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Paul Krugman: "Notice ... how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy."

August 19, 2010

Appeasing the Bond Gods

By PAUL KRUGMAN

As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Hey, I told you it was over the top. But bear with me for a minute.

Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits.

Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.

The skeptics countered that Greece is a special case, trapped by its use of the euro, which condemns it to years of deflation and stagnation whatever it does. The interest rates paid by major nations with their own currencies — not just the United States, but also Britain and Japan — showed no sign that the bond vigilantes were about to attack, or even that they existed.

Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.

This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.

But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.

And, yes, we are talking about sacrifices. Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland.

Maybe those countries had no choice in the matter — although it’s worth noting that all the suffering being imposed on their populations doesn’t seem to have done anything to improve investor confidence in their governments.

But, in America, we do have a choice. The markets aren’t demanding that we give up on job creation. On the contrary, they seem worried about the lack of action — about the fact that, as Bill Gross of the giant bond fund Pimco put it earlier this week, we’re “approaching a cul-de-sac of stimulus,” which he warns “will slow to a snail’s pace, incapable of providing sufficient job growth going forward.”

It seems almost superfluous, given all that, to mention the final insult: many of the most vocal austerians are, of course, hypocrites. Notice, in particular, how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy. But that won’t stop them from continuing to pose as deficit hawks whenever anyone proposes doing something to help the unemployed.

So here’s the question I find myself asking: What will it take to break the hold of this cruel cult on the minds of the policy elite? When, if ever, will we get back to the job of rebuilding the economy?

Paul Craig Roberts: "You don't have to be smart to see that Wall Street's and the government's response to the amazing US budget deficit is not to stop the senseless wars and bailouts of mega-millionaires, but to cut 'entitlements'."

Deceptive Economic Statistics: While the economists lied the US economy died

August 17, 2010 at 18:08:41
opednews.com

For OpEdNews: Paul Craig Roberts - Writer

On August 17, Bloomberg reported a US government release that industrial production rose twice as much as forecast, climbing 1 percent. Bloomberg interpreted this to mean that "increased business investment is propelling the gains in manufacturing, which accounts for 11 percent of the world's largest economy."

The stock market rose.

Let's look at this through the lens of statistician John Williams of shadowstats.com. Williams reports that "the primary driver of a 1.0% monthly gain in seasonally-adjusted July industrial production" was "warped seasonal factors" caused by "the irregular patterns in U.S. auto production in the last two years." Industrial production "shrank by 1.0% before seasonal adjustments."

If the government and Bloomberg had announced that industrial production fell by 1.0% in July, would the stock market have risen 104 points on August 17?

Notice that Bloomberg reports that manufacturing accounts for 11 percent of the US economy. I remember when manufacturing accounted for 18% of the US economy. The decline of 39% is due to jobs offshoring.

Think about that. Wall Street and shareholders and executives of transnational corporations have made billions by moving 39% of US manufacturing offshore to boost the GDP and employment of foreign countries, such as China, while impoverishing their former American work force. Congress and the economics profession have cheered this on as "the New Economy."

Bought-and-paid-for-economists told us that "the new economy" would make us all rich, and so did the financial press. We were well rid, they claimed, of the "old" industries and manufactures, the departure of which destroyed the tax base of so many American cities and states and the livelihood of millions of Americans.

The bought-and-paid-for-economists got all the media forums for a decade. While they lied, the US economy died.

Now, back to statistical deception. On August 17, the census Bureau reported a small gain in July 2010 residential construction housing starts. More hope orchestrated. In fact, the "gain," as John Williams reports, was due to a large downward revision" in June's reporting. The reported July "gain" would "have been a contraction" without the downward revision in June's "gain."

So, the overestimate of June housing not only made June look good, but also the downward correction of the June number makes July look good, because starts rose above the corrected June number. The same manipulation is likely to happen again next month.

If the government will lie to you about Iraqi weapons of mass production, Iranian nukes, and 9/11, why won't they lie to you about the economy?

We now have an all-time high of Americans on food stamps, 40.8 million people, about 14% of the population. By next year the government estimates that food stamp dependency will rise to 43 million Americans. So last week Congress cut food stamp benefits. Let them eat cake.

Wherever one looks -- food stamps, home foreclosures, bankrupted states, mounting joblessness -- the message to long-suffering Americans from "their government" is the same: go eat cake, while we fight wars for Israel that enrich the military/security complex, and while we bail out banksters whose annual incomes are in the tens of millions of dollars and up.

It is impossible to get any truth out of the US government about anything. If private companies used US government accounting, the executives would be prosecuted, convicted, and incarcerated.

