom 25th percentile provide retirement benefits for their employees.
84% of firms whose average wage is in the top 25th percentile offer paid sick leave.
29% of firms whose average wage is in the bottom 25th percentile offer paid sick leave.
-(U.S. Bureau of Labor Statistics’ National Compensation Survey)
In the recent national political discussion about federal tax policy, one of the areas of taxes discussed and debated over is the capital gains tax, mainly the long term capital gains tax, which as part of the Bush era tax cuts was reduced from 20% to 15% and was re-extended with the other tax cuts through the end of 2012 in the 2011 Bush era tax cut extensions. Starting in the late 80s and through most of the 90s the long term capital gains tax rate was 28%. It is a tax rate charged only on the top 4 income tax brackets as the bottom 2 income tax brackets have a 0% long term capital gains tax rate. Because it is a tax charged on the earnings of folk’s capital investments, many especially on the conservative side argue that a lower capital gains tax rate encourages more investment and thus more economic growth. You have to give them credit for such commonsensical reasoning, but unfortunately economic truths sometimes evade the most common sense understanding, and should be founded upon empirical evidence. Perhaps they want a lower capital gains tax rate but for the most part they are arguing for the extension of its current lower rate against the argument of many for it to be raised back to its previous rate of 20% or perhaps even higher.
With that introduction to this particular tax topic, I will then link you to an article about the current budget situation and economic growth written by Jared Bernstein, the former economic adviser to Vice President Joe Biden, and now working for the Center for Budget and Policy Priorities, and post the except from the piece that provoked me to make this post, that exhibits empirical evidence from one source of Research that capital gains tax rate does not have a large influence on capital investment.
“Fernald identifies a slowdown in capital investment, particularly in IT, and the CBO’s analysis of this problem finds that the flow “capital services”—the pace of productivity-boosting inputs from our capital stock—increased by 4.7%/year in the 1990s and only 2.4% in the 2000s.
And remember, tax rates on such investment were considerably lower in the latter decade than in the former. The whole “lower-taxes-on-job-creators-and-capital-wait-for-the-magic” is a big bust. It’s supply-side, trickle-down wishful thinking and economies don’t run on wishes.”
As many as 15 percent of freshmen at America’s top schools are white students who failed to meet their university’s minimum standards for admission, according to Peter Schmidt, deputy editor of the Chronicle of Higher Education. These kids are “people with a long-standing relationship with the university,” or in other words, the children of faculty, wealthy alumni and politicians.
According to Schmidt, these unqualified but privileged kids are nearly twice as common on top campuses as Black and Latino students who had benefited from affirmative action.
Here is the Wonkblog piece on the same subject, but breaks down the unknowable possible challenges of climate change of 4 degrees Celsius, and how it could be devastating for third world economic development. The piece below talks about the fact that the World Bank has funded fossil fuel use. However much the World Bank funds some fossil fuel projects as part of their economic development efforts in poorer societies, the World Bank and its President’s official position already is that both developing nations and industrialized nations need to take action to avoid the 4 degree temperature rise. The World Bank can not make any nation do anything, it can only hope it’s heard in the discussion and offer ideas for mitigation and adaptation. Otherwise, what the World Bank will be responsible for is making sure the developing communities it helps will be prepared for climate change. But I do agree the World Bank should put more resources, research and development in particular, into setting the best example by investing in as clean of energy as possible for their developing societies, influencing the likelihood that these societies are trendsetters in clean & sustainable energy production and use.
The World Bank delivered a brutal warning about the dangers of runaway climate change and called for rapid action to cut greenhouse gas emissions in a recent report. But don’t expect the bank to take its own advice.
The bank released its Turn Down the Heat report on climate change on November 18. Subtitled “Why a 4 degree warmer world must be avoided”, the report said the world is headed for a 4°C average temperature rise by the end of the century, and possibly as soon as 2060.
On today’s trends, a 4°C world is almost certain — even if all nations were to meet their current targets to cut emissions. That is, the existing pledges to cut emissions made at recent international climate talks are not enough to make a difference.
The report makes clear that a 4°C world would be a global calamity. The World Bank said a 4°C temperature rise would lead to average summer temperatures about 6°C higher in North Africa, the Mediterranean, the Middle East and North America.
