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America Disregarded 4,000 Years of History In Responding to the Great Recession

November 15, 2015

America Disregarded 4,000 Years of History In Responding to the Great Recession

We’ve known for over 4,000 years that debts need to be periodically written down, or the entire economy will collapse.

After all, debt grows exponentially … while economies only grow in an s-curve.

The ancient Sumerians and Babylonians, the early Jews and Christians, the Founding Fathers of the United States and others throughout history knew that private debts had to be periodically forgiven.

Debt jubilees are a vital part of the Christian and Jewish faiths. And the first recorded word for “freedom” anywhere in the world meant “debt-freedom”.

Two prominent economists – Professor of economics and director of the Julis-Rabinowitz Center for Public Policy and Finance at Princeton University (Atif Mian), and Chicago Board of Trade Professor of Finance at the University of Chicago Booth School of Business and co-director of the Initiative on Global Markets (Amir Sufi) – wrote last year:

Debt forgiveness makes a lot of sense when the economy experiences a large-scale negative shock that is beyond the control of any one individual.

History seems to understand this lesson well. The 48th provision of the Code of Hammurabi, written more than 3,500 years ago in Mesopotamia, states that: “If any one owe a debt for a loan, and a storm prostrates the grain, or the harvest fail, or the grain does not growth for lack of water, in that year he need not give his creditor any grain, he washes his debt-tablet in water and pays no rent for this year.” The main threat to economic activity in ancient Mesopotamia was a drought, and one of the first legal codes understood that debt should be forgiven if such a negative shock occurred.

In 1819 when agricultural prices in the United States plummeted leaving farmers overly indebted and unable to pay their mortgages, politicians ran to their defense. Many state governments immediately imposed moratoria on debt payments and foreclosures.

…click on the above link to read the rest of the article…

This Is Actually Going To Happen Next Year

September 13, 2015

This Is Actually Going To Happen Next Year

The intellectual groundwork is being laid for the next stage of the Money Bubble, and it’s going to be epic. Here are excerpts from two articles that appeared over the weekend (and which should be read in their entirety). Both deal with Japan, which went all-in on debt monetization, lost badly, and now needs a new plan.

The first is from a University of Michigan economics professor:

Japan should be trying out a next-generation monetary policy

Japan is wasting its time trying to raise inflation.

Japan may succeed at bringing annual inflation up to 2%; indeed, it has made some real progress toward that goal. But suppose Japan succeeds in getting inflation up to 2%; would that be enough? The US economy has struggled mightily despite the fact that it went into the Great Recession with a 2% annual rate of core inflation. Japan could try to target an even higher rate of inflation, as Blanchard, Ball and Krugman recommend, or Japan could leave behind quantitative easing and higher inflation targets to make the leap to next-generation monetary policy.

The key to next-generation monetary policy is to cut interest rates directly instead of trying to supercharge a zero interest rate by raising inflation. Of course, cutting interest rates below zero pushes them into negative territory. But Switzerland, Denmark, Sweden and the euro zone have already shown that can be done. There is a widespread myth that cutting interest rates much deeper than -0.75% would inevitably cause people and firms to do an end run around those negative interest rates by taking their money out of the banking system as paper currency. Not so!

It is easy to neuter cash taken out of the bank as a way to defeat negative interest rates simply by removing the guarantee that the Bank of Japan will take that cash back at face value. 

 

…click on the above link to read the rest of the article…

 

 

 

Fed Up with the Fed

September 7, 2015

Fed Up with the Fed

At the end of every August, central bankers and financiers from around the world meet in Jackson Hole, Wyoming, for the US Federal Reserve’s economic symposium. This year, the participants were greeted by a large group of mostly young people, including many African- and Hispanic Americans.

The group was not there so much to protest as to inform. They wanted the assembled policymakers to know that their decisions affect ordinary people, not just the financiers who are worried about what inflation does to the value of their bonds or what interest-rate hikes might do to their stock portfolios. And their green tee shirts were emblazoned with the message that for these Americans, there has been no recovery.

