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Trust And Interest Rates on Treasuries
Obama has an op-ed in the Washington Post promoting his 'stimulus' package. Boilerplate bipartisan stuff David Broder could have written.
The package is getting bigger by the day, but the effective part of – timely, temporary and targeted measures – is shrinking.
The economic team Obama assembled is certainly proving that it is as bad as many have feared. 'Bad bank' plans and buying up 'troubled assets' are simply the wrong measures.
Temporarily nationalize the banks under some bankruptcy rule. Write down their 'assets' to some realistic value, make the shareholders and debt-holders take the necessary big haircuts and in two a three years privatize those banks again.
Willem Buiter compares the U.S. and the UK's economies to emerging market economies in trouble. The only plus side the U.S. still has above an emerging market in trouble is the reserve status of the dollar. But that status depends on trust. The U.S. and Obama's administration now have little credibility and doing all the wrong stuff risks a rout in treasuries and the dollar value. There are signs that the process already started:
The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.
The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.
Buiter therefore now argues against any 'stimulus'. Better do nothing than all the wrong stuff.
Nouriell Roubini compares the U.S. to Japan in the 1990s and sees a repeat of all mistakes the Japanese made. Especially not cleaning up the banks will turn out to be disastrous.
In short: The Obama administration is trying its best to turn a sharp recession that could recover into a prolonged period of no or lower growth that will for many feel like a depression.
There is one guy who is supposed to advice Obama that still has international credibility. That would be Paul Volkers. But Obama's National Economic Council Director Lawrence Summers is shutting him out.
With trillions of new treasuries on offer this year but decreasing trust in the ability of an Obama administration do the right things now to later increase taxes to pay back all the new debt, interest rates might get out of hand pretty fast.
Yes, good post, small coke.
b, as the US is not your country it is excusable to misread Paul Volker(s). It was he who presided over the kicking off of the macro-cycle we have been on the past three and a half decades, namely, that of destroying the middle class. Prior to the latest bankster shenenigans, Volker transfered more money upwards than anyone else.
Looking to Volker to “solve” the financial crisis is like looking to Negroponte to “solve” internal conflicts in invaded countries.
wsws on token executive pay limits:
According to the Treasury Department plan, the new guidelines would “distinguish between banks participating in any new generally available capital access program and banks needing ‘exceptional assistance.'” The restrictions would not apply to the firms that have already accepted an estimated $250 billion disbursed from the government through the Capital Purchases Program, by far the largest component of TARP. These firms are subject only to “proposed guidance” on executive pay from the Treasury.
It is conceivable that the new bailout that Geithner will propose next week—whose cost estimates range between $1 trillion and $4 trillion—will fall under the rubric of a “generally available capital access program.” If so, executive pay rules pertaining to “exceptional assistance” would not apply, and the institutions would be able to waive the $500,000 limit with public disclosure and a “non-binding” shareholder vote.
Moreover, even the size of the so-called pay “limit”—$500,000—is startling. That a salary of a half million dollars—more than 10 times the median annual pay of an American worker—could be presented as punitive action testifies to the avarice of the ruling elite.
But in fact the rules allow executives to make far more. The Treasury Department guidelines include an exception that permits executives to be paid in stock options beyond the $500,000 limit, so long as they keep the stock until their firms have paid the government back for loans taken.
Once again, the full significance of this stricture will become clear only when Geithner presents the details of the new bailout. If, as is widely anticipated, the plan will feature the creation of a “bad bank” where financial institutions could sell their toxic assets at an inflated price, it would have the immediate effect of rapidly increasing the banks’ stock prices—and with them the pay packages of the CEOs.
As Max Holmes, a finance professor at New York University and chief investment officer of an asset management firm, told the New York Times, “[T]he stock prices of the good banks are likely to soar, as they will be the four best capitalized and cleanest banks in the world.”
Hmmm…. The four best capitalized and cleanest banks in the world….