The higher temperatures will also mean “a dramatic increase in the intensity and frequency of high temperature extremes”.
These extremes, such the unprecedented Russian heatwave of 2010, would become “the new normal summer”. The Russian heatwave caused more than 10,000 deaths and wiped close to $15 billion off the country’s GDP.
The President had indeed bought my support up through his reelection, and it is my belief based in the record he has accomplished much of significance in his first term. However, I must null any further support upon his entrance to a second term, as well as currently the negotiations over the “fiscal cliff” of spending cuts and tax cut expiration taking effect in little more than a month. There is too much that I value that is wide open for him to make the wrong decision. Chronologically foremost is if in those negotiations he believes it is appropriate within the month of lameduck Congress before the “fiscal cliff” to attempt a large grand bargain on deficit reduction with Republicans by accepting any ideas on entitlement reform of medicare, medicaid, and even Social Security. Unfortunately his staff acknowledges that is on the table. I will remember most significantly such an irresponsible decision as to consider cuts and restructuring of America’s most important social programs in a time period as short as a month. I hope he stops far short of that line, at least until a new active congress with a longer time for considerations.
If there fails to be a deal on the upcoming massive sequestration of government spending and the expiration of tax cuts, a family making between $20k and $30k a year could owe $1,423 more in increased taxes, $2,000 more for family's of annual income between $40k and $60k.
(Source: Tax Policy Center, The Wall Street Journal)
I had originally came across this story on Bloomberg as it was written the day it happened, and I shared it with someone I knew was from Spain to give them an inkling of the personal economic situation that country is in, ,and what it does to people’s lives, as far as destroying them. It’s a sad story that captures the human side to this ‘Euro-Crisis’. Thankfully something consequentially important came out of this tragedy, the Spanish Prime Minister is ‘halting evictions’. We don’t even do that in the U.S., but the suicides do happen.
The intensification of the financial crisis in Spain, and across Europe, is having very real effects on the lives of people. Beyond the rise in the unemployment rate, widespread foreclosures across Spain have caused at least two suicides over the past few weeks, along with an unsuccessful attempt in the city of Valencia. The latest case, reported on Friday, involved a 53-year-old woman who jumped from her sixth-story balcony in the Basque city of Barakaldo as foreclosure agents forced open her door.
Spain has been one of the hardest hit victims of the European sovereign debt crisis. Mired in a deep recession, the Iberian nation has seen the unemployment rate skyrocket above 25%, with youth joblessness reaching 50%. The consequence of a real estate bubble, Spain’s crisis has led to a slew of foreclosures across the nation.
The latest victim has been Amaya Egaña, a former municipal councilwoman for the Socialist Party of Prime Minister Mariano Rajoy. According to Spanish daily El Pais, Egaña jumped to her death from a sixth-floor balcony on Friday as a legal team from the local court walked into her apartment to foreclose on her. Receiving no response after ringing the bell and knocking on the door, a locksmith opened the door, only to find Egaña standing on a chair to jump from her balcony. Egaña was found alive, but paramedics had no chances of saving her life.
Egaña’s suicide isn’t the first related to foreclosures in Spain. Just a few weeks ago, on October 25, 53-year-old Jose Miguel Domingo was found dead hours before foreclosure agents arrived at his apartment. Domingo hung himself after not having been able to pay interest payments on a €240,000 mortgage that went sour in 2009.
A day after, a man whose name hasn’t been disclosed jumped from his window in the city of Valencia. The man attempted to commit suicide minutes before foreclosure agents arrived at his apartment; this time, though, paramedics managed to save his life.
The suicide of Egaña has been like the straw that broke the camel’s back. A social repudiation of banks’ foreclosure practices has made its way to Madrid, where the Administration of Mariano Rajoy is working on a plan to give subprime debtors some relief. According to El Pais, Rajoy is looking to put into place a two year foreclosure moratorium for subprime debtors.
Spanish banks are in dire need of cash. Despite a €100 billion bailout-pledge by the EU, institutions like Bankia and BBVA are struggling to plug holes in their finances. Much like in the U.S., they are doing whatever they can to extract payment from debtors.