Even now, seven years after the global financial crisis triggered the Great Recession, “official” unemployment among African-Americans is more than 9%. According to a broader (and more appropriate) definition, which includes part-time employees seeking full-time jobs and marginally employed workers, the unemployment rate for the United States as a whole is 10.3%. But, for African-Americans – especially the young – the rate is much higher. For example, for African-Americans aged 17-20 who have graduated high school but not enrolled in college, the unemployment rate is over 50%. The “jobs gap” – the difference between today’s employment and what it should be – is some three million.

With so many people out of work, downward pressure on wages is showing up in official statistics as well. So far this year, real wages for non-supervisory workers fell by nearly 0.5%. This is part of a long-term trend that explains why household incomes in the middle of the distribution are lower than they were a quarter-century ago.


Read more at https://www.project-syndicate.org/commentary/us-fed-interest-rate-hike-low-inflation-by-joseph-e–stiglitz-2015-09#ysd6DoKTlIY5xLsF.99

 

US Economy Heads Toward Zero Growth in Q1

March 26, 2015

US Economy Heads Toward Zero Growth in Q1

GDPNow: Wall Street’s promise of Escape Velocity is a joke.

The consistency with which nearly every report on the US economy has deteriorated over the last few months is astonishing. Only the jobs report has been spared that sharp downdraft. So we blame the weather, which in parts of the US was truly atrocious, while in other parts, particularly in California, it was gorgeous.

Too gorgeous. This is supposed to be our rainy season, but every day the sun is out as we’re heading into our fourth year of drought. Yet the drought isn’t what keeps people from shopping or companies from ordering equipment. So out here, we’re baffled when the weather gets blamed.

Today’s durable goods report for February was another shot at this wobbly edifice of the US economy.

New orders for manufactured durable goods dropped by 1.4%, the Census Bureau reported. It was the third decrease in four months. Transportation equipment fell 3.5%, also the third decrease in four months. Excluding transportation, new orders – “core” durable goods – fell 0.4%, down for the fifth month in a row.

And Core Capital Goods New Orders, considered an important gauge of business spending, fell 1.4%, down for the sixth month in a row. The weather is really hard to blame for this, so folks blamed the strong dollar and slack demand in the US and globally.

 

…click on the above link to read the rest of the article…

10 Charts Which Show We Are Much Worse Off Than Just Before The Last Economic Crisis

March 22, 2015

10 Charts Which Show We Are Much Worse Off Than Just Before The Last Economic Crisis

If you believe that ignorance is bliss, you might not want to read this article.  I am going to dispel the notion that there has been any sort of “economic recovery”, and I am going to show that we are much worse off than we were just prior to the last economic crisis.  If you go back to 2007, people were feeling really good about things.  Houses were being flipped like crazy, the stock market was booming and unemployment was relatively low.  But then the financial crisis of 2008 struck, and for a while it felt like the world was coming to an end.  Of course it didn’t come to an end – it was just the first wave of our problems.  The waves that come next are going to be the ones that really wipe us out.  Unfortunately, because we have experienced a few years of relative stability, many Americans have become convinced that Barack Obama, Janet Yellen and the rest of the folks in Washington D.C. have fixed whatever problems caused the last crisis.  Even though all of the numbers are screaming otherwise, there are millions upon millions of people out there that truly believe that everything is going to be okay somehow.  We never seem to learn from the past, and when this next economic downturn strikes it is going to do an astonishing amount of damage because we are already in a significantly weakened state from the last one.

…click on the above link to read the rest of the article…

Income, Education and Inequality in the “Recovery”: Prepare to be Surprised

March 20, 2015

Income, Education and Inequality in the “Recovery”: Prepare to be Surprised

Note to the higher education industry: issuing diplomas doesn’t magically create new jobs in the real world.

By virtually any standard, wealth inequality has soared to historic levels in the six years of “recovery” since the Great Recession of 2008-09. Economist Emmanuel Saez, who has long collaborated with Thomas Piketty, described the recent extremes of wealth inequality in a recent paper Striking it Richer: The Evolution of Top Incomes in the United States, which provides an in-depth look at the widening gulf between the top 1% and the bottom 90% from 2009 to 2012.