"Our government" is committed to fighting wars to enrich the military/security complex and Israel's territorial expansion at the expense of cuts in Social Security and Medicare. All most members of Congress, especially Republicans, want to do is to pay for the pointless wars by cutting Social Security and Medicare.

When they worry about the deficit, it is usually Social Security and Medicare -- so-called "entitlements" that are in the crosshairs.

You don't have to be smart to see that Wall Street's and the government's response to the amazing US budget deficit is not to stop the senseless wars and bailouts of mega-millionaires, but to cut "entitlements."

I will end this column on unemployment. "Our government" tells us that the unemployment rate is just under 10 percent, a figure that would have wrecked any post-Great Depression administration. But, again, "our government" is lying. The reported unemployment rate is just below 10% because the US government no longer, since the corrupt Clinton administration, counts Americans who have been unemployed for longer than one year. Once the unemployed hit one year and one day, they are dropped from the unemployment roles and no longer counted as unemployed.

Compare this fact with the number you read from the financial press. Right now, if measured according to the methodology of 1980, the US unemployment rate is about 22%. Thus, the reported rate of unemployment hides more than half of the unemployed.

And, in the August 2 New York Times,Secretary Treasury Tim Geithner welcomed us to "the recovery."

Utterly amazing.

Paul Krugman: "Social Security’s attackers claim that they’re concerned about the program’s financial future. But their math doesn’t add up... And underneath it all is ignorance of or indifference to the realities of life for many Americans."

August 15, 2010

Attacking Social Security

By PAUL KRUGMAN

Social Security turned 75 last week. It should have been a joyous occasion, a time to celebrate a program that has brought dignity and decency to the lives of older Americans.

But the program is under attack, with some Democrats as well as nearly all Republicans joining the assault. Rumor has it that President Obama’s deficit commission may call for deep benefit cuts, in particular a sharp rise in the retirement age.

Social Security’s attackers claim that they’re concerned about the program’s financial future. But their math doesn’t add up, and their hostility isn’t really about dollars and cents. Instead, it’s about ideology and posturing. And underneath it all is ignorance of or indifference to the realities of life for many Americans.

About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.

But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.

Meanwhile, an aging population will eventually (over the course of the next 20 years) cause the cost of paying Social Security benefits to rise from its current 4.8 percent of G.D.P. to about 6 percent of G.D.P. To give you some perspective, that’s a significantly smaller increase than the rise in defense spending since 2001, which Washington certainly didn’t consider a crisis, or even a reason to rethink some of the Bush tax cuts.

So where do claims of crisis come from? To a large extent they rely on bad-faith accounting. In particular, they rely on an exercise in three-card monte in which the surpluses Social Security has been running for a quarter-century don’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own.

It would be easy to dismiss this bait-and-switch as obvious nonsense, except for one thing: many influential people — including Alan Simpson, co-chairman of the president’s deficit commission — are peddling this nonsense.

And having invented a crisis, what do Social Security’s attackers want to do? They don’t propose cutting benefits to current retirees; invariably the plan is, instead, to cut benefits many years in the future. So think about it this way: In order to avoid the possibility of future benefit cuts, we must cut future benefits. O.K.

What’s really going on here? Conservatives hate Social Security for ideological reasons: its success undermines their claim that government is always the problem, never the solution. But they receive crucial support from Washington insiders, for whom a declared willingness to cut Social Security has long served as a badge of fiscal seriousness, never mind the arithmetic.

And neither wing of the anti-Social-Security coalition seems to know or care about the hardship its favorite proposals would cause.

The currently fashionable idea of raising the retirement age even more than it will rise under existing law — it has already gone from 65 to 66, it’s scheduled to rise to 67, but now some are proposing that it go to 70 — is usually justified with assertions that life expectancy has risen, so people can easily work later into life. But that’s only true for affluent, white-collar workers — the people who need Social Security least.

I’m not just talking about the fact that it’s a lot easier to imagine working until you’re 70 if you have a comfortable office job than if you’re engaged in manual labor. America is becoming an increasingly unequal society — and the growing disparities extend to matters of life and death. Life expectancy at age 65 has risen a lot at the top of the income distribution, but much less for lower-income workers. And remember, the retirement age is already scheduled to rise under current law.

So let’s beat back this unnecessary, unfair and — let’s not mince words — cruel attack on working Americans. Big cuts in Social Security should not be on the table.

George Soros slashes exposure to US equities

George Soros slashes exposure to US equities

George Soros has slashed the amount of money he is willing to gamble on the fortunes of the US stock market in the second quarter as market volatility increased.