In the U.S., banks’ attempts to speed up the foreclosure processes resulted in the robo-signing scandal, by which major mortgage originators were using fraudulent protocols to processes thousands of mortgages in record time. Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial were forced to fork over $25 billion to settle a suit brought Attorneys General from across the nation.
With Spain falling even deeper into the rabbit hole, as Rajoy refuses to take a bailout and borrowing costs rise, the situation could deteriorate further. Beyond economic losses, Friday’s events are direct evidence that financial crises have the potential to destroy the lives of ordinary individuals.
After the election, in which the nation re-elected Barack Obama to the Presidency, one of the biggest, if not the biggest, policy issues facing the President as well as Congress is the fiscal cliff, as some people call it, when the Bush era income Tax Rate cuts across all income brackets as well as payroll tax cuts expire and a series of draconian deficit reduction cuts to defense and non defense discretionary Government spending would occur. According to the non-partisan Congressional Budget Office that amount of money removed from the economy would result in a .5% decline in annual GDP in 2013.
The President wants a solution to avoid the fiscal cliff to include the extension of the Bush tax cuts to all income brackets except the high income bracket of people who earn above $250,000/year. Last time it came time for there to be a decision made about the extension of those cuts, the President pushed the same solution but the Republicans in the Congress insisted they would not extend the tax cuts for anyone if they were not extended also for that highest income bracket. Their advocacy of that position is directly the result of their belief in Supply Side economics, which people often call Trickle Down. They truly believe that when the tax (and sometimes regulatory) burden on the most wealthy classes of society are decreased, that those people they refer to as Job creators use that extra saved income for the most unverifiably expected decisions such as expanding their businesses, paying their employees more, or hiring more employees. Those reactions must not be the most verfiably true because now even the independent Congressional Research Service released in September a report concluding that lowering taxes is not directly related with increased economic activity and growth. Which brings me to the information to wrap this up and make my overall point.
The Congressional Budget Office released its own report a few days after the election about the combined fiscal contraction of the fiscal cliff, in which they projected that the high income portion of the Bush era tax cuts would boost GDP by a .1% compared to the combined rest of the tax cuts that would boost GDP by 1.3%. That same report explains that the top 2% of taxpayers likely spend less than each dollar earned than the taxpayers of low and middle income, which is the problem with trickle down, life itself, is financially regressive. So the main theoretical economic problem with the supply side argument to give subsidy to the wealthy producers and employers in the economy, as either individuals or as firms, in the form of tax cuts, is that the supposed increase of money and wealth in the economy is given to a portion of the economy, that albeit its large role as producers and employers, is actually not the biggest driver of potential for economic growth. That potential lies with the consumer, or the household sector which comprises around 70% of the U.S. Economy. They are the demand in the economy, the group whose choices directly result in the amount of aggregate demand there is for goods and services in the economy. Demand, the most basic ingredient for the producer needed before any other factor is considered. Sure, there is still a chance for the indirect effect of increased money in pockets of employers that they increase employee pay, benefits, or overall employment thus creating a little more demand from the household sector. However, there seems to be an obvious flaw in the idea that money spent through either tax cuts or direct subsidy on the wealthiest of society will most definitely without question result in its best decided private use or its having a greater multiplier effect than when such policies are most directed at the income brackets below.
(By the way, after a loud uproar from the G.O.P. in reaction to the Congressional Research Service’s Report on Tax Cuts and Economic Growth it was mysteriously taken back by the CRS. However, Senate Democrats have saved the content of the report and I will post a link to it below.)
Supposedly, due to my recent laziness, on this blog I am pretending that the election never happened. In the meantime, here are some unfortunate facts to hold myself over. Someone was pulling a moralistic gripe over me and my sister talking about homeless kittens, and said they didn’t know how many people were homeless, especially families with children. So, I did what I do best…research.
From the middle of the financial crisis, start of the Great Recession, to a year later in September of 09 roughly 1.5 million Americans went into a shelter or a temporary housing program. On a given night there is a rough 650,000 homeless in the U.S. (HUD), in a week there are 842,000, and most are temporarily homeless. According to the Substance Abuse and Mental Health Services Administration, in a year there is around 3.5 million people that are homeless at one point or another, or roughly 1% of the U.S. Population. National Coalition for Homeless says 23% are families with children. 37% of homeless are under the age of 18, 5% of total homeless are under 18 with no guardian. I’m really glad we have the Department for Housing and Urban Development as well as many generous organizations.