Here is a chart of the top 10% share of income, based on their research (the note in red marking the beginning of financialization in 1982 is my own):

As author David Cay Johnston noted in an insightful review of Piketty’s book Capital in the Twenty-First Century, Trickle-Up economics: “The top 1 percent of Americans raked in 95 cents out of every dollar of increased income from 2009, when the Great Recession officially ended, through 2012. Almost a third of the entire national increase went to just 16,000 households, the top 1 percent of the top 1 percent, Piketty and Saez’s analysis of IRS data 

 

…click on the above link to read the rest of the article…

Crude Parallels

March 4, 2015

Crude Parallels

The Great Recession was seven years ago so it might seem appropriate that our memories of the specific nature and order of events is lost to time. However, given that it will be a seminal event in history (hopefully not surpassed) there is less leeway to having such a short grasp on the important pieces. Part of that relates to trauma, financially speaking, whereby the economy is conflated with the “market” (either credit or stocks) in something like realtime. When the market crashed in October 2008, though, there was still debate on the economy even at that late moment.

On September 22, 2008, the October 2008 futures price for WTI surged by $25 per barrel, a record move, hitting a high of $130 intraday on nothing more than news of TARP’s introduction into Congress. This was one week after Lehman Brothers had failed, AIG introduced the world to “liquidity” and collateral in writing CDS (and JP Morgan’s central place in them) and various other big banks were on the precipice of total disaster. And despite all of that, oil prices in that intraday moment were only a dozen dollars or so below the July 2008 all-time peak.

Investors were concerned about “demand” but only slightly so as it related to, even by Lehman’s bankruptcy, still just a “slowdown.”

 

…click on the above link to read the rest of the article…

Nomi Prins: The Sinister Evolution Of Our Modern Banking System Because we’re all about those banks, ’bout those banks…

February 1, 2015

Nomi Prins: The Sinister Evolution Of Our Modern Banking System

Because we’re all about those banks, ’bout those banks…

I quit Wall Street and decided that it was time to talk more about what was going on inside it, as it had changed. It had become far more sinister and far more dangerous.

~ Nomi Prins

Today, the ‘revolving door’ connecting our political and financial systems is evident to anyone with eyes. But this entwined relationship between Washington DC and Wall Street is nothing new, predating even the formation of the Federal Reserve.

To chronicle the evolution to where we find ourselves today, we welcome Nomi Prins, Wall Street veteran turned financial industry reformist, and author of the excellent expose All The Presidents Bankers.

In this well-detailed interview, Nomi goes into depth of the rationale and process behind the creation of the Federal Reserve, and more important, how its mandate — and the behavior of the banking system overall — metastasized into the every-banker-for-himself regime of sanctioned theft we now live with.

Chris Martenson:   To me, it couldn’t have been more obviously obscene then in 2010, and I believe maybe 2009, right after the big banks had been handed just vast, huge, very favorable handouts and bailouts during the Great Recession — and then they handed themselves record bonuses. I thought optically that was just horrible. As somebody who was inside the banking system: Are they that tone deaf? What’s behind that sort of behavior?

Nomi Prins:   Indeed, they have become very isolated.

It began with the period before the 1970s when different people were rising to leadership in banks, and worsened in the 80s when we started seeing people who had more sociopathic tendencies or less ability to appreciate the idea of the public’s economic stability being beneficial to growing their institutions. They no longer viewed it as necessary.

…click on the above link to read the rest of the article…

 

Oh, Greece!

January 21, 2015

Oh, Greece!

Greece’s bailout program is not working. After receiving hundreds of billions of Euros in new loans to stave off a sovereign default, Greeks are on the verge of electing a new government that may throw Eurozone politics into turmoil.