By James Quinn
Published: 7:08PM BST 17 Aug 2010

The legendary investor's Soros Fund Management – which has approximately $25bn (£16bn) under management – reduced its equity investments by 42pc to $5.1bn by the end of June, down from $8.8bn at the end of March.

The asset allocation decisions were made during a period in which the Standard & Poor's 500 index – the broadest US equity index – fell 12pc.

The fact that Mr Soros – best known as the man reputed to have made $1bn by "breaking the Bank of England" during the 1992 fiscal crisis – has decided to make such a concerted shift out of equities will send a clear message to other investors.

Gone are Soros's investments in Petrobras, Brazil's oil giant, with investments in bellwether stocks such as Wal-Mart, JP Morgan Chase and Pfizer drastically reduced, cut by 99pc, 97pc and 95pc respectively.

Of those equities that do remain, the fund's holding in a gold exchange traded fund constitutes his largest investment, some 13pc of the equity portfolio, worth $638m.

Although neither Mr Soros or his fund typically do not explain their quarterly investment decisions, it is likely some of the money has been shifted into government bonds, as well as investing in commodities and other safe havens.

The quarterly report – filed with the US Securities and Exchange Commission – details investments only in US-traded shares and related derivatives, and the fund does not have to detail overseas shares or cash or commodities held.

A spokesman for Mr Soros did not comment.

Obama lied about his swim in the Gulf and is criminally liable

Obama's Gulf Swim Was Fake

Posted: 2010/08/16
From: Mathaba

by Stephen Lendman

On August 15, AP reported that Obama gave his "personal assurances of (the) Gulf's safety," saying:

"Beaches all along the Gulf Coast are clean, they are safe, and they are open for business."

He lied.

The same day, Britain's government owned BBC reported:

"Barack Obama has taken a swim in the Gulf of Mexico (to) reassure Americans that the waters are safe despite the recent oil spill."

US corporate media reporters repeated the message, CNN's senior White House correspondent Ed Henry among them, saying "Obama takes (the) plunge, swims in the Gulf (to show it's safe and) open for business."

In fact, area businesses continue to be severely impacted, and the entire region is dangerously unsafe.

As for Obama's swim, on August 16, the London Independent reported that Obama and his daughter, Sasha, swam in a private Panama City Beach, FL beach off Alligator Point in St. Andrew Bay, not part of the Gulf.

Reporters were banned, no TV video permitted. "So....only the White House photographer was allowed to capture proceedings. The official picture was intended to provide evidence that the region's beaches are back to normal."

False. A dangerously toxic oil/dispersant brew contaminates much, perhaps the entire Gulf. It's poisoned and potentially lethal for decades, maybe generations. Nothing in it should be ingested. Millions in the region are at risk. No one should swim in coastal waters or eat any Gulf seafood. Responsible officials should ban it. Instead the all-clear's been given.

Obama, his officials, and BP executives are criminally liable. So are state governors, coastal mayors, and regional health authorities.

Area residents with children should leave. Tourists should avoid the region. A growing catastrophe will continue for decades, including a silent epidemic of cancers and other diseases, as well as lives and livelihoods lost.

That's the major media's unreported reality, worsening, not improving daily.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

A brief break from the unending politico-economic bad news: Two thumbs up for a truly uplifing movie, Avenue Montaigne!

We bought this 2007 film this summer on a 5-DVDs-for-30-euros sale at the Fnac in Paris. Although in French, it appears tailored for the American audience, being replete with the jacket description in English, previews of American films, and English subtitles set as the default choice.

From the back jacket of this DVD:
AVENUE MONTAIGNE centers around Jessica a beautiful young woman from the provinces who comes to Paris and lands a job waiting tables at a chic bistro on fabled Avenue Montaigne, the city's nexus for art, music, theater, and fashion. Jessica's customers include a popular TV actress who is courting a major Hollywood director for her first serious film role; a wealthy art collector who is about to liquidate a lifetime's worth of treasures at auction; an illustrious classical pianist who is at odds with his manager/wife as to where his career is headed. Precisely because Jessica doesn't know how celebrated these people are, her guileless and completely unintimidated engagement in their lives has a transforming effect on them -- and ultimately her.

Blogger's comment:
Although incidental to the plot, the film from time to time came back to a copy of a sculpture known as "Le Baiser" ("The Kiss") by Romanian sculptor Constantin Brancusi, which the art collector had in his collection. The most famous example of this Brancusi creation is found in Cimetiere Montparnasse in Paris (see pix below).