There is much I could say writing about what I think in terms of the policies of each of the candidates in tomorrow’s Presidential Election especially when it comes to Economics. But I often try to avoid in the culminating moments of a very long popular debate, comprehensively summarizing my total of thoughts on any which matter of it, although sometimes I can’t resist. In this case, in this culminating moment there is one matter of political macroeconomics I feel a particular urge to comment on, a new popular rhetoric and view on the right, stemming from the most radical of conservatism and the current extremist Tea Party atmosphere of the Republican party of the last few years. This rhetoric and ever more entrenched view has spread from the libertarian ideologues to almost every single one of last year’s candidates for the Presidential nomination of the Republican party, including ultimately the eventual nominee, Mitt Romney. I’m talking about Monetary Policy, and the new far right Republican view about it, a monetary policy with vehement and fatalistic opposition to monetary easing and a die hard belief in monetary tightening’s ultimate benefit for the economy. Hopefully this will help you realize how absolutely counter intuitive that is.
A certain point of amusing interest to highlight at the forefront is the fact that the sole innovator of the monetary policy they strongly oppose, Milton Friedman, was Republican, conservative, and even of a libertarian strain. Viewing that in strictly a political sense that shows how far right the Republican party has moved over the last few years. The independent Government agency responsible for and in charge of the nation’s Monetary Policy is the U.S. Federal Reserve. Its Chairman, appointed by the President, as well as its Board members and other politically appointed officials are the ones who decide the appropriate monetary policy in response to and symbiosis with the current economic conditions, with the ultimate goal of positively effecting the economy on its officially Government mandated areas of preventing hyperinflation or deflation and striving for and maintaining full employment. Its current Chairman is Ben Bernanke and he has been highly lambasted by libertarians, Republicans of Tea Party motives, especially the candidates of the Republican primary. Newt Gingrich suggested he be tried for treason. Rick Perry commented on what bad things Texans would do to Bernanke. And slightly more reasonably, Mitt Romney passionately insisting as President he would absolutely not re-appoint Bernanke at the end of his term. That is all because of their extreme opposition to the actions taken by the Federal Reserve as decided by Bernanke and subsequent Federal Reserve officials in response to the 2008 Financial crisis and the 2009 Great Recession.
I think it is most absolutely true and clear in the economic history of the past few years that the actions taken by the Federal Reserve at that time played a major role in prevention of an even larger financial crisis and thus perhaps another Great Depression. Essentially it acted as a lander of last resort for systemic financial institutions, extending loans at low rates, lowering its interest rates that influence the rates payed by private firms, and also purchased and held troubled toxic securities away from the financial institutions whom’s health they threatened. To make the expenditures I just mentioned, it uses its authority as the only entity legally able to print U.S. dollars, and creates the credit used to make the purchases. Some people have a strong ideological opposition to the supposed printing of money, even when it’s just the creation of credit, and they base it off of fears of this leading to hyperinflation. While the excessive creation of money and credit is one thing that could ultimately lead to hyperinflation, the money created by the Federal Reserve to offload bad investments from private sector balanced sheets holds barely a threat of even normal inflation. By the way, the Reserve purchasing these investments that are declining in value is itself a counter action to the forces of selling that create that decline.
Because of an economy with rather low levels of purchasing activity, the forces of demand or costs that push inflation and could lead to spiraling into hyperinflation are very weak. In fact, the Federal Reserve, under the Government mandates I previously mentioned, targets a level inflation that they aim to have in the economy. That is because a steady increase of prices for producers can perhaps influence more economic growth and is also indicative of economic growth. Right now, inflation is below the level the Federal Reserve targets, and if the Federal Reserve were to change its current path of monetary policy and it actions to the opposite direction, it will foster the forces that discourage economic activity.