And no meaningful limits to recompense “beyond the dreams of avarice.”
slothrop informs us that this is merely the impersonal workings of the capitalist system, and, as such, could never be construed as chimeric imperialism or nationalism.
The four best capitalized and cleanest banks in the world….while the middle class have their cojones cut off, and the poor can’t even find a structure that will allow them the freedom to jump from.
Again, it is all how you define “fix the mess.”
You see, unfortunately there is no way to bring the world to its knees without bringing the US public to their knees. But once that is done, the “Four Banksters of the Apocalypse” should be able to run the table, shoot the moon, clear the deck, herd the wayward sheep, even pick their own metaphor. Increase the money supply by loaning money to the world. Or is that control the world, and siphon off its productive profits, by having the entire world indebted to them.
You see, for some the glass is half empty, while for others it is half full.
Of course, the other alternative, is that Obama and his advisors who just invested close to a billion bucks in him (back when that was actually worth something) — and boy, talk about ROI, did they ever get repaid fast! Turned a mighty nice profit, too — are stupid. Yes, imagine that… Obama’s economic advisors are stupid and what they are doing won’t work.
I cannot predict whether this scheme — admitedly a drastic one, risking high levels of social unrest — will get the capitalist acumulation process/empire/US/whatever back on track. But I don’t think they are just stupid and so doing the wrong thing to “fix the economy.”
Posted by: Malooga | Feb 6 2009 4:29 utc | 24
Sustainable living involves changing the means of production, not the means of consumption.
This is complicated and I don’t have anymore time today to flesh this out beyond the bare minimum:
The means of production in the world are owned by the super-wealthy top 1%, or less. (anna missed has a better grasp on the exact figures.) The current world system is based upon endless growth, constant competition between those elites who control the various centers of production in a race towards the bottom, the imposition of slave-like conditions upon the human component, the externalizing of environmental damage, the use of military force/state violence to enforce compliance and expand the system of production, propaganda to disguise the structural violence, and the medicalization of alienation to cope with it. Finance provides invisible constraint/structure/direction to this system. Hence, the Financial, Corporate, Military, Government, Media, Medical system we live under.
The means of consumption are entirely dependent upon the means of production. Virtually everything consumed was originally produced under the system described above.
Now, the system allows a certain amount of “leeway” for the wealthy and upper middle class (top 20%) of society — both so that they can have some luxuries (“The best of things,” as Wallace Shawn says), and more importantly, to provide a veneer of freedom of choice, so that the 20% management class can believe official propaganda. Hence, we see Organic Foods and local farms, alternative medicine, small artists, small business people, etc. In actuality all of these are dependent for survival on the trickle down of wealth from the producer wealth accumulation system described above. They comprise a small, but necessary humanizing component for that top 20%. The Frankfort School describes this well.
Seen this way, which IS how the world really works, and not some romantic notion we may have of how we wish it worked, do we really think that we can change/save the world by the top 20% members of the top 20% of nations recycling their plastic bags and installing heat pumps?
I’m not saying change is impossible, or that so-called “Green” efforts are not admirable (provided they do not penalize the poor, which they usually do), but that one must understand the world as it really exists to institute real change.
We must change what is important, the very structure of things, and not institute a thin veneer of stylistic change: Long hair, drugs and rock and roll in the sixties, and battery operated cars, non-toxic paint, and social networking now. Trendy social charities like micro-lending, Kiva, Heifer Int’l, etc. are designed to prevent meaningful structural change; the hundred thousand or so they touch a year pales before the millions killed every year by the relentless expansion of the means of production.
And a final word — about science. We place innate faith that it is science that will — in some unknown way — ultimately resolve the contradictions described above. We were upset by Bush’s marginalization of scientists. But we must watch carefully at the constraints put upon the problems which science is allowed to address under Obama.
The larger Leviathan which is consuming the future of life itself must, and will, remain unaddressed.
