Thursday, October 27, 2011

The Grass is Greener Today but it Hides the Snakes

The stock market was up a solid 3% today on the announcement of a Euro bank deal and better than expected growth in US GDP. Banks holding Greek bonds are going to take a voluntary haircut of 50% and the voluntary aspect is important. That it should keep the avalanche from starting on Mount Derivatives of Doom, estimated from $600 trillion to $1.4 quadrillion in potential payouts, that is if things start to unravel.

Right wingers always say “there are counter parties to derivatives and it will all balance out”. If that were really true, there would be no point of having them to begin with. It really is a wild combination of high stakes poker and Russian roulette. Although it’s never the rich bankers whose brains get splattered on the wall, they just keep the pot.

The growth of US GDP was better than expected and if maintained next quarter this would be great news, with the caveat that we still don’t have policies for manufacturing, trade tariffs, energy production, infrastructure, progressive taxes or any of the other things we need to bring back the middle class.

The Consumer Price Index showed only 0.3% inflation in September which was down from August. If you eliminate food and fuel it shows core inflation was only 0.1% and this is not good. It means that wages are still flat at best and probably falling for many Americans. This again brings us to the edge of deflation and the collapse of economic activity. This is echoed in the continuing high number of unemployment claims last week.

The Federal Reserve is again hinting at a QE3 but they are getting to the point of diminishing returns. There isn’t a lack of money in circulation, banks are wallowing in it, even charging large depositors for keeping it rather than paying interest. The rich are willing to buy short term Treasuries that pay no interest, even ten year bonds are at just 2%. This doesn’t count trillions held offshore to avoid paying US income taxes.

The government could easily give the economy the boost it needs by direct loans to small business, enforcement of the Buy America Act for Federal Government purchases and by increasing the income of the bottom half of its citizens. An increase in the minimum wage, as well as in transfer payments (as the Right calls them, short for Wealth Tranfer), such as Social Security, welfare and veterans benefits. Raising the wages of all lower paid government workers would also provide an immediate increase in demand.

This would need to be followed immediately by reversing everything Republicans have pushed through since 1947 when they created “Right to Work for Less" states on up through the Reagan tax cuts and Clinton trade and Wall Street “reforms”. It is also essential to break up all the big banks and corporations. Eliminate monopolies like Walmart, McDonalds, big media and on and on.

It’s going to take more than a few thousand people occupying a park to change these things, but if we don’t make these changes, any gains, if there are any, will be reversed and worse. Get used to being a feudal serf or fight back.


Tony said...

This is a great post insofar as it offers concrete objectives and goals that are necessary to rehabilitate this economy and the middle class. It is also a damning indictment of Clinton and Obama policies--the purported "liberal" presidents. While I believe Clinton was a good president and that Obama is doing ok (all things considered), they are so far off the mark when it comes to truly progressive ideas and policy. Clinton enabled the free traders to pillage our manufacturing base, and Obama continues to push tax cuts (he is one of the biggest tax cutters in history) when the jury came back against tax cuts several years ago--they don't work.

Obama's jobs plan is a weak but good start, but it barely scratches the surface of what we need to revitalize the middle class. You clearly detail what is necessary above--I don't see the occupation of Wall Street or a second Obama term advancing any of those goals, sadly.

We needed FDR in 2008, and we need an FDR in 2012, and while we did not get Hoover, one could make a good argument that we got another Truman or Clinton. It's ok, but not what we need.

This of course can change.