That opposite path is monetary tightening and is the reason for writing this, as the policy direction aspired to by many Republicans, including the possible next President of the United States, Mitt Romney. It is not only just their mere belief in the ideas opposite of what monetary economists say can encourage growth in a low growth economy, but it is also the degree of intense emotion that backs those beliefs and their apparent hatred for monetary easing. I will not include in this argument any presumption on my part of their advocacy of a monetary Gold Standard although some of them most surely do, but Romney does not. I will include however their belief that the Federal Reserve should never create money even if its to fund any effort to put a bottom to a collapsing financial system. I will include that instead of wishing to keep their benchmark interest rates low as the Federal Reserve currently does, they will want to make sure to raise the interest rates sooner rather than later because they fear them being low causes hyperinflation. They practically directly support higher borrowing costs. The current behavior of the economy with our monetary policy shows us that the hyperinflation fear is not reasonable, as the benchmark rate, the Federal Funds rate, is held at its lowest point in at least a decade, and has been promised to be held there through 2015. I will include also that although the Federal Reserve is the main broker of U.S. Government debt securities, they will want to shrink the positions it holds of our own Government debt, because of not only their ideology for tight monetary policy but also their view of Government debt as bad. This will spark a rise in the yields on that U.S. debt, causing the borrowing costs of the Government to rise, especially if there isn’t sufficient demand by other foreign & private investors to take up the U.S. debt offloaded from the Federal Reserve.
All of that would interfere considerably against any use of the Federal Reserve in creating monetary conditions easing the flow of credit and money into the economy, tightening even more against the likelihood of banks making loans to small businesses and average people. Mitt Romney complains about the slow pace of economic growth and yet he completely discredits any place for eased monetary policies to alleviate the pain of it, that are long proven to be effective in that role. He also endorses the opposite of those policies in a time when they’re long proven to be harmful. There is most definitely a place for such monetary tightening, but it is when an economy is very active to an extent to contribute to high inflation and that time is not now. But that would be active enough to please Mitt Romney, which we’ll never get to under a monetary policy desired by a Romney administration.
When the Federal Reserve creates money to buy large portions of underwater Mortgage Securities, it alleviates some of the weight pulling down the mortgage market and thus the housing market. It makes it a little more easier for people to borrow for home-ownership, one of the most important factors for a healthy economy, a healthy middle class with growing wealth against the modern strong tides of wealth inequality. Mitt Romney’s ideal Federal Reserve would not make such interventions in a struggling mortgage market and I think that speaks for itself, even without a full explanation of monetary policy.
Here are a couple smaller writings of mine about Monetary Policy and the Federal Reserve.
"Hurricane Sandy’s economic toll is poised to exceed $20 billion after the biggest Atlantic storm slammed into the Eastern U.S., damaging homes and offices and flooding subways in America’s most populated city.
The total would include insured losses of about $7 billion to $8 billion, said Charles Watson, research and development director at Kinetic Analysis Corp., a hazard-research company in Silver Spring, Maryland. Much of the remaining tab will be picked up by cities and states to repair infrastructure, such as New York City’s subways and tunnels, he said.”
"Since the Great Recession officially ended in June 2009, the top 1 percent of Americans captured 93 percent of real income growth, according to an analysis of Internal Revenue Service data by Emmanuel Saez, an economist at the University of California at Berkeley."
“There was a man named Canute, one of the great Viking kings of the 11th Century. Wanted his people to be aware of his limitations, so he led them down to the sea and he commanded that the tide roll out. It didn’t. Who gave us the notion that Presidents can move the economy like a play-toy? That we can do more than talk it up or smooth over the rough spots? It’s a lie. What we really owe the unions [‘that union’ in show] is the truth.”—- President Bartlet (fictional character), The West Wing
Often cited as an integral supporting tax benefit to the middle class is the Mortgage Interest Deduction, but that subsidy benefits the wealthiest fifth of Americans in four times the amount than is spent on the subsidy to public housing for the lowest fifth.
According to multiple sources, the amount of total U.S. Debt has reached a new low level, a six year low, signifying that the country especially including the private and household sector has significantly deleveraged from the record high levels of indebtedness that coincided with the 2008 financial crisis and the successive recession, perhaps making room for more consumer spending and thus increased economic growth.
By Bloomberg compiled data, all U.S. Debt, from Federal to Local Government to Consumer Debt, has fallen to 3.29 times GDP, “the least since 2006.” In 2008, that measure of Total U.S. Debt peaked at 3.59 times GDP.