And so it goes…
Posted by: Malooga | Feb 6 2009 16:00 utc | 41
Oh Gawd….
Another person who thinks that European shits don’t smell.
I’m with slothrop in this battle for sure.
And I know that I’ll make a lot of enemies for this post. But here we go.
I lived in Europe as a child; and I was married to a “European” — a Dane if you want to know — so I know a little about Europe.
Yes, it’s great that things are made better in Europe. Many systems and standards are different between Europe and the US, and they are generally — not always — better in Europe. But to say that there is no planned obsolescence is strange. After all, one can purchase European appliances in the US, and they do not last as long as things once did. I had an American washing machine for thirty years, and it only needed one repair — a belt replacement — in all that time. Newer European appliances will not last that long or be that simple to fix. So swear the many repairmen I speak with. Vacuums, too. I still own a forty year old Electrolux — works great, one simple bearing replacement, and I use it in the shop too! Cotton shirts purchased in Denmark used to last decades. Not anymore; same shit as America.
I’m all for renewable energy and recycling and better built houses. But then, why do European countries have larger ecological footprints than the planet can sustain?
But, the deeper point is that Blockbuster has little to do with the means of production as I am speaking of it.
Covert military and financial destabilizations benefit Europe just as much as the US. The European-run IMF has just as bloody a history as the US-run World Bank. Does not the wealth from third world structural adjustment programs flow into European coffers? How can you separate this method of wealth accumulation from European civilization? Are not the wealth of the Icelandic people and the Turkish people, both suffering from IMF-led structural adjustment and enforced cutbacks to social programs an expression of European values? Check out this list of European supported dictators who indebted their nations to European capital. It reads like a who’s who list of world misery: Haiti, Argentina, Chile, Indonesia, Congo, Somalia, Sudan. Who is profiting from this system? What corporation owned the water rights in Bolivia that so impovershed the population to cause the revolt? And from what country did it hail? Is that not an expression of European values and largesse. Are not the young women of Eastern Europe who resort to prostitution and pornography to make ends meet an expression of European values? How about the bombing of Kosovo? How about the young women who toil in Chinese factories producing cheap goods under slave-labor conditions for goods which are imported into Europe — are they an expression of European values?
I made a good friend this past summer who was a high level executive consulting with ministers of government for large-scale European engineered infrastructure projects — the kind of boondoggles which IMF loans are expected to be spent on to improve the infrastructure for export related industry against the will of the populace who will be displaced and immiserated. Is this not an expression of European values?
European cows are subsidized to the tune of $2/day, more than 50% of the world lives on. Is this not an expression of European values?
Don’t get me wrong, European people are very nice. I am not attacking them personally. Their governments are as anti-democratic as the US’s.
Is Europe not, in many ways, far more civilized than the US? Absolutely. And it is a far better place to live. I only live in the US because, as a native, I feel compelled to offer the fruits of my resistance here — not for pleasure.
But for the wretched of the Earth, there is little difference between the policies of Europe and the US. Soft power/Hard power; it is all coercion.
As long as .1% of the world owns controlling interests in the means of production — the finance, mines, factories, infrastructure, water, seeds, land — forcing billions into poverty and servitude, there will never be a sustainable planet. Without human justice there can be no environmental justice.
By the way, the “ex” called me up several years ago, after about 16 years, in order to berate me personally — who never served in the military –for the US invasion of Iraq. When I calmly informed her that “lille Danmark” had the same percentage of troops, per capita, in Iraq as the US, she hung up on me.
Because we all know that Europe is better. It’s obvious. Despite the racism against the Turks and the Africans, despite the cartoons of Muhammad, despite Churchill gasing Arabs from airplanes, despite all of the internecine wars to end all wars, we all know that Americans are racist savages and Europeans are open and suave and cultured. I mean, it is just obvious.
And so it goes.
Posted by: Malooga | Feb 6 2009 18:59 utc | 49
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