From the outset, this was always going to be a tricky one for European bureaucrats and lenders. Restoring the solvency of a state which historically had great difficulties in collecting taxes from its citizens was not going to be easy. Moreover, the crash exposed fundamental flaws in the Greek economy, which at the time turned out to be a leading indicator for other Southern Eurozone countries.

With the world still reeling from the Great Recession, in 2010 Greece applied for a rescue program as its funding costs soared once the fragility of its finances could no longer remain hidden.

It can be argued that if debt balances had been restructured there and then to levels where they could actually be paid off over an extended period of time, together with unpleasant but sensible fiscal policies – as we shall see, taking into account important differentiators of the Greek economy – the cost of the bailout could have been much more manageable.

…click on the above link to read the rest of the article…

 

Are We Reliving The 1930s?

December 7, 2014

Are We Reliving The 1930s?.

At the close of last week’s G20 Summit, U.K. Prime Minister David Cameron warned that we’re on the verge of another global recession, citing problems like looming deflation, falling prices, and rising protectionist sentiment. This list evokes a sense of déjà vu: not about the Great Recession, but the GreatDepression. That was the last time we ever seriously worried about disinflation, along with every practically other aspect of economic performance raising alarm bells today: low interest rates, weak investment, slow productivity growth, and chronic labor force detachment.

To be sure, this isn’t an easy comparison to swallow. The Great Depression is the ultimate measuring rod of economic catastrophe to which every other downturn is compared. But as time goes by and forecasts of full recovery keep getting deferred like an ever-fading mirage, it’s one worth examining. How does the Great Depression of the 1930s compare with the Great Recession of the 2010s? Let’s look at the GDPs of the U.S., U.K., and continental Western Europe from 1929 on and from 2007 on, using the base year as an index.

…click on the above link to read the rest of the article…

A Depression Era Economics Lesson | project chesapeake

October 26, 2014

A Depression Era Economics Lesson | project chesapeake.

When the great depression hit in the 1930’s, many people had a difficult time surviving. When the system they depended on ceased to function properly, they no longer had the ability to earn a living wage and care for their families. Even at a time when you could get a meal for a nickel, many people struggled to feed themselves.

In many rural areas, farmers faced the difficulty of being able to even grow enough to feed themselves. The drought that accompanied the depression left many no choice but to move to more hospitable locations where jobs could be found.

Some people were in a much better position to weather the national problems than others. They were not rich in monetary terms but they had a stable living condition that enabled them to get by as always.

In the rural community that my family had called home for over 100 years, my family got by better than most. The fact that many of the people were watermen, that made their living on the Chesapeake Bay catching various types of seafood throughout the year, made the depression different for them. As my father related to me, they really didn’t know there was a depression going on most of the time.

…click on the above link to read the rest of the article…

The New Great Depression | Two Ice Floes

October 22, 2014

The New Great Depression | Two Ice Floes.

A few years back Peter Schiff opined the Great Depression of the 1930s would look like a Sunday school picnic compared to what is headed our way. Without a doubt the cat is out of the bag. Everyone knows things are not going well. Unfortunately, it seems most people think that fixing the system, changing the politicians, tweaking the rules and the return to honorable ways of yesteryear hold the solution to restoring our idea of a stable and prosperous society.

The disconnect is easy to perceive when we compare black and white faded photos from the 1930’s of dusty farms, soup lines and children who don’t smile to the modern edgy world images from our cell phones, televisions and computers of how things supposedly are now. We live in a bright and vivid world where descriptions have been meticulously spoon fed to us so we will largely act according to how others might see us and we can feel better about ourselves. This only works until financial or emotional changes crash into our lives such as the Big One roaring towards us all now.

The New Depression already began and the news blackout is deafening. Aside from malcontents who insist upon harping on unpleasant subjects and who have no desire to participate in society’s uniform “solutions”, one only has to watch a Sunday football game and it’s commercials to be refreshed in the programming that the American dream indeed lives on. It’s right there in front of us to see with our own eyes and if you are not living that life you are obviously doing something wrong. (And obviously this is sarcasm.)

…click on the above link to read the rest of the article…

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