Borrowing by the Private-Sector is down by $4 Trillion to $40.2 Trillion.
Demand for U.S. Government Debt has reached $3.16 in bids for every $1 of issued securities of $1.59 Trillion. Last year a record was also set with $3.06 of bids for every dollar of issued debt.
According to recent estimates of the Federal Reserve U.S. Household Wealth increased to $62.7 Trillion from $51.2 Trillion in 2009. Household consumer spending accounts for about 70% of the U.S. Economy.
Consumer Debt Declined to $11.4 Trillion from $12.7 Trillion in 2008.
The market for Commercial Paper Borrowing (Short term corporate to corporate lending used for daily operations) stands at $975 Billion, down from a record $2.22 Trillion in 2007.
"Net U.S. taxable debt issuance, which includes corporate, mortgage and Treasury securities, is forecast to fall to $821 billion in 2012, the least since 2000 and less than half the record $2.28 trillion in 2007, according to Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York."
An Overly Simple Opinion on Anti-Austerity protests.
I have a little mental block about the austerity protests in some Eurozone countries. I only partially get it. I mean, I get that austerity is harsh and hurts their economies through painful measures on the economic conditions of the common working person, I myself am opposed to overly harsh austerity based on my ideology and just basic empirical economic evidence but don’t these people get it? Their Governments have borrowed very heavily and very irresponsibly for many years, at a level more than the U.S. borrows, ignoring these future consequences, in an economic system where they can’t devalue a domestic currency to treat poor competitiveness, instead having to rely on ever increasing cuts to people’s benefits and wages to compensate contraction only leading to more contraction. I know that isn’t their fault, for the most part, but now that their countries are in that position how is it do they think that their Government’s should continue to borrow at extremely high and unsustainable interest to support the public services they are protesting against being cut. They’re right to some extent on the lack of merit in austerity in promoting growth, but it seems entirely illogical to me that they are completely opposed to the cuts occurring in any amount, except to say that it is unfortunately understandable how frustrating and economically painful it is that people have to live in societies that now have widely abandoned public services, that even education is only a small fraction of what it used to be.
I want to share this information I just learned to help illustrate a trend of economic inequality and declining standards and wages for workers in this era of globalization. It is a little anecdotal, but I think we can recall from looking at the empirical macroeconomic data about income inequality, lower wages, and multi-national corporations, that this little portrait and picture surely is just another piece of that big picture.
Worker Productivity in 2007: $378,000 per worker.
Worker Productivity in 2011: $420,000 per worker.
Walmart’s recent posting of Q2 Net Profits: $4 Billion
A container unloader of goods for Walmart in Southern California makes $8.50 an hour working from 12am to 8am, with no access to clean water, and no benefits.
(Source: all from Rose Agulair of Aljazeera English on Up w/ Chris Hayes on MSNBC)
As anyone who pays attention to the basic news of the U.S. Economy, they know that today was the day monthly Employment statistics were released by the Department of Labor, Bureau of Labor Statistics. They also know what was released for the month, was a net creation of 96,000 jobs, a relatively weak number, and that also the unemployment rate decreased from 8.3% to 8.1%. Now, we hear often as we have during this recovery from the Great Recession, from opponents of the President, as well as sometimes as a matter of fact from Economists, that the reason the unemployment rate falls is because people leave the workforce, often out of discouragement in finding employment. Now, like I said, that is often a fact, and it is a good soundbite for political opponents of the President who can manipulate the ignorant voters that truly think the President has even majority influence over economic conditions. Today, we heard that again coming from them, an unfortunate decrease of the unemployment rate because of all the people leaving the workforce out of discouragement in finding employment. Now, we must keep in mind then that there are other reasons why people would leave the work force, such as retirement or going back to school. Fortunately for the economically minded that are often skeptical of political rhetoric, the Bureau of Labor statistics has long kept track of the number of discouraged workers that leave the workforce, and what that particular indicator shows for this particular month, is that discouraged workers have decreased.
“Romney and Ryan attacked Obama for robbing Medicare. It’s not true. Here’s what really happened, you be the judge: There were no cuts to benefits, none. What the president did was create a commission to find cuts to providers that weren’t necessary or doing what they were supposed to do Then he used the savings to close the doughnut hole in the Medicare drug program. And add 8 years to the Medicare trust fund so it’s solvent to 2024. I don’t know whether to laugh or cry becuase that $716 billion is exactly the same $716 billion in Ryan’s own budget. It takes some brass to attack a guy for what you just did.”—President Bill Clinton at the DNC.
"Romney has committed to grow defense spending relative to the CBO baseline. His campaign has said any changes to Social Security “will not affect today’s seniors or those nearing retirement.” I assume he intends to continue paying interest on the national debt. Now he wants to take Medicare off the table all the way through the two terms he might serve as president?
Together, those four areas account for 66 percent of all projected federal spending over the next 10 years. Romney wants to exclude all of them from cuts, actually grow the defense budget and be taken seriously as a deficit reducer?”
Yes! Obama has no plans. He went into the Presidency, not only determined to do something about Wall Street regulation and got it done, but also determined to have Health Care reform and got it done. Now, as he bids for a second term as President, he has in mind something long needed and wanted, just like Health Care reform, and that is reform of the Tax Code. I say, not only is he capable of winning this election, he is capable of pulling of this reform of Taxation. And I am particularly glad it would be done based on progressive principles.
Regardless of my angst against U.S. support of the Israeli government's far right agressive policies, Romney's criticism of President Obama's lack of support is entirely dishonest.
The Israeli Defense Minister, Ehud Barak, said the following to CNN in July: “I should tell you, honestly, that this administration, under President Obama, is doing, in regard to our security, more than anything that I can remember in the past.”
"Consider what Romney has promised. By 2016, he says federal spending will be below 20 percent of GDP, and at least 4 percent of that will be defense spending. At that point, he will cap federal spending at 20 percent of GDP, meaning it can never rise above that level.
All that’s hard enough. Romney will have to cut federal spending by between $6 and $7 trillion over the next decade to hit those targets.
Ryan’s budget includes more than $700 billion in Medicare cuts over the next decade, Romney’s budget won’t. And Romney promises that there will be no other changes to Social Security or Medicare for those over 55, which means neither program can be cut for the next 10 years. But once you add up Medicare, Social Security and defense and you’ve got more than half of the federal budget. So Romney is going to make the largest spending cuts in history while protecting or increasing spending on more than half of the budget.”
"Governor Mitt Romney’s proposals to cap total federal spending, boost defense spending, cut taxes, and balance the budget would require extraordinarily large cuts in other programs, both entitlements and discretionary programs, according to our revised analysis based on new information and updated projections.
For the most part, Governor Romney has not outlined cuts in specific programs. But if policymakers exempted Social Security from the cuts, as Romney has suggested, and cut Medicare, Medicaid, and all other entitlement and discretionary programs by the same percentage — to meet Romney’s spending cap, defense spending target, and balanced budget requirement — then non-defense programs other than Social Security would have to be cut 29 percent in 2016 and 59 percent in 2022 (see Figure 1). Without the balanced budget requirement, the cuts would be smaller but still massive, reaching 40 percent in 2022.”
By the international financial law of Basel III, all banks are required to have a capital ratio of 10.5%. However, under Switzerland's new financial law, banks based there will be required to have an unprecedented 19% capital ratio.
In 1981, Ronald Reagan enacted the Gold Commission to study the possibility of going back to the Gold Standard. That was because, at the time, there was incredibly high inflation of at least above 5% and nearing double digits. They decided going to the Gold standard was a terrible idea. Today, inflation is barely above 1%, below the Federal Reserve’s target rate, and yet, the reality shunning ideologues of the far right have been able to commit the Republican Party to include the push for another Gold Commission in their new party platform. Screwy.
An interesting story of a rather new and unexpected Economic circumstance found in the 1970s, Stagflation, and the unprecedented response in monetary policy from the Federal Reserve.
Bloomberg View, William L. Silber
"The need to consider the inflationary consequences of monetary policy even with unemployed resources wasn’t yet the conventional economic wisdom. Keynesian economic models ignored inflationary expectations, but the market for gold bullion did not. By 1978, gold signaled renewed concerns with inflation and on July 28 the price passed its previous peak of $197.50, and would trade as high as $243.65 later in the year."